[Logo appears here]
ANNUAL REPORT TO SHAREHOLDERS
December 31, 1997
[Graphic appears here]
<PAGE>
NORTHSTAR FUNDS
ANNUAL REPORT
DECEMBER 31, 1997
MARK L. LIPSON
Dear Shareholders:
We are pleased to provide you with the annual report of the Northstar Funds for
the year ended December 31, 1997. We are gratified with your decision to entrust
your assets to the Northstar Funds 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 each Fund by their respective portfolio manager. We hope you will
find this informative.
During the past year the U.S. financial markets remained quite strong despite
several temporary corrections. The favorable investment returns for both stocks
and bonds were supported by continued growth in the economy, strong gains in
corporate profits, and a reduction in the inflation rate.
As the U.S. economy advanced at a 3.8% rate in real GDP growth, it generated
more jobs, reducing the unemployment rate to an historically low level of 4.7%.
This raised concerns that rising wage pressures would begin to impact and
reverse the favorable trends in both corporate profitability and the inflation
rate. However, despite growing demand, the productive capacity of the
increasingly global economy increased even more due to capital investments and
improved efficiency. There are few, if any, shortages today impacting inflation
and rising employment costs are being more than offset by productivity gains
allowing corporate profit margins to remain at historically high levels.
During the year, intermediate and long term treasury bonds appreciated as the
yields declined about 70 basis points (0.7% points). The total return for 10
year U.S. Treasury bonds was about 11.1%. Stock market returns were stronger,
with the Dow Industrials up 24.9%, benefiting from both higher earnings and
higher valuations due to lower interest rates. High yield bonds also had a very
good year benefiting from both a narrowing in interest rate differentials
compared to treasury bonds and from increases in the underlying equity values.
Going into 1998 the investment environment is more volatile and difficult to
predict, but continues to appear favorable. While the current financial crisis
in Asia has introduced a new major uncertainty which we are monitoring closely,
its dampening effect on global growth and inflation may actually prove to be
positive for U.S. bond and stock prices. Growth in the U.S. economy and
corporate profits should continue in 1998, but at a slower rate. With inflation
remaining low, some further declines in interest rates may be possible as the
expected domestic slowdown is confirmed.
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 the
philosophy and look forward to serving your investment needs in the future.
Sincerely,
/s/ Mark L. Lipson
Mark L. Lipson
President
Jan. 30, 1998
<PAGE>
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
(Bullet) Performance figures are historical and reflect reinvestment of all
distributions and changes in net asset value. Unless otherwise
indicated, the Fund's performance is computed without a sales
charge. When sales charges are included, Fund performance reflects
the maximum sales charge for each class of shares.
(Bullet) Class T shares of each Fund are no longer available for purchase by
new investors and may be purchased only under limited circumstances
by existing Class T shareholders. Since June 5, 1995, each Fund
began offering three new classes of shares (Class A, B, and C),
each representing a unique pricing structure for purchasing shares
of the Funds. Performance information relating to each Class of
share of each Fund is contained in the performance graph for each
Fund.
(Bullet) Each Fund's investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less
than their original cost.
(Bullet) Each Fund's portfolio composition may change and there is no
assurance the Fund will continue to hold any particular securities.
(Bullet) Past performance is not indicative of future results.
ABOUT INDICES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
(Bullet) Standard & Poor's Corporation (S&P) is a credit-rating agency. The
unmanaged Standard & Poor's Composite Index of 500 Stocks is widely
regarded by investors as representative of the stock market in
general.
(Bullet) The CPI is an index of the prices paid by consumers for consumer
goods and services. The index is prepared by the Bureau of Labor
Statistics. The index is widely regarded by investors as the key
measure of inflation in the U.S. economy.
(Bullet) The unmanaged Russell 2000 Index is generally representative of the
performance of the stocks of small-capitalization companies.
(Bullet) Lehman Brothers, Inc. is the principal subsidiary of publicly-held
Lehman Brothers Holdings, Inc. It is engaged primarily in raising
and managing funds in capital markets worldwide. Lehman Brothers
indices measure the performance of fixed income securities over
various time periods and in various groupings. The indices are
unmanaged, but exclude small, illiquid and /or esoteric bonds from
the indices. We believe that about two-thirds of fixed income index
users rely on one or more of Lehman Brothers Fixed Income Indices.
(Bullet) An investment cannot be made in any indices listed. Unless
otherwise indicated, index results include reinvested dividends and
interest and do not reflect sales charges.
<PAGE>
NORTHSTAR GROWTH FUND
GEOFFREY WADSWORTH
THE MARKETS
(Bullet) The U.S. financial markets experienced another year of strong
gains. The Dow Industrials had a total return of 24.9%. the S&P 500
posted a 33.4% gain as relatively few large cap growth stocks such
as General Electric dominated the index. Smaller cap stocks in the
Russell 2000 were up 22.2%.
(Bullet) These favorable returns were driven by a combination of
surprisingly strong economic growth of 3.8% and even more
surprisingly, a reduced level of inflation, down towards 2%.
Despite growing global competition, strong productivity gains
allowed corporations to maintain high profit margins and produce
earnings increases of better than 10% for the S&P 500. After mid-
October the growing crisis in Asia had a dramatic impact causing a
flight to quality within both the bond and stock markets as the
U.S. dollar appreciated, and expectations for inflation and
economic growth fell. Investors anticipating problems with demand,
prices, defaults, and profit margins sold off many cyclical,
technology, commodity, and global financial stocks and bid up many
domestic or consistent growth stocks.
THE FUND
(Bullet) The Growth Fund A, B, C, T, and I shares had a total return of
23.59%, 22.84%, 22.73%, 22.94% and 24.29%, respectively, for the
year. This compares to the average growth fund in Lipper which was
up 25.3%. The average mid-cap growth fund was up less at 19.6%. The
Fund's relative performance had been much stonger up until
November. However, it was well positioned for the economic and
financial market environment preceding the Asian crisis, and not
the dramatic change in stock market leadership which quickly
resulted.
(Bullet) Large holdings which did well were domestic or consistent growth
stocks including Home Depot, Procter & Gamble, Capital One
Financial, Cendant (formerly CUC Intl), and Bristol-Myers. This was
offset by sharp corrections in November and December of globally
oriented financial, energy, and technology stocks such as Compaq,
Global Marine, Amp and Citibank.
(Bullet) Adjustments were made which increased holdings in domestic
financial companies (Nationwide Financial, Nationsbank, Conseco)
while some holdings in retailing (Federated, Pep Boys) and
semiconductors (Texas Instruments) were reduced. The risks
associated with the still unfolding situation in Asia have
certainly been increasing, however, business trends to date and
projected earnings remain strong for a number of holdings that are
sharply off their 1997 highs. These stocks are being retained as
the stock prices appear to more than discount the risks of reduced
estimates.
CURRENT STRATEGY
(Bullet) Asian problems are expected to reduce U.S. GDP growth closer to 2%
and hold inflation under 2%. This should result in lower but
positive investment returns in the U.S. Global developments will be
monitored closely and markets are likely to remain volatile, at
least until the crisis appears contained and a workout strategy is
in place.
(Bullet) The Fund remains invested in large and mid-cap good quality
industry or market niche leaders. New purchases have emphasized
domestic companies with strong earnings outlooks. Important sectors
which remain are technology, consumer services, financial, energy,
and health.
(Bullet) More facts will become available concerning the new global
environment as companies report recent operations. Research efforts
will focus on companies with strong fundamentals in beaten down
sectors where exaggerated conceptual fears may have made the stocks
true bargains.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $206,504,403
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Compaq Computer Corp. 4.6%
2 Cendant Corp. 4.2%
3 Global Marine, Inc. 3.4%
4 Merck & Co., Inc. 3.4%
5 Bristol-Myers Squibb Co. 3.1%
6 Capital One Financial Corp. 3.1%
7 Citicorp 3.1%
8 Schlumberger, Ltd. 3.1%
9 Home Depot, Inc. 3.0%
10 WorldCom, Inc. 3.0%
-------
34.0%
=======
TOP 5 INDUSTRIES
(by percentage of net assets)
Oil & Gas 6.4%
Computer 5.4%
Software/
Service
Consumer 5.4%
Products
Computer 4.6%
Consumer 4.2%
Service
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- ----------------------------------------
Inception 5 years 1 year
- ----------------------------------------
Class A 19.47% N/A 17.74 %
- ----------------------------------------
Class B 20.17% N/A 17.84 %
- ----------------------------------------
Class C 20.96% N/A 21.73 %
- ----------------------------------------
Class T 12.75% 13.32% 18.94 %
- ----------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- ----------------------------------------
Inception 5 years 1 year
- ----------------------------------------
Class A 66.17% N/A 23.59 %
- ----------------------------------------
Class B 63.66% N/A 22.84 %
- ----------------------------------------
Class C 63.38% N/A 22.73 %
- ----------------------------------------
Class T 317.76% 70.88% 22.94 %
- ----------------------------------------
Class I 24.29% N/A N/A
- ----------------------------------------
3
<PAGE>
NORTHSTAR GROWTH FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
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, 1997, with all distributions reinvested in shares. The average
annualized total return for Class A shares of 19.47% for the period since the
classes' inception on June 5, 1995 reflects payment of the maximum sales charge
of 4.75%. Average annualized total returns of 20.17% and 20.96% since inception
on June 5, 1995 for Class B and Class C shares, respectively, total returns
since inception on February 3, 1986 for Class T shares of 12.75%, and total
returns since inception on March 31, 1997 of 24.29% for Class I shares, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five 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.
[Graphs appear below with the following plot points:]
NORTHSTAR GROWTH FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 17.74%
SINCE INCEPTION 19.47%
"Class A" "S&P 500" "CPI"
(6/95 through 12/97)
9524.00 10000.00 10000.00
9864.00 10280.00 10010.00
10331.00 10606.90 10030.00
10320.00 10603.70 10040.00
10554.00 11094.70 10050.10
10310.00 11039.20 10080.20
10635.00 11492.90 10090.30
10623.00 11760.70 10110.50
10691.00 12144.10 10150.90
10739.00 12228.40 10171.20
10930.00 12325.00 10211.90
11327.00 12490.70 10252.80
11696.00 12776.10 10283.50
11676.00 12805.50 10293.80
10985.00 12219.00 10324.70
11361.00 12448.80 10335.00
12134.00 13123.50 10366.00
12168.00 13466.10 10397.10
13044.00 14454.30 10428.30
12805.00 14143.60 10460.00
13669.00 15010.60 10470.10
13376.00 15099.10 10501.50
12790.00 14455.90 10512.00
13183.00 15300.10 10522.50
14084.00 16196.70 10533.00
14612.00 16901.30 10543.60
16113.00 18221.30 10564.70
15634.00 17173.50 10585.80
16763.00 18087.20 10607.00
15934.00 17463.20 10628.20
15799.00 18242.00 10638.80
15825.00 18528.40 10649.40
NORTHSTAR GROWTH FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 17.84%
SINCE INCEPTION 20.17%
Class B S&P 500 CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
10350.00 10280.00 10010.00
10840.00 10606.90 10030.00
10823.00 10603.70 10040.00
11056.00 11094.70 10050.10
10799.00 11039.20 10080.20
11136.00 11492.90 10090.30
11127.00 11760.70 10110.50
11191.00 12144.10 10150.90
11241.00 12228.40 10171.20
11435.00 12325.00 10211.90
11844.00 12490.70 10252.80
12225.00 12776.10 10283.50
12189.00 12805.50 10293.80
11464.00 12219.00 10324.70
11852.00 12448.80 10335.00
12648.00 13123.50 10366.00
12634.00 13466.10 10397.10
13582.00 14454.30 10428.30
13323.00 14143.60 10460.00
14216.00 15010.60 10470.10
13901.00 15099.10 10501.50
13278.00 14455.90 10512.00
13683.00 15300.10 10522.50
14606.00 16196.70 10533.00
15154.00 16901.30 10543.60
16699.00 18221.30 10564.70
16204.00 17173.50 10585.80
17367.00 18087.20 10607.00
16504.00 17463.20 10628.20
16354.00 18242.00 10638.80
16367.00 18528.40 10649.40
NORTHSTAR GROWTH FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 21.73%
SINCE INCEPTION 20.96%
"Class C" "S&P 500" "CPI"
(6/95 through 12/97)
10000.00 10000.00 10000.00
10353.00 10280.00 10010.00
10837.00 10606.90 10030.00
10820.00 10603.70 10040.00
10987.00 11094.70 10050.10
10799.00 11039.20 10080.20
11136.00 11492.90 10090.30
11117.00 11760.70 10110.50
11182.00 12144.10 10150.90
11232.00 12228.40 10171.20
11426.00 12325.00 10211.90
11827.00 12490.70 10252.80
12215.00 12776.10 10283.50
12179.00 12805.50 10293.80
11454.00 12219.00 10324.70
11834.00 12448.80 10335.00
12638.00 13123.50 10366.00
12616.00 13466.10 10397.10
13570.00 14454.30 10428.30
13312.00 14143.60 10460.00
14196.00 15010.60 10470.10
13882.00 15099.10 10501.50
13260.00 14455.90 10512.00
13672.00 15300.10 10522.50
14586.00 16196.70 10533.00
15133.00 16901.30 10543.60
16677.00 18221.30 10564.70
16175.00 17173.50 10585.80
17337.00 18087.20 10607.00
16468.00 17463.20 10628.20
16318.00 18242.00 10638.80
16338.00 18528.40 10649.40
NORTHSTAR GROWTH FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 18.94%
5-YEAR 13.32%
SINCE INCEPTION 12.75%
Class T S&P 500 CPI
(1/86 through 12/97)
11110.00 11922.00 9950.00
10895.00 11713.00 10090.00
13345.00 14918.00 10355.00
10904.00 12320.00 10564.00
12052.00 13883.00 10777.00
12725.00 14351.00 11005.00
14343.00 16721.00 11294.00
15813.00 18885.00 11499.00
16270.00 19462.00 11825.00
14984.00 18297.00 12220.00
17339.00 20899.00 12380.00
20692.00 23849.00 12592.00
19952.00 23693.00 12769.00
22357.00 25664.00 12962.00
22885.00 26907.00 13144.00
24671.00 28238.00 13316.00
22524.00 27291.00 13476.00
22782.00 28622.00 13652.00
26385.00 34386.00 13872.00
28343.00 39338.00 14012.00
31061.00 42833.00 14266.00
33981.00 47309.00 14495.00
38672.00 56533.00 14612.00
41775.00 61976.00 14758.00
NORTHSTAR GROWTH FUND -- CLASS I
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION 24.29%
Class I S&P 500 CPI
10000.00 10000.00 10000.00
3/31/97 10313.00 10584.00 10010.00
11017.40 11204.20 10020.00
6/30/97 11441.50 11691.60 10030.00
12620.00 12604.70 10050.10
8/31/97 12256.60 11880.00 10070.20
13145.20 12512.00 10090.30
10/31/97 12502.40 12080.30 10110.50
12402.40 12619.10 10120.60
12/31/97 12428.40 12817.20 10130.70
4
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 99.69%
AEROSPACE & DEFENSE -- 1.66%
Boeing Co. 70,000 $ 3,425,625
------------
ALUMINUM -- 2.00%
Alumax, Inc. @ 35,000 1,190,000
Aluminum Co. 35,000 2,463,125
Century Aluminum Co. 35,000 472,500
------------
4,125,625
------------
AUTO PARTS & EQUIPMENT -- 2.45%
Magna International, Inc. @@ 80,500 5,056,406
------------
BANKING -- 3.94%
Citicorp 49,800 6,296,588
City National Corp. 50,000 1,846,875
------------
8,143,463
------------
BIOTECHNOLOGY -- 1.21%
Genzyme Corp. @ 90,000 2,497,500
------------
CAPITAL GOODS -- 2.16%
Corning, Inc. 120,000 4,455,000
------------
COMPUTERS -- 4.61%
Compaq Computer Corp. 168,500 9,509,719
------------
COMPUTER NETWORKING -- 2.83%
Cisco Systems, Inc. @ 105,000 5,853,750
------------
COMPUTER SOFTWARE/SERVICES -- 5.40%
Ceridian Corp. @ 114,200 5,231,787
Microsoft Corp. @ 10,000 1,292,500
Parametric Technology Corp. 60,000 2,842,500
Synopsys, Inc. @ 50,000 1,787,500
------------
11,154,287
------------
CONSUMER PRODUCTS -- 5.43%
Kimberly-Clark Corp. 89,632 4,419,978
Philip Morris Cos., Inc. 97,000 4,395,312
Procter & Gamble Co. 30,000 2,394,375
------------
11,209,665
------------
CONSUMER SERVICES -- 4.16%
Cendant Corp. @ 249,961 8,592,416
------------
ELECTRICAL EQUIPMENT -- 2.57%
AMP, Inc. 126,400 5,308,800
------------
FINANCE & BANKING -- 3.81%
Mellon Bank Corp. 62,600 3,795,125
NationsBank Corp. 67,000 4,074,438
------------
7,869,563
------------
FINANCIAL SERVICES -- 5.90%
Associates First Capital Corp. 35,000 2,489,375
Capital One Financial Corp. 117,000 6,339,937
Fannie Mae 58,800 3,355,275
------------
12,184,587
------------
</TABLE>
5
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE -- 1.20%
Healthsouth Corp. @ 89,200 $ 2,475,300
------------
INSURANCE -- 2.84%
Conseco, Inc. 98,000 4,452,875
Nationwide Financial Services, Inc. 39,200 1,416,100
------------
5,868,975
------------
LODGING -- 2.79%
La Quinta Inns, Inc. 190,000 3,669,375
Promus Hotel Corp. @ 50,000 2,100,000
------------
5,769,375
------------
MACHINERY -- 2.73%
Deere & Co. 96,600 5,632,988
------------
OFFICE EQUIPMENT/SUPPLIES -- 2.13%
Xerox Corp. 59,700 4,406,606
------------
OIL & GAS -- 3.75%
El Paso Natural Gas Co. 64,300 4,275,950
Enron Oil & Gas Co. 68,900 1,459,819
Sonat, Inc. 44,100 2,017,575
------------
7,753,344
------------
OIL & GAS DRILLING -- 6.93%
Baker Hughes, Inc. 113,500 4,951,437
Global Marine, Inc. @ 284,000 6,958,000
Parker Drilling Co. @ 197,300 2,404,594
------------
14,314,031
------------
PETROLEUM SERVICES -- 3.95%
Schlumberger, Ltd. 78,200 6,295,100
Seitel, Inc. @ 80,000 1,370,000
Stolt Comex Seaway S.A. @ 10,000 500,000
------------
8,165,100
------------
PHARMACEUTICAL -- 6.47%
Bristol-Myers Squibb Co. 67,000 6,339,875
Merck & Co., Inc. 66,000 7,012,500
------------
13,352,375
------------
PRINTING & PUBLISHING -- 1.73%
Meredith Corp. 100,000 3,568,750
------------
</TABLE>
6
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
RETAILING -- 5.82%
AutoZone, Inc. @ 138,000 $ 4,002,000
Home Depot, Inc. 105,000 6,181,875
Office Max, Inc. @ 128,600 1,832,550
-------------
12,016,425
-------------
SEMICONDUCTOR -- 4.17%
Intel Corp. 31,600 2,219,900
Millipore Corp. 69,100 2,345,081
National Semiconductor Corp. @ 71,000 1,841,563
Texas Instruments, Inc. 49,000 2,205,000
-------------
8,611,544
-------------
SPECIALTY STORES -- 2.11%
General Nutrition Cos., Inc. @ 128,000 4,352,000
-------------
TELECOMMUNICATIONS -- 4.23%
Paging Network, Inc. @ 250,000 2,687,500
WorldCom, Inc. @ 200,000 6,050,000
-------------
8,737,500
-------------
TRANSPORTATION -- 0.71%
Swift Transportation Co., Inc. @ 45,000 1,456,875
-------------
TOTAL COMMON STOCKS
(cost $156,404,171) 205,867,594
-------------
TOTAL INVESTMENT SECURITIES -- 99.69%
(cost $156,404,171) 205,867,594
REPURCHASE AGREEMENT -- 0.45%
Agreement with State Street Bank and Trust bearing
interest at 5.75% dated 12/31/97, to be repurchased
1/02/98 in the amount of $936,299 and collateralized by
$935,000 U.S. Treasury Bonds, 5.875% due 1/31/99, value
$959,446
(cost $936,000) $ 936,000 936,000
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.14%) (299,191)
-------------
NET ASSETS -- 100.00% $ 206,504,403
-------------
-------------
</TABLE>
@ Non-income producing security.
@@ Foreign security.
See accompanying notes to financial statements.
7
<PAGE>
NORTHSTAR SPECIAL FUND
LOUIS NAVELLIER
THE MARKETS
(Bullet) In 1997, the Russell 2000 was up 22.2%, the S&P 500 rose 33.4%, and
the NASDAQ Composite was up 28.08%.
(Bullet) It was a strong year for large capitalization stocks as evidenced
by a return of 33.4% for the S&P 500 After flirting with small
capitalization stocks in the second and third quarters, the market
once again became a large capitalization dominated and value
oriented market, continuing a trend that has developed over the
last 24 months. A few sobering facts from the fourth quarter
include, a flat Dow Jones, and a 2.5% gain for the S&P 500 compared
to a -6.8% return for the NASDAQ and a -3.3% return for the Russell
2000. The growth vs. value comparison is even more telling as the
Russell 2000 Growth Index lost -8.2% for the fourth quarter while
the Russell 2000 Value Index gained 1.7%. Technology stocks
suffered through an extremely volatile year, with strong second and
third quarters sandwiched between dismal first and fourth quarters.
In December, a few technology stocks disappointed Wall Street with
poor quarterly earnings, so the analyst community immediately
blamed the Southeast Asian crisis as the primary reason that they
had grossly overestimated the latest quarterly earnings. As a
result, the analyst community started to slash their 1998 earnings
estimates on many leading technology stocks. Then another bomb fell
in December when 3M announced that its earnings would be hindered
by the Southeast Asian crisis. All of a sudden, the Southeast Asian
crisis was encompassing more than just technology stocks, so the
entire U.S. stock market sold off because the analyst community
rushed to aggressively cut earnings estimates on many leading
companies. This year the strongest performing stocks were found in
the financial sectors as they continued to benefit from an
excellent interest rate environment.
THE FUND
(Bullet) In 1997, the Northstar Special Fund had total returns of 14.92% for
Class A, 14.10% for Class B, 14.06% for Class C and 14.29% for
Class T, compared to the Lipper Small Company Fund Index which was
up 15.05%.
(Bullet) The top performing stocks in the Fund for this period included:
Mail Well Inc., Southdown Inc., First America Bank Co., Keane Inc.
and Family Dollar Stores. Amongst the underperformers were: Paxar
Corp., Manitowoc Co., Cellstar Corp., Unitrode Corp. and Welsford
Residential.
CURRENT STRATEGY
(Bullet) What the stock market needs is for leading stocks, such as IBM or
Microsoft, to release great fourth quarter earnings to inspire a
little confidence in the overall stock market. Unfortunately, the
year-to-year earnings comparisons make it hard for many stocks,
such as Intel, to report fourth quarter earnings that are higher
than they were one year earlier. Intel's latest quarterly earnings
are estimated to fall compared to the same quarter one year
earlier. Fortunately, most of our stocks have been largely removed
from the recent earnings estimate cuts by the analyst community.
One factor that will eventually cause the stock market to rally is
that the Federal Reserve Board will likely cut key interest rates
at its next Federal Open Market Committee (FOMC) meeting.
Economists now fear that deflation may temporarily appear on the
consumer level, which is one of the main reasons that the Federal
Reserve Board will likely cut key short-term interest rates. The
strong U.S. dollar is now one of the primary reasons that deflation
is rampant. Our models continue to focus on earnings surprise
earnings momentum screens. The Special Fund currently has a 13%
large cap allocation, 41% mid cap allocation and 43% small cap
allocation.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $331,935,606
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Mail-Well, Inc. 2.5%
2 Southdown, Inc. 2.5%
3 Aliant Communications, Inc. 2.4%
4 Keane, Inc. 2.4%
5 Family Dollar Stores, Inc. 2.3%
6 First of America Bank Corp. 2.3%
7 Costco Cos., Inc. 2.2%
8 Suiza Foods Corp. 2.2%
9 CMAC Investment Corp. 2.1%
10 Commerce Bancshares, Inc. 2.1%
------
23.0%
======
TOP 5 INDUSTRIES
(by percentage of net assets)
Banks 15.4 %
Food & Beverage 7.9 %
Retail 6.7 %
Insurance 5.7 %
Telecommunications 4.2 %
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- -----------------------------------------
Inception 5 years 1 year
- -----------------------------------------
Class A 15.52% N/A 9.48%
- -----------------------------------------
Class B 16.02% N/A 9.10%
- -----------------------------------------
Class C 16.92% N/A 13.06%
- -----------------------------------------
Class T 10.47% 11.31% 10.29%
- -----------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- -----------------------------------------
Inception 5 years 1 year
- -----------------------------------------
Class A 52.37% N/A 14.92%
- -----------------------------------------
Class B 49.71% N/A 14.10%
- -----------------------------------------
Class C 49.66% N/A 14.06%
- -----------------------------------------
Class T 227.52% 70.88% 14.29%
- -----------------------------------------
8
<PAGE>
NORTHSTAR SPECIAL FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
SPECIAL 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, 1997, with all distributions reinvested in shares. The average
annualized total return for Class A shares of 15.52% for the period since the
classes' inception on June 5, 1995 reflects payment of the maximum sales charge
of 4.75%. Average annualized total returns of 16.02% and 16.92% since inception
on June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on February 3, 1986 for Class T shares of 10.47%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five 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.
[Graphs appear below with the following plot points:]
NORTHSTAR SPECIAL FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 9.48%
SINCE INCEPTION 15.52%
Lehman
Class A Int Gov't CPI
(6/95 through 12/97)
9523.00 10000.00 10000.00
10229.00 10519.00 10010.00
10706.00 11125.00 10030.00
10862.00 11355.00 10040.00
10886.00 11558.00 10050.10
10428.00 11041.00 10080.20
10716.00 11505.00 10090.30
10685.00 11808.00 10110.50
10527.00 11881.00 10150.90
10894.00 12163.00 10171.20
11293.00 12414.00 10211.90
12467.00 13074.00 10252.80
13331.00 13589.00 10283.50
12646.00 13031.00 10293.80
11574.00 11893.00 10324.70
12023.00 12584.00 10335.00
12840.00 13076.00 10366.00
12340.00 12874.00 10397.10
12651.00 13404.00 10428.30
12626.00 13756.00 10460.00
12973.00 14031.00 10470.10
12621.00 13690.00 10501.50
12278.00 13044.00 10512.00
12294.00 13081.00 10522.50
13060.00 14536.00 10533.00
13647.00 15159.00 10543.60
14699.00 15864.00 10564.70
14240.00 16227.00 10585.80
15042.00 17415.00 10607.00
14449.00 16650.00 10628.20
14301.00 16542.00 10638.80
14510.00 16832.00 10649.40
NORTHSTAR SPECIAL FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 9.10%
SINCE INCEPTION 16.02%
Lehman
Class B Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
10746.00 10519.00 10010.00
11232.00 11125.00 10030.00
11385.00 11355.00 10040.00
11411.00 11558.00 10050.10
10920.00 11041.00 10080.20
11212.00 11505.00 10090.30
11179.00 11808.00 10110.50
11002.00 11881.00 10150.90
11383.00 12163.00 10171.20
11802.00 12414.00 10211.90
13019.00 13074.00 10252.80
13915.00 13589.00 10283.50
13196.00 13031.00 10293.80
12064.00 11893.00 10324.70
12526.00 12584.00 10335.00
13368.00 13076.00 10366.00
12842.00 12874.00 10397.10
13159.00 13404.00 10428.30
13121.00 13756.00 10460.00
13475.00 14031.00 10470.10
13105.00 13690.00 10501.50
12740.00 13044.00 10512.00
12751.00 13081.00 10522.50
13534.00 14536.00 10533.00
14135.00 15159.00 10543.60
15219.00 15864.00 10564.70
14730.00 16227.00 10585.80
15551.00 17415.00 10607.00
14929.00 16650.00 10628.20
14768.00 16542.00 10638.80
14971.00 16832.00 10649.40
NORTHSTAR SPECIAL FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 13.06%
SINCE INCEPTION 16.92%
Lehman
Class C Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
10741.00 10519.00 10010.00
11232.00 11125.00 10030.00
11385.00 11355.00 10040.00
11406.00 11558.00 10050.10
10920.00 11041.00 10080.20
11217.00 11505.00 10090.30
11179.00 11808.00 10110.50
11002.00 11881.00 10150.90
11383.00 12163.00 10171.20
11802.00 12414.00 10211.90
13025.00 13074.00 10252.80
13915.00 13589.00 10283.50
13191.00 13031.00 10293.80
12070.00 11893.00 10324.70
12526.00 12584.00 10335.00
13368.00 13076.00 10366.00
12842.00 12874.00 10397.10
13159.00 13404.00 10428.30
13121.00 13756.00 10460.00
13470.00 14031.00 10470.10
13100.00 13690.00 10501.50
12740.00 13044.00 10512.00
12746.00 13081.00 10522.50
13534.00 14536.00 10533.00
14130.00 15159.00 10543.60
15213.00 15864.00 10564.70
14725.00 16227.00 10585.80
15546.00 17415.00 10607.00
14924.00 16650.00 10628.20
14768.00 16542.00 10638.80
14966.00 16832.00 10649.40
NORTHSTAR SPECIAL FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 10.29%
5-YEAR 11.31%
SINCE INCEPTION 10.47%
Lehman
Class T Int Gov't CPI
(1/86 through 12/97)
10000.00 10000.00 10000.00
10119.00 11783.00 9950.00
8920.00 10403.00 10090.00
9850.00 12830.00 10355.00
7899.00 9488.00 10564.00
9599.00 12047.00 10777.00
9550.00 11861.00 11005.00
11050.00 13590.00 11294.00
11670.00 13790.00 11499.00
13099.00 13920.00 11825.00
10639.00 11105.00 12220.00
12970.00 14178.00 12380.00
16733.00 16217.00 12592.00
15490.00 16239.00 12769.00
19167.00 19203.00 12962.00
20026.00 20463.00 13144.00
23031.00 22828.00 13316.00
20881.00 21351.00 13476.00
21910.00 22412.00 13652.00
23439.00 25645.00 12872.00
24396.00 28789.00 14012.00
28797.00 31771.00 14266.00
28656.00 33537.00 14495.00
30904.00 36958.00 14612.00
32752.00 41037.00 14758.00
9
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 96.89%
ADVANCED MEDICAL DEVICES -- 1.25%
Guidant Corp. 66,800 $ 4,158,300
------------
ADVERTISING/MARKETING -- 0.91%
Advo, Inc. @ 154,400 3,010,800
------------
AIR FREIGHT/COURIERS -- 2.29%
Airborne Freight Corp. 58,900 3,659,163
Expeditors International of Washington, Inc. 102,100 3,930,850
------------
7,590,013
------------
AIRLINES -- 1.62%
Alaska Air Group, Inc. @ 139,300 5,397,875
------------
APPAREL/FABRIC -- 0.89%
Kellwood Co. 98,100 2,943,000
------------
AUTO PARTS & EQUIPMENT -- 2.55%
Federal-Mogul Corp. 118,300 4,791,150
Hayes Lemmerz International, Inc. @ 131,000 3,668,000
------------
8,459,150
------------
BANKS -- 15.41%
Amsouth Bancorp. 119,500 6,490,344
Associated Banc-Corp. 82,084 4,524,880
Commerce Bancshares, Inc. 100,973 6,840,921
Dime Bancorp, Inc. 168,000 5,082,000
Fifth Third Bancorp. 59,800 4,888,650
First of America Bank Corp. 100,500 7,751,062
Northern Trust Corp. 49,400 3,445,650
ONBANCorp, Inc. 89,000 6,274,500
Zions Bancorp. 128,800 5,844,300
------------
51,142,307
------------
BUILDING MATERIALS -- 3.80%
Centex Construction Products, Inc. 145,700 4,389,212
Southdown, Inc. 139,700 8,242,300
------------
12,631,512
------------
CATALOGUE/SPECIALTY DISTRIBUTION -- 1.55%
Fingerhut Cos., Inc. 241,100 5,153,513
------------
COMPUTER SOFTWARE/SERVICES -- 5.18%
Keane, Inc. @ 193,800 7,873,125
Microsoft Corp. @ 41,000 5,299,250
Sanctuary Woods Multimedia Corp. @ 3,500 140
Tandy Corp. 104,000 4,010,500
------------
17,183,015
------------
CONSTRUCTION/EQUIPMENT/TRUCKS -- 1.02%
Wabash National Corp. 118,800 3,378,375
------------
CONSTRUCTION MATERIALS -- 1.07%
PACCAR, Inc. 67,900 3,564,750
------------
</TABLE>
10
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONTAINERS AND PACKAGING -- 3.14%
Ball Corp. 108,200 $ 3,820,812
Owens-Illinois, Inc. @ 174,100 6,604,919
------------
10,425,731
------------
DIVERSIFIED COMMERICAL SERVICES -- 0.09%
Nhancement Technologies, Inc. 125,000 308,594
------------
EDP PERIPHERALS -- 1.56%
MTI Technology Corp. @ 391,100 5,182,075
------------
EDP SERVICES -- 1.19%
Systems & Computer Technology Corp. @ 79,800 3,960,075
------------
ELECTRONICS -- 1.89%
Cellstar Corp. @ 150,000 2,981,250
Smart Modular Technologies, Inc. @ 142,600 3,279,800
------------
6,261,050
------------
ENVIRONMENTAL CONTROL -- 3.47%
Catalytica, Inc. @ 292,500 3,473,437
Eastern Environmental Services, Inc. @ 182,200 4,008,400
Newpark Resources, Inc. @ 231,200 4,046,000
------------
11,527,837
------------
FINANCIAL SERVICES -- 1.04%
20th Century Industries 133,100 3,460,600
------------
FOOD & BEVERAGE -- 7.92%
Canandaigua Brands, Inc. @ 90,500 5,011,438
ConAgra, Inc. 174,200 5,715,937
Dean Foods Co. 102,100 6,074,950
Smithfield Foods, Inc. @ 66,400 2,191,200
Suiza Foods Corp. @ 122,300 7,284,494
------------
26,278,019
------------
HEALTHCARE/PHARMACEUTICAL -- 1.76%
ICN Pharmaceuticals, Inc. 119,600 5,837,975
------------
HOME FURNISHINGS -- 1.52%
Ethan Allen Interiors, Inc. 131,300 5,063,256
------------
HOSPITAL /NURSING MANAGEMENT -- 0.48%
Universal Health Services, Inc. @ 31,500 1,586,813
------------
HOTELS/RESORTS -- 0.64%
Carnival Corp. 38,300 2,120,863
------------
INSURANCE -- 5.67%
CMAC Investment Corp. 117,200 7,075,950
Exel Ltd. 88,300 5,596,012
Mercury General Corp. 88,900 4,911,725
Mutual Risk Management Ltd. 41,800 1,251,388
------------
18,835,075
------------
MEDICAL/NURSING SERVICES -- 1.00%
Lincare Holdings, Inc. @ 58,300 3,323,100
------------
MULTI-SECTOR COMPANIES -- 0.99%
McDermott International, Inc. 89,800 3,288,925
------------
</TABLE>
11
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
OFFICE EQUIPMENT/SUPPLIES -- 2.00%
Herman Miller, Inc. 121,600 $ 6,634,800
------------
OIL & GAS EXPLORATION -- 1.47%
Camco International, Inc. 76,600 4,878,463
------------
PAPER -- 1.40%
Buckeye Technologies, Inc. @ 100,500 4,648,125
------------
PRINTING -- 2.51%
Mail-Well, Inc. @ 205,500 8,322,750
------------
PUBLISHING -- 1.63%
Houghton Mifflin Co. 140,800 5,403,200
------------
REAL ESTATE INVESTMENT TRUST -- 1.60%
Mack California Realty Corp. 129,300 5,301,300
------------
RETAIL -- 6.71%
Costco Cos., Inc. @ 169,800 7,577,325
Family Dollar Stores, Inc. 264,000 7,738,500
Funco, Inc. @ 245,300 3,648,837
The Gap, Inc. 93,300 3,306,319
------------
22,270,981
------------
SAVINGS & LOAN -- 1.52%
Great Financial Corp. 98,800 5,038,800
------------
SEMICONDUCTOR -- 1.37%
Dallas Semiconductor Corp. 111,900 4,559,925
------------
SUPERMARKETS -- 0.93%
Dominick's Supermarkets, Inc. @ 84,400 3,080,600
------------
TELECOMMUNICATIONS -- 4.21%
Aliant Communications, Inc. 256,300 8,041,412
Portugal Telecom SA ** 126,000 5,922,000
------------
13,963,412
------------
WHOLESALE DISTRIBUTORS -- 1.64%
VWR Scientific Products Corp. @ 193,100 5,455,075
------------
TOTAL COMMON STOCKS
(cost $274,426,665) 321,630,029
------------
TOTAL INVESTMENT SECURITIES -- 96.89%
(cost $274,426,665) 321,630,029
REPURCHASE AGREEMENT -- 5.56%
Agreement with State Street Bank and Trust bearing
interest at 5.75%
dated 12/31/97 to be repurchased 1/02/98 in the amount of
$18,452,893 and collateralized by $18,800,000 U.S.
Treasury Bonds,
5.75% due 12/31/98, value $18,817,634
(cost $18,447,000) $18,447,000 18,447,000
LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.45%) (8,141,423)
------------
NET ASSETS -- 100.00% $331,935,606
------------
------------
</TABLE>
@ Non-income producing security.
** American Depositary Receipts.
See accompanying notes to financial statements.
12
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
THOMAS OLE DIAL
THE MARKETS
(Bullet) U.S. economic growth slowed from an annual rate of 4.3% in the 4th
quarter of 1996 to an estimated rate of 3.2% in the 4th quarter of
1997. Despite that still unexpectedly high growth, consumer prices
rose only 1.7% in 1997, the smallest increase in 11 years. Low
inflation, a very strong U.S. dollar and foreign turmoil caused our
domestic interest rates to fall. In 1997, yields of 10-year and
30-year Treasury bonds traded in a moderately wide 130 basis points
(bps) range. By December 31, 1997, those yields were down
approximately 70 bps to 5.74% and 5.92%, respectively. Lower
interest rates and strong economic growth combined to propel both
stock and bond prices significantly higher.
(Bullet) The Russell 2000 rose a hefty 22.2% in 1997, the Dow Jones
Industrials rose an even better 24.9%, while the S&P 500 topped
them both, rising 33.4%. Record-high small cap stock prices helped
increase the credit quality and prices of high yield bonds. High
yield bond returns in 1997 were 12.76%, compared to 9.65% for all
domestic bonds, primarily due to strong demand for high coupons,
rising underlying stock valuations and declining credit concerns.
Among high yield bonds, in general, the lower-rated bonds
outperformed the higher-rated bonds (except in the 4th quarter).
(Bullet) Despite recent economic and financial weakness in some foreign
countries, total returns on bonds from smaller foreign markets
still rose 13.18% in 1997. Those returns were based mainly on
overall better political and economic fundamentals in many foreign
countries and a continuing worldwide hunt for yield by investors.
However, increasing economic and financial problems in Asia in the
4th quarter of 1997 caused investors worldwide to reassess the
values of their investments, which interrupted the earlier strong
rise in prices of stocks and bonds here and abroad.
THE FUND
(Bullet) In 1997, the total return of the Fund's Class A shares was 24.31%,
23.48% for Class B, 23.41% for Class C, and 23.91% for Class T; the
Lipper average for equity income funds was 27.5% and for balanced
funds was 19%. Despite this very strong performance, the Fund's net
assets fell almost 8% in 1997, to $60MM from $64MM.
(Bullet) The Fund's performance in 1997 gathered momentum all year until the
4th quarter, when it still performed very well compared to similar
funds. Many of our equity holdings increased their gains even as
the torrid pace of general stock price appreciation cooled. The
Fund's bond positions benefited from the general decline in bond
yields, from its aggressive high yield bond holdings and from
strength in its main investment sectors (telecommunications,
broadcasting and cable).
(Bullet) Continued strength in the stock market caused us to overshoot the
previously targeted 50% allocation to common stocks and convertible
securities. Since equities outperformed fixed income investments,
that overshoot helped the Fund.
CURRENT STRATEGY
(Bullet) Invest in securities of strong small- and mid-cap companies that
can provide income and capital appreciation. Due to the greater
volatility and risk caused by the "Asian Contagion", for the first
quarter of 1998, change the target mix to 40% common stock and
convertible securities and 60% bonds and cash.
(Bullet) Emphasize "bottoms-up" security analysis rather than macroeconomic
analysis in selecting securities. Continue to search the entire
capital structure for opportunities that provide the best
risk-adjusted returns.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $60,206,800
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Intacel Corp. 2.8%
2 Intermedia Communications, Inc. 2.8
3 Iridium Capital Corp. 2.6
4 Star Choice Communications, Inc. 2.6
5 Paxson Communications Corp. 2.4
6 AES Corp. 2.3
7 Chancellor Media Corp. 2.3
8 American Radio Sysems Corp. 2.2
9 Comcast Corp. 2.1
10 Timer Warner, Inc. 2.1
------
24.2%
======
TOP 5 INDUSTRIES
(by percentage of net assets)
Telecommunications 22.2%
Broadcasting 11.8%
Cable 10.6%
Oil & Gas 6.9%
Healthcare 6.0%
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- -----------------------------------------
Inception 5 years 1 year
- -----------------------------------------
Class A 15.98% N/A 18.38%
- -----------------------------------------
Class B 16.51% N/A 18.48%
- -----------------------------------------
Class C 17.34% N/A 22.41%
- -----------------------------------------
Class T 10.84% 13.03% 19.91%
- -----------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- -----------------------------------------
Inception 5 years 1 year
- -----------------------------------------
Class A 53.96% N/A 24.31%
- -----------------------------------------
Class B 51.31% N/A 23.48%
- -----------------------------------------
Class C 51.08% N/A 23.41%
- -----------------------------------------
Class T 240.58% 84.47% 23.91%
- -----------------------------------------
13
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
BALANCE SHEET OPPORTUNITIES 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, 1997, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 15.98% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of 4.75%.
Average annualized total returns of 16.51% and 17.34% since inception on June 5,
1995 for Class B and Class C shares, respectively, and total returns since
inception on February 3, 1986 for Class T shares of 10.84%, reflect applicable
contingent deferred sales charges (maximum contingent deferred sales charge for
Class B shares of 5.00% declines to 0% and Class T shares of 4.00% declines to
0% after five 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.
[Graphs appear below with the following plot points:]
NORTHSTAR BALANCED SHEET OPPORTUNITIES FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 18.38%
SINCE INCEPTION 15.98%
Lehman
Class A S&P 500 Int Gov't CPI
(6/95 through 12/97)
9522.00 10000.00 10000.00 10000.00
9472.00 10280.00 10010.00 10067.00
9767.00 10606.90 10030.00 10068.00
9917.00 10603.70 10040.00 10159.60
10100.00 11094.70 10050.10 10232.80
9993.00 11039.20 10080.20 10346.40
10458.00 11492.90 10090.30 10481.90
10669.00 11760.70 10110.50 10592.00
10830.00 12144.10 10150.90 10683.00
10864.00 12228.40 10171.20 10558.10
11016.00 12325.00 10211.90 10504.20
11119.00 12490.70 10252.80 10467.40
11239.00 12776.10 10283.50 10459.10
11199.00 12805.50 10293.80 10569.90
10678.00 12219.00 10324.70 10601.60
11104.00 12448.80 10335.00 10610.10
11421.00 13123.50 10366.00 10757.60
11412.00 13466.10 10397.10 10948.00
11834.00 14454.30 10428.30 11092.50
11793.00 14143.60 10460.00 11021.50
11973.00 15010.60 10470.10 11063.40
12044.00 15099.10 10501.50 11081.10
11578.00 14455.90 10512.00 11018.00
11710.00 15300.10 10522.50 11142.50
12600.00 16196.70 10533.00 11229.40
13027.00 16901.30 10543.60 11325.90
13609.00 18221.30 10564.70 11534.30
13538.00 17173.50 10585.80 11490.50
14339.00 18087.20 10607.00 11615.80
14112.00 17463.20 10628.20 11751.70
14257.00 18242.00 10638.80 11777.50
14660.00 18528.40 10649.40 11872.90
NORTHSTAR BALANCED SHEET OPPORTUNITIES FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 18.48%
SINCE INCEPTION 16.51%
Lehman
Class B S&P 500 Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00 10000.00
9946.00 10280.00 10010.00 10067.00
10239.00 10606.90 10030.00 10068.00
10397.00 10603.70 10040.00 10159.60
10584.00 11094.70 10050.10 10232.80
10464.00 11039.20 10080.20 10346.40
10952.00 11492.90 10090.30 10481.90
11165.00 11760.70 10110.50 10592.00
11326.00 12144.10 10150.90 10683.00
11352.00 12228.40 10171.20 10558.10
11507.00 12325.00 10211.90 10504.20
11615.00 12490.70 10252.80 10467.40
11732.00 12776.10 10283.50 10459.10
11683.00 12805.50 10293.80 10569.90
11138.00 12219.00 10324.70 10601.60
11574.00 12448.80 10335.00 10610.10
11887.00 13123.50 10366.00 10757.60
11877.00 13466.10 10397.10 10948.00
12308.00 14454.30 10428.30 11092.50
12255.00 14143.60 10460.00 11021.50
12432.00 15010.60 10470.10 11063.40
12505.00 15099.10 10501.50 11081.10
12013.00 14455.90 10512.00 11018.00
12140.00 15300.10 10522.50 11142.50
13056.00 16196.70 10533.00 11229.40
13490.00 16901.30 10543.60 11325.90
14095.00 18221.30 10564.70 11534.30
14010.00 17173.50 10585.80 11490.50
14821.00 18087.20 10607.00 11615.80
14585.00 17463.20 10628.20 11751.70
14724.00 18242.00 10638.80 11777.50
15132.00 18528.40 10649.40 11872.90
NORTHSTAR BALANCED SHEET OPPORTUNITIES FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 22.41%
SINCE INCEPTION 17.34%
Lehman
Class C S&P 500 Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00 10000.00
9943.00 10280.00 10010.00 10067.00
10243.00 10606.90 10030.00 10068.00
10402.00 10603.70 10040.00 10159.60
10581.00 11094.70 10050.10 10232.80
10461.00 11039.20 10080.20 10346.40
10949.00 11492.90 10090.30 10481.90
11158.00 11760.70 10110.50 10592.00
11319.00 12144.10 10150.90 10683.00
11354.00 12228.40 10171.20 10558.10
11504.00 12325.00 10211.90 10504.20
11603.00 12490.70 10252.80 10467.40
11720.00 12776.10 10283.50 10459.10
11673.00 12805.50 10293.80 10569.90
11120.00 12219.00 10324.70 10601.60
11555.00 12448.80 10335.00 10610.10
11872.00 13123.50 10366.00 10757.60
11872.00 13466.10 10397.10 10948.00
12293.00 14454.30 10428.30 11092.50
12242.00 14143.60 10460.00 11021.50
12420.00 15010.60 10470.10 11063.40
12493.00 15099.10 10501.50 11081.10
12007.00 14455.90 10512.00 11018.00
12133.00 15300.10 10522.50 11142.50
13048.00 16196.70 10533.00 11229.40
13481.00 16901.30 10543.60 11325.90
14075.00 18221.30 10564.70 11534.30
13990.00 17173.50 10585.80 11490.50
14807.00 18087.20 10607.00 11615.80
14571.00 17463.20 10628.20 11751.70
14710.00 18242.00 10638.80 11777.50
15108.00 18528.40 10649.40 11872.90
NORTHSTAR BALANCED SHEET OPPORTUNITIES FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 19.91%
5-YEAR 13.03%
SINCE INCEPTION 10.84%
Lehman
Class T S&P 500 CPI Gov't/corp
(1/86 through 12/97)
10000.00 10000.00 10000.00 10000.00
10551.00 11922.00 9950.00 10694.00
11076.00 11713.00 10090.00 11241.00
11725.00 14918.00 10355.00 11289.00
10483.00 12320.00 10564.00 11652.00
11582.00 13883.00 10777.00 12154.00
11887.00 14351.00 11005.00 12431.00
13109.00 16721.00 11294.00 13398.00
13989.00 18885.00 11499.00 14018.00
14072.00 19462.00 11825.00 14447.00
14098.00 18297.00 12220.00 15303.00
15013.00 20899.00 12380.00 15968.00
17084.00 23849.00 12592.00 17541.00
17208.00 23693.00 12769.00 18070.00
1846.00 25664.00 12962.00 18799.00
20225.00 26907.00 13144.00 19966.00
21062.00 28238.00 13316.00 20450.00
20146.00 27291.00 13476.00 19914.00
19939.00 28622.00 13652.00 20055.00
22188.00 34386.00 13872.00 21978.00
24948.00 39338.00 14012.00 23124.00
26139.00 42833.00 14266.00 23076.00
27485.00 47309.00 14495.00 24062.00
14
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 45.84%
AEROSPACE & DEFENSE -- 0.89%
BE Aerospace, Inc. @ 20,000 $ 535,000
------------
BROADCASTING -- 3.92%
Chancellor Media Corp. @ ** 18,182 1,356,832
Unisite 21,600 1,000,361
------------
2,357,193
------------
CABLE TELEVISION -- 4.89%
Comcast Corp. 40,816 1,288,255
EchoStar Communications Corp. @ 30,000 502,500
Tele-Communications, Inc. @ 19,086 533,215
Viacom, Inc. @ 15,000 621,563
------------
2,945,533
------------
CAPITAL GOODS MANUFACTURING -- 2.24%
Bell & Howell Co. @ 20,000 483,750
Flextronics International Ltd. 25,000 862,500
------------
1,346,250
------------
ENERGY -- 4.37%
AES Corp. @ 30,000 1,398,750
CalEnergy Co., Inc. @ 30,000 862,500
Calpine Corp. @ 25,000 371,875
------------
2,633,125
------------
ENTERTAINMENT/FILM -- 3.17%
News Corp. Ltd. ** 30,000 669,375
Time Warner, Inc. 20,000 1,240,000
------------
1,909,375
------------
FOOD & BEVERAGE -- 1.38%
Canandaigua Brands, Inc. @ 15,000 830,625
------------
HEALTHCARE -- 4.19%
Healthsouth Corp. @ 30,000 832,500
Intracel Corp. 111,000 1,692,750
------------
2,525,250
------------
OIL & GAS -- 1.26%
Vintage Petroleum, Inc. 40,000 760,000
------------
OIL & GAS DRILLING -- 1.42%
Global Marine, Inc. @ 20,000 490,000
Parker Drilling Co. @ 30,000 365,625
------------
855,625
------------
</TABLE>
15
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PACKAGING -- 0.95%
U.S. Can Corp. @ 33,700 $ 568,687
------------
PAPER -- 0.50%
Asia Pulp & Paper Ltd. ** 30,000 301,875
------------
PHARMACEUTICAL -- 0.01%
Pharmerica, Inc. @ 445 4,617
------------
SERVICES -- 2.07%
Allied Waste Industries, Inc. @ 50,000 1,165,625
Coinstar, Inc. @ 8,750 79,844
------------
1,245,469
------------
STEEL -- 0.88%
AK Steel Holding Corp. 30,000 530,625
------------
SUPERMARKETS -- 3.09%
Dominick's Supermarkets, Inc. @ 25,000 912,500
Safeway, Inc. @ 15,000 948,750
------------
1,861,250
------------
TELECOMMUNICATIONS -- 8.37%
CommNet Cellular, Inc. @ 25,000 889,062
Globalstar Telecommunications Ltd. 22,262 1,093,621
Intermedia Communications, Inc. @ 125 7,594
Jacor Communications, Inc. @ 20,000 1,062,500
Telecom-TCI Ventures Group @ 10,914 309,003
Telecomunicacoes Brasileiras SA ** 5,000 582,187
Teleport Communications Group, Inc. @ 20,000 1,097,500
------------
5,041,467
------------
TEXTILE/APPAREL -- 0.96%
Interface, Inc. 20,000 580,000
------------
TRANSPORTATION -- 1.28%
Westinghouse Air Brake Co. 30,000 768,750
------------
TOTAL COMMON STOCKS
(cost $19,435,993) 27,600,716
------------
PREFERRED STOCKS -- 4.43%
BROADCASTING -- 4.43%
Chancellor Media Corp., 12.00% & 5,294 606,163
Paxson Communications Corp., 12.50% & 14,227 1,444,028
SFX Broadcasting, Inc., 12.625% & 5,316 615,283
------------
2,665,474
------------
TOTAL PREFERRED STOCKS
(cost $2,449,509) 2,665,474
------------
</TABLE>
16
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares/Principal Amount/Units Value
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 5.60%
BROADCASTING & MEDIA -- 2.15%
American Radio Systems Corp., 7.00% # 20,000 $ 1,295,380
------------
TELECOMMUNICATIONS -- 3.45%
Intermedia Communication, Inc., 7.00% # ** 10,000 414,640
Intermedia Communications, Inc., 7.00% # 40,000 1,658,560
------------
2,073,200
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $2,320,000) 3,368,580
------------
DOMESTIC CORPORATE BONDS -- 23.69%
BROADCASTING -- 1.26%
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes, 7/15/07 $ 750,000 761,250
------------
CABLE TELEVISION -- 1.40%
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Secured Discount Notes, 3/15/04 1,000,000 845,000
------------
CONSUMER PRODUCTS -- 0.85%
Packaged Ice, Inc.
12.00%, Notes, 4/15/04 500,000 512,500
------------
ELECTRONICS -- 1.11%
Electronic Retailing Systems International, Inc. $
0/13.25%, Sr. Discount Notes, 2/01/04 1,000,000 670,000
------------
HEALTHCARE -- 1.75%
Alaris Medical Systems, Inc.
9.75%, Sr. Subordinated Notes, 12/01/06 1,000,000 1,055,000
------------
LEISURE -- 1.71%
Club Regina Resorts, Inc. (1)
13.00%, Units, 12/01/04 1,000 1,027,500
------------
OIL & GAS -- 3.04%
Forman Petroleum Corp.
13.50%, Sr. Secured Subordinated Notes, 6/01/04 1,000,000 1,025,000
Transamerican Energy Corp. # $
0/13.00%, Sr. Secured Discount Notes, 6/15/02 1,000,000 805,000
------------
1,830,000
------------
SERVICES -- 1.85%
Coinstar, Inc. # $
0/13.00%, Sr. Subordinated Notes, 10/01/06 750,000 588,750
ICF Kaiser International, Inc.
13.00%, Sr. Notes, 12/31/03 500,000 522,500
------------
1,111,250
------------
</TABLE>
17
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount/Units Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
SPECIALTY RETAILING -- 0.94%
Pamida, Inc.
11.75%, Sr. Subordinated Notes, 3/15/03 $ 550,000 $ 563,750
------------
SUPERMARKETS -- 1.21%
Food 4 Less Supermarkets, Inc. &
13.625%, Sr. Subordinated Debentures, 6/15/07 570,445 727,317
------------
TELECOMMUNICATIONS -- 8.57%
Globalstar LP
11.375%, Sr. Notes, 2/15/04 500,000 505,000
Iridium Capital Corp.
13.00%, Sr. Notes, 7/15/05 1,500,000 1,578,750
Paging Network, Inc.
10.00%, Sr. Subordinated Notes, 10/15/08 750,000 781,875
Teleport Communications Group, Inc. $
0/11.125%, Sr. Discount Notes, 7/01/07 1,000,000 826,250
UNIFI Communications, Inc.
14.00%, Sr. Notes, 3/01/04 1,000,000 905,000
WinStar Equipment II Corp. #
12.50%, Sr. Secured Notes, 3/15/04 500,000 563,750
------------
5,160,625
------------
TOTAL DOMESTIC CORPORATE BONDS
(cost $13,746,732) 14,264,192
------------
FOREIGN CORPORATE BONDS -- 16.26%
AEROSPACE & DEFENSE -- 1.75%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 1,000,000 1,055,000
------------
CABLE TELEVISION -- 4.31%
Multicanal Participacoes SA
12.625%, Company Guarantee, 6/18/04 1,000,000 1,045,000
Star Choice Communications, Inc. (2)
13.00%, Units, 12/15/05 1,500 1,552,500
------------
2,597,500
------------
FOOD/BEVERAGE/TOBACCO -- 0.81%
Fage Dairy Industry SA
9.00%, Sr. Notes, 2/01/07 500,000 488,750
------------
OIL & GAS -- 1.19%
Hurricane Hydrocarbons #
11.75%, Sr. Notes, 11/01/04 750,000 716,250
------------
PAPER -- 0.79%
APP International Finance Co.
11.75%, Company Guarantee, 10/01/05 500,000 472,500
------------
</TABLE>
18
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount/Units/Shares Value
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 1.12%
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 600,000 $ 676,500
------------
SERVICES -- 1.12%
Guangzhou-Shen Superhighway Holdings Ltd. #
10.25%, Sr. Notes, 8/15/07 750,000 671,250
------------
SHIPPING -- 2.99%
Equimar Shipholdings Ltd. #
9.875%, Company Guarantee, 7/01/07 1,000,000 955,000
Navigator Gas Transport # ** (3)
12.00%, Units, 6/30/07 750 847,500
------------
1,802,500
------------
TELECOMMUNICATIONS -- 0.66%
Ionica PLC $
0/15.00%, Sr. Discount Notes, 5/01/07 1,000,000 395,000
------------
UTILITIES -- 1.52%
Panda Global Energy Co.
12.50%, Sr. Secured, 4/15/04 1,000,000 915,000
------------
TOTAL FOREIGN CORPORATE BONDS
(cost $9,849,822) 9,790,250
------------
CONVERTIBLE BONDS -- 2.81%
FOOD/BEVERAGE/TOBACCO -- 1.81%
International Fast Food Corp. &
11.00%, Sr. Subordinated Notes, 10/31/07 1,500,000 1,091,250
------------
TELECOMMUNICATIONS -- 1.00%
SA Telecommunications, Inc. # *
10.00%, Notes, 8/15/06 2,000,000 600,000
------------
TOTAL CONVERTIBLE BONDS
(cost $3,108,112) 1,691,250
------------
WARRANTS -- 0.31% @
CONSUMER PRODUCTS -- 0.08%
Packaged Ice, Inc. #, (expires 4/15/04) 500 50,000
------------
ELECTRONICS -- 0.03%
Electronic Retailing Systems International #, (expires
2/01/04) 1,000 20,000
------------
OIL & GAS -- 0.02%
Forman Petroleum Corp., (expires 6/01/04) 1,000 10,250
------------
</TABLE>
19
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.00%
ICF Kaiser International, Inc., (expires 12/31/99) 3,500 $ 35
------------
TELECOMMUNICATIONS -- 0.18%
Globalstar Telecommunications Ltd. #, (expires
2/15/04) 500 51,125
Iridium World Communications, Inc. #, (expires
7/25/05) 500 55,000
UNIFI Communications, Inc. #, (expires 2003) 1,000 0
------------
106,125
------------
TOTAL WARRANTS
(cost $50,516) 186,410
------------
TOTAL INVESTMENT SECURITIES -- 98.94%
(cost $50,960,684) 59,566,872
REPURCHASE AGREEMENT -- 0.55%
Agreement with State Street Bank and Trust bearing
interest at 5.75% dated 12/31/97 to be repurchased
1/02/98 in the amount of $334,107 and collateralized
by $340,000 U.S. Treasury Bills 5.875% due 10/31/98,
value $343,844
(cost $334,000) $ 334,000 334,000
OTHER ASSETS LESS LIABILITIES -- 0.51% 305,928
------------
NET ASSETS -- 100.00% $ 60,206,800
------------
------------
</TABLE>
@ Non-Income Producing.
** American Depository Receipts.
& Payment-in-Kind Security.
# Sale restricted to qualified institutional investors.
$ Step Bond.
* Defaulted Security.
(1) A unit consists of $1,000 par value 13.00%, Sr. Notes, 12/01/04 and 1
warrant.
(2) A unit consists of $1,000 par value 13.00%, Sr. Secured Notes, 12/15/05 and
23.16 warrants.
(3) A unit consists of $1,000 par value 12.00%, 2nd Priority Mortgage Notes,
6/30/07 and 7.66 warrants.
See accompanying notes to financial statements.
20
<PAGE>
NORTHSTAR HIGH YIELD FUND
JEFFREY AURIGEMMA
THE MARKETS
(Bullet) U.S. economic growth slowed from an annual rate of 4.3% in the 4th
quarter of 1996 to an estimated rate of 3.2% in the 4th quarter of
1997. Despite that still unexpectedly high growth, consumer prices
rose only 1.7% in 1997, the smallest increase in 11 years. Low
inflation, a very strong U.S. dollar and foreign turmoil caused our
domestic interest rates to fall. In 1997, yields of 10-year and
30-year Treasury bonds traded in a moderately wide 130 basis points
(bps) range. By December 31, 1997, those yields were down
approximately 70 bps to 5.74% and 5.92%, respectively. Lower
interest rates and strong economic growth combined to propel both
stock and bond prices significantly higher.
(Bullet) High yield bond returns in 1997 were 12.76%, compared to 9.65% for
all domestic bonds, primarily due to strong demand for high
coupons, rising underlying stock valuations and declining credit
concerns. Record-high small cap stock prices helped increase the
credit quality and prices of high yield bonds. Among high yield
bonds, in general, the lower-rated bonds outperformed the
higher-rated bonds (except in the 4th quarter).
(Bullet) Despite recent economic and financial weakness in some foreign
countries, total returns on bonds from smaller foreign markets
still rose 13.18% in 1997. Those returns were based mainly on
overall better political and economic fundamentals in many foreign
countries and a continuing worldwide hunt for yield by investors.
However, increasing economic and financial problems in Asia in the
4th quarter of 1997 caused investors worldwide to reassess the
values of their investments, which interrupted the earlier strong
rise in prices of stocks and bonds here and abroad.
THE FUND
(Bullet) In 1997, the total return of the Fund's Class A shares was 11.18%,
10.38% for Class B, 10.37% for Class C, and 10.86% for Class T; the
Lipper average was 12.96%. The Fund's good risk-adjusted returns
helped it increase its net assets from $231MM to $255MM.
(Bullet) We continued to position this Fund on the very low-risk end of the
high yield bond spectrum. We sold almost all zero-coupon bonds and
equities that the Fund previously held, kept the average credit
rating of the Fund's bonds near BB all year and invested in only
the highest-quality high yield emerging market bonds. Therefore,
the Fund's holdings were more conservative than generally desired
by investors during the first 3 quarters of 1997. However, the
increasingly unfavorable economic circumstances related to Asia
during the 4th quarter caused investors to begin to favor safety
over yield for the first time in many quarters. That shift
supported the Fund's total return for the full year of 1997.
(Bullet) The Fund continued to benefit from timely sales of bonds which had
narrow spreads over treasuries that did not correspond with their
risks.
CURRENT STRATEGY
(Bullet) We will continue to position the Fund as a conservative
"all-weather" high yield fund. The Fund still seeks to outperform
when the high-yield market is declining or volatile, while
remaining competitive when that market is rising or stable.
(Bullet) Given the higher probability of lower interest rates, an economic
slowdown due to Asia's problems and continuing investor preferences
for high yields, we will favor domestic issues rated Ba1/BB+.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $255,394,559
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Time Warner, Inc. 2.1%
2 Alaris Medical Systems, Inc. 2.0%
3 AES Corp. 1.7%
4 Americo Life, Inc. 1.7%
5 Dade International, Inc. 1.7%
6 JCAC, Inc. 1.7%
7 SFX Broadcasting, Inc. 1.7%
8 CE Casecnan Water & Energy Co. 1.6%
9 Iowa Select Farms L.P. 1.6%
10 Teleport Communications 1.6%
Group, Inc.
------
17.4%
======
TOP 5 INDUSTRIES
(by percentage of net assets)
Broadcasting 8.6%
Healthcare 8.4%
Food/Beverage/
Tobacco 7.4%
Telecommunications 7.2%
Oil & Gas 6.0%
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- ----------------------------------------
Inception 5 years 1 year
- ----------------------------------------
Class A 9.56% N/A 6.86%
- ----------------------------------------
Class B 9.89% N/A 5.38%
- ----------------------------------------
Class C 10.88% N/A 9.37%
- ----------------------------------------
Class T 10.96% 10.91% 6.86%
- ----------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- ----------------------------------------
Inception 5 years 1 year
- ----------------------------------------
Class A 32.81% N/A 11.18%
- ----------------------------------------
Class B 30.56% N/a 10.38%
- ----------------------------------------
Class C 30.54% N/A 10.37%
- ----------------------------------------
Class T 144.35% 67.85% 10.86%
- ----------------------------------------
21
<PAGE>
NORTHSTAR HIGH YIELD FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
HIGH YIELD 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, 1997, with all distributions reinvested in shares. The average
annualized total return for Class A shares of 9.56% for the period since the
classes' inception on June 5, 1995 reflects payment of the maximum sales charge
of 4.75%. Average annualized total returns of 9.89% and 10.88% since inception
on June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on May 30, 1989 for Class T shares of 10.96%, reflect applicable
contingent deferred sales charges (maximum contingent deferred sales charge for
Class B shares of 5.00% declines to 0% and Class T shares of 4.00% declines to
0% after five 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.
[Graphs appear below with the following plot points:]
NORTHSTAR HIGH YIELD FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 6.86%
SINCE INCEPTION 9.56%
Lehman
Class A Int Gov't CPI
(6/95 through 12/97)
9530.00 10000.00 10000.00
9454.00 10064.00 10010.00
9676.00 10190.80 10030.00
9689.00 10222.40 10040.00
9768.00 10348.10 10050.10
9781.00 10412.30 10080.20
9805.00 10503.90 10090.30
9922.00 10668.80 10110.50
10213.00 10856.60 10150.90
10261.00 10865.30 10171.20
10215.00 10857.70 10211.90
10308.00 10881.60 10252.80
10389.00 10946.90 10283.50
10398.00 11037.70 10293.80
10455.00 11088.50 10324.70
10648.00 11208.20 10335.00
10929.00 11478.40 10366.00
11013.00 11566.80 10397.10
11236.00 11794.60 10428.30
11384.00 11879.50 10460.00
11470.00 11996.00 10470.10
11717.00 12193.90 10501.50
11514.00 12012.20 10512.00
11570.00 12138.30 10522.50
11823.00 12398.10 10533.00
11998.00 12570.40 10543.60
12282.00 12916.10 10564.70
12259.00 12886.40 10585.80
12492.00 13141.50 10607.00
12401.00 13153.40 10628.20
12515.00 13279.60 10638.80
12656.00 13396.50 10649.40
NORTHSTAR HIGH YIELD FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5.38%
SINCE INCEPTION 9.89%
Lehman
Class B Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
9915.00 10064.00 10010.00
10142.00 10190.80 10030.00
10149.00 10222.40 10040.00
10227.00 10348.10 10050.10
10233.00 10412.30 10080.20
10265.00 10503.90 10090.30
10381.00 10668.80 10110.50
10679.00 10856.60 10150.90
10711.00 10865.30 10171.20
10657.00 10857.70 10211.90
10760.00 10881.60 10252.80
10826.00 10946.90 10283.50
10842.00 11037.70 10293.80
10883.00 11088.50 10324.70
11090.00 11208.20 10335.00
11375.00 11478.40 10366.00
11456.00 11566.80 10397.10
11680.00 11794.60 10428.30
11827.00 11879.50 10460.00
11896.00 11996.00 10470.10
12159.00 12193.90 10501.50
11927.00 12012.20 10512.00
11992.00 12138.30 10522.50
12247.00 12398.10 10533.00
12408.00 12570.40 10543.60
12707.00 12916.10 10564.70
12662.00 12886.40 10585.80
12909.00 13141.50 10607.00
12807.00 13153.40 10628.20
12916.00 13279.60 10638.80
13055.00 13396.50 10649.40
NORTHSTAR HIGH YIELD FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 9.37%
SINCE INCEPTION 10.88%
Lehman
Class C Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
9915.00 10064.00 10010.00
10142.00 10190.80 10030.00
10149.00 10222.40 10040.00
10227.00 10348.10 10050.10
10233.00 10412.30 10080.20
10265.00 10503.90 10090.30
10381.00 10668.80 10110.50
10667.00 10856.60 10150.90
10711.00 10865.30 10171.20
10657.00 10857.70 10211.90
10748.00 10881.60 10252.80
10826.00 10946.90 10283.50
10843.00 11037.70 10293.80
10883.00 11088.50 10324.70
11090.00 11208.20 10335.00
11376.00 11478.40 10366.00
11456.00 11566.80 10397.10
11680.00 11794.60 10428.30
11827.00 11879.50 10460.00
11896.00 11996.00 10470.10
12145.00 12193.90 10501.50
11927.00 12012.20 10512.00
11978.00 12138.30 10522.50
12247.00 12398.10 10533.00
12407.00 12570.40 10543.60
12706.00 12916.10 10564.70
12661.00 12886.40 10585.80
12894.00 13141.50 10607.00
12806.00 13153.40 10628.20
12901.00 13279.60 10638.80
13054.00 13396.50 10649.40
NORTHSTAR HIGH YIELD FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 6.86%
5-YEAR 10.91%
SINCE INCEPTION 10.96%
Lehman
Class T Int Gov't CPI
(5/89 through 12/97)
10000.00 10000.00 10000.00
9954.00 10124.00 10020.00
9120.00 9734.00 10202.00
8924.00 9977.00 10490.00
7789.00 8796.00 10841.00
9885.00 11400.00 10983.00
11410.00 12858.00 11171.00
13270.00 14188.00 11328.00
14556.00 14883.00 11499.00
16218.00 16452.00 11661.00
17306.00 17430.00 11813.00
17036.00 17035.00 11956.00
16929.00 17254.00 12112.00
18371.00 19396.00 12307.00
19250.00 20562.00 12431.00
20146.00 21273.00 12656.00
22039.00 22895.00 12860.00
23197.00 24227.00 12962.00
24434.00 25819.00 13093.00
22
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
DOMESTIC BONDS & NOTES -- 74.62%
AEROSPACE & DEFENSE -- 2.30%
Alliant Techsystems, Inc.
11.75%, Sr. Subordinated Notes, 3/01/03 $ 1,500,000 $ 1,651,875
L 3 Communications Corp.
10.375%, Sr. Subordinated Notes, 5/01/07 2,000,000 2,175,000
Tracor, Inc.
8.50%, Sr. Subordinated Notes, 3/01/07 2,000,000 2,040,000
------------
5,866,875
------------
AIRLINES -- 1.10%
Atlantic Coast Airlines, Inc. #
8.75%, Pass Thru Certificates, 1/01/07 2,800,000 2,814,000
------------
AUTO PARTS & EQUIPMENT -- 3.00%
Titan Wheel International, Inc.
8.75%, Sr. Subordinated Notes, 4/01/07 3,400,000 3,570,000
Venture Holdings
9.50%, Sr. Notes, 7/01/05 4,000,000 4,080,000
------------
7,650,000
------------
AUTOMOTIVE -- 1.72%
Delco Remy International, Inc.
8.625%, Sr. Notes, 12/15/07 2,000,000 2,035,000
Walbro Corp. #
10.125%, Sr. Notes, 12/15/07 2,300,000 2,369,000
------------
4,404,000
------------
BROADCASTING -- 7.46%
American Radio Systems Corp.
9.00%, Company Guarantee, 2/01/06 1,500,000 1,590,000
Capstar Broadcasting Partners, Inc.
9.25%, Sr. Subordinated Notes, 7/01/07 2,900,000 2,994,250
JCAC, Inc.
10.125%, Sr. Subordinated Notes, 6/15/06 4,000,000 4,410,000
SFX Broadcasting, Inc.
10.75%, Sr. Subordinated Notes, 5/15/06 4,000,000 4,410,000
Sinclair Broadcast Group, Inc.
8.75%, Sr. Subordinated Notes, 12/15/07 2,800,000 2,807,000
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes, 7/15/07 1,500,000 1,522,500
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Subordinated Notes, 9/30/05 1,250,000 1,331,250
------------
19,065,000
------------
CABLE TELEVISION -- 2.07%
EchoStar Communications Corp. $
0/12.875%, Sr. Discount Notes, 6/01/04 3,000,000 2,760,000
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Secured Discount Notes, 3/15/04 3,000,000 2,535,000
------------
5,295,000
------------
</TABLE>
23
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS MANUFACTURING -- 1.53%
Roller Bearing Co. of America, Inc. #
9.625%, Sr. Subordinated Notes, 6/15/07 $ 3,850,000 $ 3,898,125
------------
CHEMICALS -- 1.43%
Hydrochem Industrial Services, Inc.
10.375%, Sr. Subordinated Notes, 8/01/07 3,500,000 3,640,000
------------
COMPUTERS -- 0.72%
Axiohm Transaction, Inc. #
9.75%, Sr. Subordinated Notes, 10/01/07 1,800,000 1,836,000
------------
ENERGY -- 4.53%
AES Corp.
10.25%, Sr. Subordinated Notes, 7/15/06 4,000,000 4,350,000
CalEnergy Co., Inc.
9.50%, Sr. Secured Notes, 9/15/06 1,000,000 1,097,500
California Energy, Inc.
9.875%, Sr. Notes, 6/30/03 1,000,000 1,080,000
California Energy, Inc.
10.25%, Sr. Discount Notes, 1/15/04 2,650,000 2,862,000
Calpine Corp.
10.50%, Sr. Notes, 5/15/06 2,000,000 2,180,000
------------
11,569,500
------------
ENTERTAINMENT/FILM -- 1.32%
Speedway Motorsports, Inc.
8.50%, Sr. Subordinated Notes, 8/15/07 3,300,000 3,382,500
------------
FOOD/BEVERAGE/TOBACCO -- 6.24%
Ameriserve Food Distribution, Inc. #
8.875%, Sr. Notes, 10/15/06 2,750,000 2,791,250
Iowa Select Farms L.P. #
10.75%, Sr. Subordinated Notes, 12/01/05 4,000,000 4,130,000
North Atlantic Trading, Inc.
11.00%, Sr. Notes, 6/15/04 3,500,000 3,675,000
Richmont Marketing Specialists, Inc. #
10.125%, Sr. Subordinated Notes, 12/15/07 2,750,000 2,805,000
Standard Commercial Corp. #
8.875%, Company Guarantee, 8/01/05 2,500,000 2,525,000
------------
15,926,250
------------
HEALTHCARE -- 8.39%
Alaris Medical Systems, Inc.
9.75%, Sr. Subordinated Notes, 12/01/06 4,750,000 5,011,250
Alliance Imaging, Inc.
9.625%, Sr. Subordinated Notes, 12/15/05 2,300,000 2,346,000
Dade International, Inc.
11.125%, Sr. Subordinated Notes, 5/01/06 3,900,000 4,329,000
Kinetic Concepts, Inc. #
9.625%, Sr. Subordinated Notes, 11/01/07 2,500,000 2,540,625
Tenet Healthcare Corp.
8.625%, Sr. Subordinated Notes, 1/15/07 3,000,000 3,105,000
Tenet Healthcare Corp.
10.125%, Sr. Subordinated Notes, 3/01/05 1,000,000 1,095,000
Vencor, Inc.
8.625%, Sr. Subordinated Notes, 7/15/07 3,000,000 3,007,500
------------
21,434,375
------------
</TABLE>
24
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HOTEL & GAMING -- 2.42%
Capital Gaming International, Inc. @*
0%, Promissory Notes, 8/01/95 $ 10,000 $ 0
Courtyard By Marriott Ltd.
10.75%, Sr. Secured Notes, 2/01/08 2,000,000 2,190,000
Grand Casino, Inc. #
9.00%, Sr. Notes, 10/15/04 2,700,000 2,727,000
Sun International Hotels Ltd.
8.625%, Sr. Subordinated Notes, 12/15/07 1,250,000 1,265,625
------------
6,182,625
------------
INDUSTRIAL AND COMMERCIAL SERVICES -- 0.40%
Keystone Consolidated Industries, Inc. #
9.625%, Sr. Secured Notes, 8/01/07 1,000,000 1,010,000
------------
INSURANCE -- 2.62%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 4,250,000 4,366,875
Superior National Insurance Group, Inc. #
10.75%, Company Guarantee, 12/01/17 22,500 2,317,500
------------
6,684,375
------------
MANUFACTURING -- 2.45%
Clark-Schwebel, Inc.
10.50%, Sr. Notes, 4/15/06 2,500,000 2,725,000
Wyman Gordon Co.
8.00%, Sr. Notes, 12/15/07 3,500,000 3,543,750
------------
6,268,750
------------
OIL & GAS -- 5.95%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 2,000,000 2,220,000
Forcenergy, Inc.
9.50%, Sr. Subordinated Notes, 11/01/06 3,000,000 3,202,500
HS Resources, Inc.
9.875%, Sr. Subordinated Notes, 12/01/03 3,500,000 3,640,000
TransAmerican Energy Corp. #
11.50%, Sr.Secured Notes, 6/15/02 3,000,000 2,955,000
Triton Energy Ltd.
9.25%, Sr. Notes, 4/15/05 3,000,000 3,172,500
------------
15,190,000
------------
PAPER -- 3.41%
Buckeye Cellulose Corp.
8.50%, Sr. Subordinated Notes, 12/15/05 2,725,000 2,779,500
SD Warren Co.
12.00%, Sr. Subordinated Notes, 12/15/04 2,500,000 2,800,000
U.S. Timberlands Co.
9.625%, Sr. Notes, 11/15/07 3,000,000 3,135,000
------------
8,714,500
------------
PRINTING & PUBLISHING -- 5.37%
American Lawyer Media, Inc. #
9.75%, Sr. Subordinated Notes, 12/15/07 2,000,000 2,040,000
Big Flower Press Holdings, Inc.
8.875%, Sr. Subordinated Notes, 7/01/07 1,500,000 1,518,750
</TABLE>
25
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRINTING AND PUBLISHING (CONT'D)
Garden State Newspapers, Inc.
12.00%, Sr. Subordinated Notes, 7/01/04 $ 2,000,000 $ 2,250,000
Garden State Newspapers, Inc. #
8.75%, Sr. Subordinated Notes, 10/01/09 2,000,000 2,015,000
Hollinger International Publishing, Inc.
9.25%, Company Guarantee, 3/15/07 3,000,000 3,180,000
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 2,400,000 2,706,000
------------
13,709,750
------------
SERVICES -- 0.65%
Allied Waste North America, Inc.
10.25%, Sr. Subordinated Notes, 12/01/06 1,500,000 1,653,750
------------
TELECOMMUNICATIONS -- 4.57%
Alliant Computer Systems, Inc. @*
7.25%, Subordinated Debentures, 5/15/12 528,000 0
Jordan Telecommunication Products Co.
9.875%, Sr. Notes, 8/01/07 3,000,000 3,105,000
Qwest Communications International, Inc. #
9.47%, Sr. Discount Notes, 10/15/07 2,700,000 1,836,000
RCN Corp. #
10.00%, Sr. Notes, 10/15/07 2,500,000 2,606,250
Teleport Communications Group, Inc. $
0/11.125%, Sr. Discount Notes, 7/01/07 5,000,000 4,131,250
------------
11,678,500
------------
TEXTILE/APPAREL -- 1.83%
Westpoint Stevens, Inc.
9.375%, Sr. Subordinated Debentures, 12/15/05 2,000,000 2,110,000
Worldtex, Inc. #
9.625%, Sr. Notes, 12/15/07 2,500,000 2,575,000
------------
4,685,000
------------
TRANSPORTATION -- 2.14%
Sea Containers Ltd.
12.50%, Sr. Subordinated Debentures, 12/01/04 2,000,000 2,265,000
Westinghouse Air Brake Co.
9.375%, Sr. Notes, 6/15/05 3,000,000 3,209,580
------------
5,474,580
------------
TRUCKING & FREIGHT -- 1.00%
Allied Holdings, Inc.
8.625%, Sr. Notes, 10/01/07 2,500,000 2,550,000
------------
TOTAL DOMESTIC BONDS & NOTES
(cost $181,417,812) 190,583,455
------------
FOREIGN BONDS & NOTES -- 16.35%
AEROSPACE & DEFENSE -- 1.24%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 3,000,000 3,165,000
------------
BROADCASTING -- 1.18%
Antenna TV SA #
9.00%, Sr. Notes, 8/01/07 3,000,000 3,011,250
------------
</TABLE>
26
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount/Shares Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
CABLE TELEVISION -- 1.26%
Rogers Cablesystems Ltd.
9.625%, Notes, 8/01/02 $ 3,000,000 $ 3,210,000
------------
CHEMICALS -- 1.18%
Pharmaceutical Fine Chemicals, Inc. #
9.75%, Sr. Subordinated Notes, 11/15/07 3,000,000 3,030,000
------------
FOOD/BEVERAGE/TOBACCO -- 1.15%
Fage Dairy Industry SA
9.00%, Sr. Notes, 2/01/07 3,000,000 2,932,500
------------
PAPER -- 1.93%
APP International Finance Co.
11.75%, Company Guarantee, 10/01/05 3,900,000 3,685,500
Indah Kiat Finance Mauritius Ltd. #
10.00%, Company Guarantee, 7/01/07 1,500,000 1,252,500
------------
4,938,000
------------
SERVICES -- 2.95%
Autopistas Del Sol SA #
10.25%, Sr. Notes, 8/01/09 3,000,000 2,722,500
Guangzhou-Shen Superhighway Holdings Ltd. #
10.25%, Sr. Notes, 8/15/07 1,950,000 1,745,250
Intertek Finance PLC
10.25%, Sr. Subordinated Notes, 11/01/06 2,900,000 3,059,500
------------
7,527,250
------------
SHIPPING -- 1.19%
Trico Marine Services, Inc. #
8.50%, Notes, 8/01/05 3,000,000 3,030,000
------------
TELECOMMUNICATIONS -- 2.67%
Fonorola, Inc.
12.50%, Sr. Notes, 8/15/02 1,000,000 1,115,000
Rogers Cantel, Inc.
8.80%, Sr. Subordinated Notes, 10/01/07 2,800,000 2,793,000
Telefonica de Argentina SA
11.875%, Notes, 11/01/04 2,500,000 2,912,500
------------
6,820,500
------------
UTILITIES -- 1.60%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 4,000,000 4,080,000
------------
TOTAL FOREIGN BONDS & NOTES
(cost $41,447,848) 41,744,500
------------
PREFERRED STOCKS -- 2.49%
ENTERTAINMENT -- 2.10%
Time Warner, Inc., 10.25% & 47,579 5,364,477
------------
PUBLISHING/PRINTING -- 0.39%
Primedia, Inc. #, 9.20% 10,000 1,005,000
------------
TOTAL PREFERRED STOCKS
(cost $5,393,805) 6,369,477
------------
RIGHTS -- 0.07% @
CAPITAL GOODS MANUFACTURING -- 0.07%
Terex Corp., (expires 2000) 8,000 164,000
------------
</TABLE>
27
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN GOVERNMENT SECURITIES -- 0.00%
United Mexican States 1,500,000 $ 0
------------
TOTAL RIGHTS
(cost $0) 164,000
------------
COMMON STOCKS -- 0.00%@*
GAMING -- 0.00%
Capital Gaming International, Inc. 114 0
------------
TOTAL COMMON STOCKS
(cost $0) 0
------------
WARRANTS -- 0.00%@*
GAMING -- 0.00%
Capital Gaming International, Inc.
(expires 2/01/99) 22,750 0
------------
TOTAL WARRANTS
(cost $0) 0
------------
TOTAL INVESTMENT SECURITIES -- 93.53%
(cost $228,259,465) 238,861,432
REPURCHASE AGREEMENT -- 4.28%
Agreement with State Street Bank and Trust bearing
interest
at 5.75% dates 12/31/97 to be repuchased 1/02/98 in the
amount of
$10,937,493 and collateralized by $11,145,000 U.S.
Treasury Bills
5.75% due 12/31/98 value 11,155,454
(cost $10,934,000) $10,934,000 10,934,000
OTHER ASSETS LESS LIABILITIES -- 2.19% 5,599,127
------------
NET ASSETS -- 100.00% $255,394,559
------------
------------
</TABLE>
# Sale restricted to qualified institutional investors.
$ Step bond.
& Payment-in-kind security.
@ Non-income producing security.
* Bankrupt Issuer.
See accompanying notes to financial statements.
28
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
RYAN R. JOHANSON
THE MARKETS
(Bullet) U.S. economic growth slowed from an annual rate of 4.3% in the 4th
quarter of 1996 to an estimated rate of 3.2% in the 4th quarter of
1997. Despite that still unexpectedly high growth, consumer prices
rose only 1.7% in 1997, the smallest increase in 11 years. Low
inflation, a very strong U.S. dollar and foreign turmoil caused our
domestic interest rates to fall. In 1997, yields of 10-year and
30-year Treasury bonds traded in a moderately wide 130 basis points
(bps) range. By December 31, 1997, those yields were down
approximately 70 bps to 5.74% and 5.92%, respectively. Lower
interest rates and strong economic growth combined to propel both
stock and bond prices significantly higher.
(Bullet) High yield bond returns in 1997 were 12.76%, compared to 9.65% for
all domestic bonds, primarily due to strong demand for high
coupons, rising underlying stock valuations and declining credit
concerns. Record-high small cap stock prices helped increase the
credit quality and prices of high yield bonds. Among high yield
bonds, in general, the lower-rated bonds outperformed the
higher-rated bonds (except in the 4th quarter).
(Bullet) Despite recent economic and financial weakness in some foreign
countries, total returns on bonds from smaller foreign markets
still rose 13.18% in 1997. Those returns were based mainly on
overall better political and economic fundamentals in many foreign
countries and a continuing worldwide hunt for yield by investors.
However, increasing economic and financial problems in Asia in the
4th quarter of 1997 caused investors worldwide to reassess the
values of their investments, which interrupted the earlier strong
rise in prices of stocks and bonds here and abroad.
(Bullet) A strong and rising U.S. dollar made it very difficult to find good
values among bonds denominated in foreign currencies.
THE FUND
(Bullet) In 1997, the total return of the Fund's shares was 2.50% for Class
A, 1.67% for Class B, 1.75% for Class C, and 1.89% for Class T; the
Lipper average was 8.74%. Its net assets declined from $79.6MM to
$67MM during 1997 due to redemptions and Asia-based pressures on
the value of the Fund's holdings.
(Bullet) The Fund was more heavily invested in emerging market names than
its competitors were in 1997. That helped the Fund's total return
for most of the year. However, the spread of the "Asian Contagion"
seriously impaired the values of the Fund's emerging market
positions in the 4th quarter. Since those bonds' yields had been
critical to enabling the Fund to pay its dividend, because most of
them had high credit ratings, and since we did not initially
believe that Asia's ills were as bad as subsequently revealed, we
held our above-average weighting of such bonds longer than others
did. That hurt our Fund more than others. We actively shifted the
Fund's holdings into U.S. agency bonds and cash as the year closed.
CURRENT STRATEGY
(Bullet) Continue to seek attractively-priced U.S. dollar-denominated
investment grade corporate bonds and continue to reduce the amount
of foreign exposure (which fell from 55% to 36% in the 4th quarter
of 1997). We will eliminate virtually all emerging market exposure
until a bottom has clearly occurred, after which we will position
the Fund to participate in the above-average returns that a
recovery in emerging market bond prices should generate.
(Bullet) Due to weak emerging markets, falling interest rates and slowing
growth, we have new, more defensive asset allocation targets: 50%
domestic high yield; 20% domestic and foreign investment grade; 20%
U.S. government; and 10% cash. Keep the Fund's duration at 5-6
years and its credit quality at a minimum of BB+.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $67,012,136
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Fannie Mae, 7.00%, due 6/18/25 5.8%
2 Fannie Mae, 7.50% due 12/18/27 4.4%
3 Statia Terms International, Inc. 3.1%
4 APP Finance II Mauritius Ltd. 3.0%
5 CE Casecnan Water & Energy Co. 3.0%
6 Republic of Poland 2.9%
7 Guangdong Enterprises Holding Ltd. 2.8%
8 Winstar Equipment Corp. 2.7%
9 Road King Infrastructure Ltd. 2.5%
10 Guangzhou-Shen Superhighway Holdings Ltd. 2.4%
------
32.6%
======
TOP 5 SECTORS
(by percentage of net assets)
High Yield 49.2%
U.S. Government 19.5%
Cash 15.4%
Investment Grade 11.9%
Equity 2.0%
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- --------------------------------------------
Inception 5 years 1 year
- --------------------------------------------
Class A 5.50% N/A -2.36 %
- --------------------------------------------
Class B 5.67% N/A -3.08 %
- --------------------------------------------
Class C 6.68% N/A 0.80 %
- --------------------------------------------
Class T 7.92% N/A -1.91 %
- --------------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- --------------------------------------------
Inception 5 years 1 year
- --------------------------------------------
Class A 20.53% N/A 2.50 %
- --------------------------------------------
Class B 18.23% N/A 1.67 %
- --------------------------------------------
Class C 18.16% N/A 1.75 %
- --------------------------------------------
Class T 31.59% N/A 1.89 %
- --------------------------------------------
29
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
STRATEGIC INCOME 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, 1997, with all distributions reinvested in shares. The average
annualized total return for Class A shares of 5.50% for the period since the
classes' inception on June 5, 1995 reflects payment of the maximum sales charge
of 4.75%. Average annualized total returns of 5.67% and 6.68% since inception on
June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on February 3, 1986 for Class T shares of 7.92%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five 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.
[Graphs appear below with the following plot points:]
NORTHSTAR STRATEGIC INCOME FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (2.36)%
SINCE INCEPTION 5.50%
Lehman
Class A Int Gov't CPI
(6/95 through 12/96)
9527.00 10000.00 10000.00
9492.00 10073.00 10010.00
9566.00 10050.80 10030.00
9666.00 10172.50 10040.00
9773.00 10271.10 10050.10
9841.00 10404.60 10080.20
9936.00 10560.70 10090.30
10104.00 10708.60 10110.50
10322.00 10779.20 10150.90
10262.00 10591.70 10171.20
10219.00 10517.50 10211.90
10271.00 10458.60 10252.80
10349.00 10437.70 10283.50
10378.00 10577.60 10293.80
10407.00 10606.20 10324.70
10444.00 10588.10 10335.00
10697.00 10772.40 10366.00
10908.00 11011.50 10397.10
11174.00 11199.80 10428.30
11203.00 11095.60 10460.00
11268.00 11130.00 10470.10
11364.00 11157.90 10501.50
10968.00 11034.00 10512.00
11075.00 11199.50 10522.50
11373.00 11305.90 10533.00
11563.00 11440.50 10543.60
11773.00 11749.40 10564.70
11716.00 11649.50 10585.80
11957.00 11821.90 10607.00
11514.00 11993.30 10628.20
11484.00 12048.50 10638.80
11483.00 12170.20 10649.40
NORTHSTAR STRATEGIC INCOME FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (3.08)%
SINCE INCEPTION 5.67%
Lehman
Class B Int Gov't CPI
(6/95 through 12/96)
10000.00 10000.00 10000.00
9958.00 10073.00 10010.00
10030.00 10050.80 10030.00
10128.00 10172.50 10040.00
10243.00 10271.10 10050.10
10291.00 10404.60 10080.20
10392.00 10560.70 10090.30
10554.00 10708.60 10110.50
10776.00 10779.20 10150.90
10716.00 10591.70 10171.20
10665.00 10517.50 10211.90
10714.00 10458.60 10252.80
10780.00 10437.70 10283.50
10812.00 10577.60 10293.80
10826.00 10606.20 10324.70
10867.00 10588.10 10335.00
11115.00 10772.40 10366.00
11337.00 11011.50 10397.10
11606.00 11199.80 10428.30
11629.00 11095.60 10460.00
11690.00 11130.00 10470.10
11773.00 11157.90 10501.50
11366.00 11034.00 10512.00
11461.00 11199.50 10522.50
11763.00 11305.90 10533.00
11961.00 11440.50 10543.60
12171.00 11749.40 10564.70
12105.00 11649.50 10585.80
12336.00 11821.90 10607.00
11871.00 11993.30 10628.20
11833.00 12048.50 10638.80
11823.00 12170.20 10649.40
NORTHSTAR STRATEGIC INCOME FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 0.80%
SINCE INCEPTION 6.68%
Lehman
Class C Int Gov't CPI
(6/95 through 12/96)
10000.00 10000.00 10000.00
9950.00 10073.00 10010.00
10022.00 10050.80 10030.00
10120.00 10172.50 10040.00
10234.00 10271.10 10050.10
10283.00 10404.60 10080.20
10376.00 10560.70 10090.30
10547.00 10708.60 10110.50
10770.00 10779.20 10150.90
10701.00 10591.70 10171.20
10650.00 10517.50 10211.90
10699.00 10458.60 10252.80
10774.00 10437.70 10283.50
10797.00 10577.60 10293.80
10820.00 10606.20 10324.70
10851.00 10588.10 10335.00
11099.00 10772.40 10366.00
11330.00 11011.50 10397.10
11589.00 11199.80 10428.30
11613.00 11095.60 10460.00
11674.00 11130.00 10470.10
11766.00 11157.90 10501.50
11350.00 11034.00 10512.00
11454.00 11199.50 10522.50
11756.00 11305.90 10533.00
11945.00 11440.50 10543.60
12154.00 11749.40 10564.70
12088.00 11649.50 10585.80
12329.00 11821.90 10607.00
11854.00 11993.30 10628.20
11826.00 12048.50 10638.80
11816.00 12170.20 10649.40
NORTHSTAR STRATEGIC INCOME FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (1.91)%
SINCE INCEPTION 7.92%
Lehman
Class T Int Gov't CPI
(6/94 through 12/96)
10000.00 10000.00 10000.00
10058.00 10199.00 10030.00
10259.20 10211.20 10070.10
10242.80 10061.10 10090.30
10183.30 10052.10 10100.40
10140.60 10030.00 10110.50
10213.60 10099.20 10130.70
10283.00 10299.10 10161.10
10573.00 10544.20 10191.50
10607.90 10608.60 10211.90
10848.70 10757.10 10252.80
11019.00 11173.40 10283.50
11027.80 11255.00 10293.80
11109.50 11230.20 10314.40
11219.40 11366.10 10324.70
11339.50 11476.30 10335.00
11404.10 11625.50 10366.00
11519.30 11799.90 10376.40
11699.00 11965.10 10397.20
11947.00 12044.10 10438.80
11882.00 11834.50 10459.60
11827.00 11751.70 10501.50
11883.00 11685.90 10543.50
11958.00 11662.50 10575.10
11996.00 11818.80 10585.70
12013.00 11850.70 10617.40
12060.00 11830.50 10628.10
12337.00 12036.40 10660.00
12586.00 12303.60 10691.90
12866.00 12514.00 10724.00
12915.00 12397.60 10756.00
12984.00 12436.00 10767.00
13079.00 12467.10 10799.30
12628.00 12328.70 10810.10
12735.00 12513.70 10820.90
13072.00 12632.50 10831.70
13294.00 12782.90 10842.50
13528.00 13128.00 10864.20
13455.00 13016.40 10885.90
13724.00 13209.10 10907.70
13198.00 13400.60 10929.50
13167.00 13462.20 10940.50
13158.00 13598.20 10951.40
30
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
INVESTMENT GRADE SECURITIES -- 11.88%
<S> <C> <C>
FOREIGN BONDS & NOTES -- 11.88%
CABLE -- 0.79%
Le Groupe Videotron Ltee.
10.25%, Sr. Subordinated Notes, 10/15/02 $ 500,000 $ 530,625
-----------
DIVERSIFIED FINANCIAL SERVICES -- 2.76%
Guangdong Enterprises Holding Ltd. #
8.875%, Sr. Notes, 5/22/07 2,000,000 1,846,940
-----------
ELECTRIC UTILITIES -- 2.30%
Empresa Electrica Del Norte Grande SA #
7.75%, Notes, 3/15/06 1,550,000 1,538,298
-----------
FOREIGN GOVERNMENT SECURITIES -- 4.42%
Banque Centale De Tunisie
7.50%, Notes, 9/19/07 1,000,000 1,012,960
Republic of Poland $
0/4.00%, Government Guarantee, 10/27/14 2,250,000 1,951,875
-----------
2,964,835
-----------
OIL & GAS -- 1.61%
Bridas Corp.
12.50%, Sr. Notes, 11/15/99 1,000,000 1,077,500
-----------
TOTAL FOREIGN BONDS & NOTES 7,958,198
-----------
TOTAL INVESTMENT GRADE SECURITIES
(cost $ 7,905,619) 7,958,198
-----------
HIGH YIELD SECURITIES -- 49.18%
DOMESTIC BONDS & NOTES -- 22.05%
AIRLINES -- 3.82%
Atlantic Coast Airlines #
7.97%, Pass Thru Certificates, 1/01/00 1,000,000 1,005,000
Atlantic Coast Airlines, Inc. #
8.75%, Pass Thru Certificates, 1/01/07 750,000 753,750
Constellation Finance LLC #
9.80%, Asset Backed Notes, 1/01/01 800,000 800,000
-----------
2,558,750
-----------
CHEMICALS -- 1.55%
Hydrochem Industrial Services, Inc.
10.375%, Sr. Subordinated Notes, 8/01/07 1,000,000 1,040,000
-----------
CONSUMER PRODUCTS -- 2.04%
Shop Vac Corp.
10.625%, Sr. Secured Notes, 9/01/03 1,250,000 1,364,062
-----------
ENERGY -- 1.13%
AES Corp. #
8.50%, Sr. Subordinated Notes, 11/01/07 750,000 754,688
-----------
FOOD/BEVERAGE/TOBACCO -- 0.91%
Richmont Marketing Specialists, Inc. #
10.125%, Sr. Subordinated Notes, 12/15/07 600,000 612,000
-----------
</TABLE>
31
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INSURANCE -- 2.76%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 $ 1,300,000 $ 1,335,750
Superior National Insurance Group, Inc. #
10.75%, Company Guarantee, 12/01/17 5,000 515,000
-----------
1,850,750
-----------
OIL & GAS -- 2.96%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 900,000 999,000
TransAmerican Energy Corp. #
11.50%, Sr. Secured Notes, 6/15/02 1,000,000 985,000
-----------
1,984,000
-----------
TELECOMMUNICATIONS -- 6.88%
RCN Corp. #
10.00%, Sr. Notes, 10/15/07 1,000,000 1,042,500
Transtel Pass-Thru Trust SA #
12.50%, Pass-Thru Trust Certificates, 11/01/07 900,000 859,500
UNIFI Communications, Inc.
14.00%, Sr. Notes, 3/01/04 1,000,000 905,000
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04 1,600,000 1,804,000
-----------
4,611,000
-----------
TOTAL DOMESTIC BONDS & NOTES 14,775,250
-----------
FOREIGN BONDS & NOTES -- 27.13%
FINANCE & BANKING -- 2.49%
Road King Infrastructure Ltd.
9.50%, Company Guarantee, 7/15/07 2,000,000 1,670,000
-----------
FOOD/BEVERAGE/TOBACCO -- 2.19%
Fage Dairy Industry SA
9.00%, Sr. Notes, 2/01/07 1,500,000 1,466,250
-----------
FOREIGN GOVERNMENT SECURITIES -- 1.88%
Republic of Turkey #
10.00%, Notes, 9/19/07 1,250,000 1,264,062
-----------
OIL & GAS -- 1.48%
Pacalta Resources Ltd.
10.75%, Sr. Notes, 6/15/04 1,000,000 991,250
-----------
</TABLE>
32
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Security Principal Amount/Units/Shares Value
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<CAPTION>
PAPER -- 6.06%
<S> <C> <C>
APP Finance II Mauritius Ltd. $
0/12.00%, Notes, 2/15/04 $ 2,500,000 $ 2,025,000
APP International Finance BV Co.
8.867%, Notes, 9/15/99 1,000,000 865,000
Indah Kiat International Finance Corp.
12.50%, Company Guarantee, 6/15/06 500,000 477,500
Pindo Deli Finance Mauritius Ltd. #
10.75%, Sr. Notes, 10/01/07 800,000 692,000
-----------
4,059,500
-----------
SERVICES -- 5.54%
Guangzhou-Shen Superhighway Holdings Ltd. #
10.25%, Sr. Notes, 8/15/07 1,800,000 1,611,000
Statia Terms International, Inc.
11.75%, Mortgage Notes, 11/15/03 2,000,000 2,100,000
-----------
3,711,000
-----------
TELECOMMUNICATIONS -- 4.45%
Colt Telecom Group PLC $ (1)
0/12.00%, Units, 12/15/06 500 390,000
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 2,100,000 1,585,500
Telecom Brazil Funding Corp. #
11.4375%, Guaranteed Notes, 12/09/99 1,000,000 1,005,000
-----------
2,980,500
-----------
UTILITIES -- 3.04%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 2,000,000 2,040,000
-----------
TOTAL FOREIGN BONDS & NOTES 18,182,562
-----------
TOTAL HIGH YIELD SECURITIES
(cost $33,312,220) 32,957,812
-----------
PREFERRED STOCKS -- 2.00%
ENTERTAINMENT -- 2.00%
Time Warner, Inc., 10.25% & 11,887 1,340,252
-----------
TOTAL PREFERRED STOCKS
(cost $1,096,430) 1,340,252
-----------
WARRANTS -- 0.04%@
CONSUMER PRODUCTS -- 0.03%
Chattem, Inc., (expires 6/17/99) 500 21,555
-----------
SUPERMARKETS -- 0.01%
Dairy Mart Convenience Stores, Inc., (expires 12/01/01) 4,999 3,749
-----------
</TABLE>
33
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Security Shares/Principal Amount Value
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<CAPTION>
TELECOMMUNICATIONS -- 0.00%
<S> <C> <C>
Occidente Y Caribe Celular SA #, (expires 3/15/04) 9,400 $ 94
UNIFI Communications, Inc. #, (expires 2003) 1,000 0
-----------
94
-----------
TOTAL WARRANTS
(cost $94) 25,398
-----------
U.S. GOVERNMENT AND AGENCIES -- 19.52%
Fannie Mae, 0%, due 4/25/27 $ 1,732,902 1,602,207
Fannie Mae, 7.00%, due 6/18/25 - 4/18/27 5,351,238 5,267,369
Fannie Mae, 7.50%, due 12/18/27 3,697,790 3,649,044
Fannie Mae, 8.00%, due 3/25/24 1,591,007 1,587,093
Residential Funding Corp., 7.25%, due 9/25/27 997,977 976,147
-----------
TOTAL U.S. GOVERNMENT AND AGENCIES
(cost $13,049,635) 13,081,860
-----------
TOTAL INVESTMENT SECURITIES -- 82.62%
(cost $ 55,363,998) 55,363,520
REPURCHASE AGREEMENT -- 15.44%
Agreement with State Street Bank and Trust bearing interest
at
5.75% dated 12/31/97 to be repurchased 1/02/98 in the amount
of
$10,349,305 and collateralized by $10,545,000 U.S. Treasury
Bills,
5.75% due 12/31/98, value $10,554,891
(cost $10,346,000) 10,346,000 10,346,000
OTHER ASSETS LESS LIABILITIES -- 1.94% 1,302,616
-----------
NET ASSETS -- 100.00% $67,012,136
-----------
-----------
</TABLE>
# Sale restricted to qualified institutional investors.
$ Step bond.
& Payment-in-kind security.
@ Non-income producing security.
(1) A unit consists of $1,000 par value Sr. Discount Notes, 12.00% due 12/15/06,
and 1 Warrant.
See accompanying notes to financial statements.
34
<PAGE>
NORTHSTAR GOVERNMENT SECURITIES FUND
RYAN R. JOHANSON
THE MARKETS
(Bullet) The U.S. economy grew at an estimated annual rate of 3.9% in 1997.
The year ended with a national unemployment rate of 4.7% for
December, and a surprisingly robust 4.4% estimated growth rate of
GDP in the fourth quarter. Despite this continued strong economic
growth, productivity gains and competitive pressures held the
annualized rise in the gross domestic price deflator to less than
1.8%, the lowest level in over a quarter of a century. It was this
low level of price increases that kept the Federal Reserve from
raising rates after an initial increase in March.
(Bullet) As a result of the turmoil in many overseas currency markets, the
U.S. dollar became the safe haven of choice. This helped the dollar
strengthen against virtually every other currency. It also helped
interest rates and securities prices by bringing capital that had
been invested outside the U.S. into the domestic market.
(Bullet) The term structure of interest rates continued to flatten, pivoting
around the one year area of the curve. The spread between the three
month and the thirty year treasuries narrowed 87.3 basis points to
just over a half of a percentage point. At year end the spread
between the three month and thirty year U.S. treasuries stood at
58.2 basis points. To put this into perspective, since the
beginning of the 90's this spread has averaged 230 basis points,
with the widest being 464 and the tightest being 41.
(Bullet) The outlook for the U.S. fixed rate market looks very bright for
1998. The combination of low inflation, steady economic growth and
deflationary events abroad bode well for a continued decline in
domestic interest rates.
THE FUND
(Bullet) For 1997, the total return of the Fund's Class A shares was 7.46%,
6.93% for Class B, 6.93% for Class C, and 7.38% for Class T; versus
a Lipper average of 8.84%. However, the goal of the Fund has been
to target high current income and conservation of principal. In
that light, the Fund's Class A net asset value has gone from $9.48
at the beginning of 1997 to $9.53 at year end. While the yield on
the Fund has gone from 5.65% at the beginning of the year to 7.88%
at the end of 1997. Over this same one year period the yield on the
10 year U.S. treasury fell from 6.42% to 5.74%.
(Bullet) The fund continues to be made up primarily of mortgage based
securities, with about 40% of the Fund invested in straight GNMA
collateral. The bulk of the remaining portion of the portfolio is
in support bonds of U.S. agencies CMO's which have relatively low
price volatility. Given current prepayment speeds, the average life
of the portfolio continues to shorten to under 5 years.
CURRENT STRATEGY
(Bullet) The strategic objectives of the Fund remains to maximize current
income while preserving net asset value.
(Bullet) Our strategy since the second quarter of 1997 has been to buy bonds
that will have limited changes in prices (due to their structures),
but will have rising yields (due to prepayments that are faster
than market consensus). This strategy has been even more successful
than anticipated. As the decline in rates slows, we expect to see
the greater yields in the Fund eventually outpace the change in
market value of its competition.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $105,727,826
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Federal Home Loan Mortgage 7.50%, due 7/15/26 6.7%
2 GNMA 7.00%, due 11/15/2027 6.3%
3 Federal Home Loan Mortgage 7.50%, due 12/15/2024 5.8%
4 GNMA 7.00%, due 2/15/2026 4.9%
5 Fannie Mae 7.00%, due 8/18/2025 4.8%
6 GNMA 7.00%, due 6/15/2026 4.6%
7 Fannie Mae 7.00%, due 6/18/2025 4.6%
8 GNMA 7.00%, due 6/18/2026 4.5%
9 GNMA 7.00%, due 3/15/2026 4.5%
10 GNMA 7.00%, due 1/15/2026 4.4%
------
51.1%
======
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- --------------------------------------------
Inception 5 years 1 year
- --------------------------------------------
Class A 5.05% N/A 2.38 %
- --------------------------------------------
Class B 5.30% N/A 1.93 %
- --------------------------------------------
Class C 6.34% N/A 5.93 %
- --------------------------------------------
Class T 7.25% 7.18% 3.38 %
- --------------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- --------------------------------------------
Inception 5 years 1 year
- --------------------------------------------
Class A 19.18% N/A 7.46 %
- --------------------------------------------
Class B 17.26% N/A 6.93 %
- --------------------------------------------
Class C 17.20% N/A 6.93 %
- --------------------------------------------
Class T 130.05% 7.18% 7.38 %
- --------------------------------------------
35
<PAGE>
NORTHSTAR GOVERNMENT SECURITIES FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
GOVERNMENT SECURITIES 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, 1997, with all distributions reinvested in shares. The average
annualized total return for Class A shares of 5.05% for the period since the
classes' inception on June 5, 1995 reflects payment of the maximum sales charge
of 4.75%. Average annualized total returns of 5.30% and 6.34% since inception on
June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on February 3, 1986 for Class T shares of 7.25%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five 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.
[Graphs appear below with the following plot points:]
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 2.38%
SINCE INCEPTION 5.05%
Lehman
Class A Int Gov't CPI
(6/95 through 12/97)
9528.00 10000.00 10000.00
9369.00 10064.00 10010.00
9199.00 10069.00 10030.00
9466.00 10151.60 10040.00
9684.00 10219.60 10050.10
10025.00 10332.00 10080.20
10234.00 10458.10 10090.30
10508.00 10611.80 10110.50
10449.00 10677.60 10150.90
10095.00 10451.20 10171.20
9959.00 10363.50 10211.90
9865.00 10291.90 10252.80
9813.00 10274.50 10283.50
9977.00 10412.10 10293.80
10012.00 10436.10 10324.70
9938.00 10411.00 10335.00
10169.00 10596.30 10366.00
10478.00 10843.20 10397.10
10744.00 11042.80 10428.30
10567.00 10920.20 10460.00
10580.00 10933.30 10470.10
10582.00 10956.20 10501.50
10358.00 10825.90 10512.00
10497.00 10983.90 10522.50
10590.00 11086.10 10533.00
10730.00 11219.10 10543.60
10999.00 11562.40 10564.70
10921.00 11432.90 10585.80
11099.00 11612.40 10607.00
11230.00 11798.20 10628.20
11256.00 11860.70 10638.80
11355.00 11985.30 10649.40
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 1.93%
SINCE INCEPTION 5.30%
Lehman
Class B Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
9827.00 10064.00 10010.00
9643.00 10069.00 10030.00
9918.00 10151.60 10040.00
10140.00 10219.60 10050.10
10491.00 10332.00 10080.20
10704.00 10458.10 10090.30
10983.00 10611.80 10110.50
10926.00 10677.60 10150.90
10539.00 10451.20 10171.20
10391.00 10363.50 10211.90
10287.00 10291.90 10252.80
10227.00 10274.50 10283.50
10403.00 10412.10 10293.80
10422.00 10436.10 10324.70
10338.00 10411.00 10335.00
10582.00 10596.30 10366.00
10897.00 10843.20 10397.10
11167.00 11042.80 10428.30
10966.00 10920.20 10460.00
10973.00 10933.30 10470.10
10968.00 10956.20 10501.50
10742.00 10825.90 10512.00
10879.00 10983.90 10522.50
10957.00 11086.10 10533.00
11108.00 11219.10 10543.60
11391.00 11562.40 10564.70
11304.00 11432.90 10585.80
11481.00 11612.40 10607.00
11611.00 11798.20 10628.20
11632.00 11860.70 10638.80
11727.00 11985.30 10649.40
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5.93%
SINCE INCEPTION 6.34%
Lehman
Class C Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
9827.00 10064.00 10010.00
9643.00 10069.00 10030.00
9918.00 10151.60 10040.00
10140.00 10219.60 10050.10
10491.00 10332.00 10080.20
10693.00 10458.10 10090.30
10983.00 10611.80 10110.50
10926.00 10677.60 10150.90
10538.00 10451.20 10171.20
10389.00 10363.50 10211.90
10284.00 10291.90 10252.80
10223.00 10274.50 10283.50
10397.00 10412.10 10293.80
10417.00 10436.10 10324.70
10335.00 10411.00 10335.00
10571.00 10596.30 10366.00
10888.00 10843.20 10397.10
11160.00 11042.80 10428.30
10960.00 10920.20 10460.00
10968.00 10933.30 10470.10
10963.00 10956.20 10501.50
10737.00 10825.90 10512.00
10874.00 10983.90 10522.50
10953.00 11086.10 10533.00
11104.00 11219.10 10543.60
11387.00 11562.40 10564.70
11300.00 11432.90 10585.80
11477.00 11612.40 10607.00
11594.00 11798.20 10628.20
11614.00 11860.70 10638.80
11720.00 11985.30 10649.40
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 3.38%
5-YEAR 7.18%
SINCE INCEPTION 7.25%
Lehman
Class T Int Gov't CPI
(1/86 through 12/97)
10000.00 10000.00 10000.00
10309.00 10698.00 9950.00
10849.00 11238.00 10090.00
10480.00 11276.00 10355.00
10337.00 11643.00 10564.00
10663.00 12124.00 10777.00
10644.00 12388.00 11005.00
11371.00 13347.00 11294.00
11894.00 13959.00 11499.00
12176.00 14379.00 11825.00
12914.00 15294.00 12220.00
13506.00 15893.00 12380.00
14815.00 17449.00 12592.00
15134.00 17935.00 12769.00
1626.00 18658.00 12962.00
18307.00 19736.00 13144.00
19269.00 20185.00 13316.00
17246.00 197014.00 13476.00
17378.00 19832.00 13652.00
19068.00 21624.00 13872.00
21356.00 22801.00 14012.00
20248.00 22372.00 14266.00
21424.00 23464.00 14495.00
21755.00 24106.00 14612.00
23006.00 25752.00 14758.00
36
<PAGE>
NORTHSTAR GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.43%
<S> <C> <C>
Countrywide Home Loans
7.25%, 11/25/27 $1,497,933 $ 1,510,126
------------
U.S. GOVERNMENT AND AGENCIES -- 97.23%
Fannie Mae, 0%, due 4/25/27 3,015,249 2,787,839
Fannie Mae, 7.00%, due 7/25/22 593,121 594,865
Fannie Mae, 7.00%, due 6/18/25 4,896,639 4,826,249
Fannie Mae, 7.00%, due 8/18/25 5,000,000 5,090,350
Fannie Mae, 7.00%, due 5/18/26 3,500,000 3,429,180
Fannie Mae, 7.00%, due 4/18/27 694,283 682,567
Fannie Mae, 7.00%, due 7/18/27 3,222,235 3,183,971
Fannie Mae, 7.10%, due 2/28/11 500,000 500,710
Fannie Mae, 7.50%, due 9/18/27 4,125,671 4,118,203
Fannie Mae, 7.50%, due 12/18/27 3,162,360 3,113,937
Fannie Mae, 7.50%, due 12/18/27 2,495,297 2,458,648
Fannie Mae, 8.25%, due 4/18/27 2,742,477 2,804,649
Federal Home Loan Mortgage Corp., 7.00%, due 8/15/23 686,138 685,082
Federal Home Loan Mortgage Corp., 7.50%, due 12/15/24 6,244,899 6,123,904
Federal Home Loan Mortgage Corp., 7.50%, due 7/15/26 7,049,873 7,087,942
Federal Home Loan Mortgage Corp., 7.50%, due 11/15/27 4,322,943 4,209,465
GNMA, 7.00%, due 9/15/23 4,378,167 4,430,180
GNMA, 7.00%, due 1/15/24 3,190,724 3,234,596
GNMA, 7.00%, due 2/16/24 1,870,000 1,891,673
GNMA, 7.00%, due 1/15/26 4,676,261 4,720,125
GNMA, 7.00%, due 2/15/26 5,098,479 5,146,303
GNMA, 7.00%, due 3/15/26 9,305,279 9,392,563
GNMA, 7.00%, due 6/15/26 9,559,523 9,649,191
GNMA, 7.00%, due 11/15/27 6,630,041 6,688,054
GNMA, 7.50%, due 12/20/20 1,000,000 1,024,520
GNMA, 7.50%, due 1/16/23 5,548,066 1,326,931
GNMA, 7.50%, due 1/20/24 2,200,000 2,281,708
GNMA, 8.50%, due 9/15/24 1,245,071 1,314,720
------------
102,798,125
------------
TOTAL INVESTMENT SECURITIES -- 98.66%
(cost $ 101,920,914) 104,308,251
------------
OTHER ASSETS LESS LIABILITIES -- 1.34% 1,419,575
------------
NET ASSETS -- 100.00% $105,727,826
------------
------------
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Northstar Northstar
Balance Sheet Northstar Northstar Government
Northstar Northstar Opportunities High Yield Strategic Securities
Growth Fund Special Fund Fund Fund Income Fund Fund
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value (cost
$156,404,171, $274,426,665, $50,960,684,
$228,259,465, $55,363,998, and
$101,920,914, respectively) $205,867,594 $321,630,029 $ 59,566,872 $238,861,432 $55,363,520 $104,308,251
Repurchase agreements 936,000 18,447,000 334,000 10,934,000 10,346,000 0
Cash 953 700 416 591 546,117 902,742
Receivable for investments sold 0 10,747,181 0 1,348,437 0 0
Dividends and interest receivable 251,437 400,343 542,785 4,603,761 921,411 644,040
Receivable for shares of beneficial
interest sold 40,746 465,963 13,350 371,943 64,384 148,530
Prepaid expenses 4,539 5,257 3,402 1,304 29,896 5,209
---------------------------------------------------------------------------------------
Total Assets 207,101,269 351,696,473 60,460,825 256,121,468 67,271,328 106,008,772
---------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 0 18,418,850 0 0 0 0
Payable for shares of beneficial interest
reacquired 223,947 604,271 109,110 221,943 89,621 80,313
Distribution fee payable 70,059 229,944 38,887 174,034 49,119 61,847
Investment advisory fee payable 130,449 208,091 33,064 129,735 37,323 44,887
Accrued expenses 169,623 299,711 72,964 201,197 83,129 93,899
Tax withholding payable 2,788 0 0 0 0 0
---------------------------------------------------------------------------------------
Total Liabilities 596,866 19,760,867 254,025 726,909 259,192 280,946
---------------------------------------------------------------------------------------
NET ASSETS $206,504,403 $331,935,606 $ 60,206,800 $255,394,559 $67,012,136 $105,727,826
=======================================================================================
NET ASSETS WERE COMPOSED OF:
Capital paid in for shares of beneficial
interest, $0.01 par value outstanding
(unlimited shares authorized) $159,724,799 $278,928,118 $ 50,341,953 $247,252,700 $70,549,044 $123,469,663
Undistributed net investment income 0 0 1,165 0 175,857 390,455
Accumulated net realized gain (loss) on
investments, foreign currency, options,
and futures (2,683,929) 5,804,124 1,257,494 (2,460,108) (3,712,287) (20,519,629)
Net unrealized appreciation(depreciation)
of investments and foreign currency 49,463,533 47,203,364 8,606,188 10,601,967 (478) 2,387,337
---------------------------------------------------------------------------------------
Net Assets $206,504,403 $331,935,606 $ 60,206,800 $255,394,559 $67,012,136 $105,727,826
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
CLASS A:
Net Assets $ 9,334,434 $ 78,159,610 $ 1,280,504 $ 16,212,572 $12,522,673 $ 1,743,825
---------------------------------------------------------------------------------------
Shares outstanding 439,001 2,814,783 98,496 1,773,627 1,039,954 182,979
---------------------------------------------------------------------------------------
Net asset value and redemption value per
share
(net assets / shares outstanding) $ 21.26 $ 27.77 $ 13.00 $ 9.14 $ 12.04 $ 9.53
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Maximum offering price per share (net
asset value plus sales charge of 4.75%
of offering price) $ 22.32 $ 29.15 $ 13.65 $ 9.60 $ 12.64 $ 10.01
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
CLASS B:
Net Assets $ 8,814,752 $169,516,418 $ 4,968,794 $108,469,395 $29,920,546 $ 13,503,159
---------------------------------------------------------------------------------------
Shares outstanding 421,119 6,215,517 384,005 11,856,819 2,486,261 1,413,521
---------------------------------------------------------------------------------------
Net asset value and offering price per
share $ 20.93 $ 27.27 $ 12.94 $ 9.15 $ 12.03 $ 9.55
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
CLASS C:
Net Assets $ 1,151,771 $ 51,459,558 $ 756,436 $ 21,393,015 $ 4,396,571 $ 541,651
---------------------------------------------------------------------------------------
Shares outstanding 55,074 1,887,412 58,425 2,339,129 365,798 56,797
---------------------------------------------------------------------------------------
Net asset value and offering price per
share $ 20.91 $ 27.26 $ 12.95 $ 9.15 $ 12.02 $ 9.54
=======================================================================================
CLASS T:
Net Assets $ 73,674,052 $ 32,800,020 $ 53,201,066 $109,319,577 $20,172,346 $ 89,939,191
---------------------------------------------------------------------------------------
Shares outstanding 3,504,304 1,199,523 4,087,855 11,958,594 1,675,674 9,418,840
---------------------------------------------------------------------------------------
Net asset value and offering price per
share $ 21.02 $ 27.34 $ 13.01 $ 9.14 $ 12.04 $ 9.55
=======================================================================================
CLASS I:
Net Assets $113,529,394
------------
Shares outstanding 5,315,145
------------
Net asset value and offering price per
share $ 21.36
============
</TABLE>
Redemption price per share varies with the length of time Class B, C, and T
shares are held.
See accompanying notes to financial statements.
38
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Northstar Northstar Northstar
Northstar Balance Sheet Northstar Strategic Government
Northstar Special Opportunities High Yield Income Securities
Growth Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of withholding tax of $7,670,
$55,612, $911, $0, $0, and $0,
respectively) $ 1,730,522 $ 3,505,353 $ 507,685 $ 673,084 $ 172,880 $ 0
Interest (net of withholding tax of $0, $0,
$0, $0, $2,503, and $0, respectively) 545,002 748,866 2,877,548 21,922,799 6,509,619 8,741,050
-----------------------------------------------------------------------------------
Total investment income 2,275,524 4,254,219 3,385,233 22,595,883 6,682,499 8,741,050
-----------------------------------------------------------------------------------
EXPENSES:
Investment advisory and management fees 1,412,949 2,341,067 398,127 1,289,419 471,957 762,504
Distribution fees
Class A 108,596 232,469 3,440 43,158 40,631 22,999
Class B 66,765 1,537,323 43,644 951,060 310,321 106,185
Class C 7,319 463,998 6,401 175,716 43,917 8,299
Class T 710,164 327,946 413,243 761,375 224,593 639,583
Transfer agent fees and expenses
Class A 57,189 137,654 2,448 23,832 21,568 13,971
Class B 10,621 296,440 6,983 164,787 54,270 16,657
Class C 1,436 105,379 1,553 31,608 7,322 1,289
Class T 77,866 32,788 63,100 118,873 25,489 101,858
Class I 13,500 0 0 0 0 0
Administrative service fees 136,648 266,145 46,191 180,250 51,242 78,343
Registration fees 94,449 90,453 55,360 78,443 63,526 56,873
Accounting and custodian fees 69,512 99,806 47,174 80,692 46,968 53,791
Audit fees 32,430 34,410 30,181 35,020 30,644 31,369
Printing and postage expenses 63,133 96,918 17,793 69,483 33,823 29,412
Directors 10,450 13,460 9,260 13,540 9,580 11,300
Insurance 5,694 8,237 2,624 8,965 3,022 5,322
Legal fees 8,777 9,670 2,083 7,284 2,450 5,282
Organization 0 0 0 0 21,900 0
Miscellaneous expenses 7,423 8,444 6,062 13,585 6,752 9,875
-----------------------------------------------------------------------------------
2,894,921 6,102,607 1,155,667 4,047,090 1,469,975 1,954,912
Less expenses reimbursed/waived by
management company 10,635 0 20,690 0 21,320 227,803
-----------------------------------------------------------------------------------
Total expenses 2,884,286 6,102,607 1,134,977 4,047,090 1,448,655 1,727,109
-----------------------------------------------------------------------------------
Net investment income(loss) (608,762) (1,848,388) 2,250,256 18,548,793 5,233,844 7,013,941
-----------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments 5,123,066 19,011,083 4,221,598 7,107,354 (432,671) (1,786,143)
Net realized loss on foreign currency (189) 0 0 0 (519,631) 0
Net change in unrealized appreciation
(depreciation) of investments 32,606,026 24,201,023 6,464,152 (977,429) (2,789,807) 2,710,567
Net change in unrealized appreciation of
foreign currency 110 0 0 0 2,508 0
-----------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 37,729,013 43,212,106 10,685,750 6,129,925 (3,739,601) 924,424
-----------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $37,120,251 $41,363,718 $12,936,006 $24,678,718 $1,494,243 $ 7,938,365
===================================================================================
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
Northstar
Balance Sheet
Northstar Northstar Opportunities
Growth Fund Special Fund Fund
-------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1997 1996
--------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ (608,762) $ (236,460) $ (1,848,388) $ (1,247,177) $ 2,250,256 $ 2,838,573
Net realized gain (loss) on investments 5,123,066 4,346,067 19,011,083 (5,942,811) 4,221,598 8,721,311
Net realized gain (loss) on foreign
currency (189) (52) 0 1,712 0 0
Net change in unrealized appreciation
(depreciation) of investments 32,606,026 9,888,907 24,201,023 15,617,585 6,464,152 (4,632,099)
Net change in unrealized appreciation
of foreign currency 110 0 0 0 0 0
--------------------------------------------------------------------------------------
Increase in net assets resulting from
operations 37,120,251 13,998,462 41,363,718 8,429,309 12,936,006 6,927,785
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A 0 0 0 0 (47,893) (46,606)
Class B 0 0 0 0 (159,749) (125,106)
Class C 0 0 0 0 (23,637) (12,103)
Class T 0 0 0 0 (2,022,072) (2,650,498)
Net realized gain from investments (7,933,911) (3,484,245) (7,264,148) 0 (4,444,574) (7,268,332)
Tax return of capital (37,894) 0 0 0 0 0
--------------------------------------------------------------------------------------
Total distributions (7,971,805) (3,484,245) (7,264,148) 0 (6,697,925) (10,102,645)
--------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 196,893,147 8,022,620 112,190,424 263,413,495 1,854,297 3,914,850
Net asset value of shares issued to
shareholders in reinvestment of
distributions 7,655,103 3,217,412 4,759,317 0 5,716,874 8,513,000
--------------------------------------------------------------------------------------
204,548,250 11,240,032 116,949,741 263,413,495 7,571,171 12,427,850
Cost of shares redeemed (107,156,780) (21,542,815) (84,645,169) (43,756,330) (18,329,438) (19,784,271)
--------------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from capital share
transactions 97,391,470 (10,302,783) 32,304,572 219,657,165 (10,758,267) (7,356,421)
--------------------------------------------------------------------------------------
Net increase (decrease) in net assets 126,539,916 211,434 66,404,142 228,086,474 (4,520,186) (10,531,281)
NET ASSETS:
Beginning of year 79,964,487 79,753,053 265,531,464 37,444,990 64,726,986 75,258,267
--------------------------------------------------------------------------------------
End of year $206,504,403 $79,964,487 $331,935,606 $265,531,464 $ 60,206,800 $ 64,726,986
======================================================================================
Undistributed net investment income: $ 0 $ 0 $ 0 $ 0 $ 1,165 $ 4,260
======================================================================================
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
Northstar Northstar
Northstar Strategic Government
High Yield Income Fund Securities Fund
--------------------------- ------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1997 1996
-------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 18,548,793 $ 17,278,818 $ 5,233,844 $ 5,829,223 $ 7,013,941 $ 9,085,300
Net realized gain (loss) on investments 7,107,354 (831,501) (432,671) (250,042) (1,786,143) 932,343
Net realized gain (loss) on foreign
currency 0 18,211 (519,631) 297,066 0 0
Net change in unrealized appreciation
(depreciation) of investments (977,429) 11,649,652 (2,789,807) 2,773,999 2,710,567 (9,831,154)
Net change in unrealized appreciation
(depreciation) of foreign currency 0 0 2,508 (1,117) 0 0
-------------------------------------------------------------------------------------
Increase in net assets resulting from
operations 24,678,718 28,115,180 1,494,243 8,649,129 7,938,365 186,489
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A (1,210,886) (941,693) (994,522) (1,854,931) (485,879) (727,805)
Class B (7,343,871) (4,644,718) (2,119,682) (2,062,659) (636,837) (357,791)
Class C (1,360,819) (796,850) (301,283) (242,856) (46,684) (50,912)
Class T (9,450,916) (10,913,768) (1,622,631) (2,172,688) (6,221,820) (7,862,425)
Tax return of capital 0 (1,706,413) 0 0 0 0
-------------------------------------------------------------------------------------
Total distributions (19,366,492) (19,003,442) (5,038,118) (6,333,134) (7,391,220) (8,998,933)
-------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 56,719,815 73,147,596 13,363,625 21,030,229 7,045,182 19,576,499
Net asset value of shares issued to
shareholders in reinvestment of
distributions 7,905,559 8,526,557 2,272,119 2,480,616 4,869,989 6,013,372
-------------------------------------------------------------------------------------
64,625,374 81,674,153 15,635,744 23,510,845 11,915,171 25,589,871
Cost of shares redeemed (45,594,760) (39,383,908) (24,677,925) (22,562,072) (43,326,996) (37,168,170)
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from capital share
transactions 19,030,614 42,290,245 (9,042,181) 948,773 (31,411,825) (11,578,299)
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets 24,342,840 51,401,983 (12,586,056) 3,264,768 (30,864,680) (20,390,743)
NET ASSETS:
Beginning of year 231,051,719 179,649,736 79,598,192 76,333,424 136,592,506 156,983,249
-------------------------------------------------------------------------------------
End of year $255,394,559 $231,051,719 $67,012,136 $79,598,192 $105,727,826 $136,592,506
=====================================================================================
Undistributed net investment income: $ 0 $ 0 $ 175,857 $ 321,881 $ 390,455 $ 86,367
=====================================================================================
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
NORTHSTAR FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
Net realized Dividends
Net Asset & unrealized declared Distributions
Value, Net gain (loss) Total from from net declared from
Period beginning investment on investment investment net realized Distributions
ended of period income investments operations income gain from Capital
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Growth Fund,
Class A
-------------
12/31/97 $ 17.92 $ 0.03 $ 4.16 $ 4.19 -- ($ 0.85) --
12/31/96 15.53 0.02 3.18 3.20 -- (0.81) --
6/05/95-
12/31/95 17.59 0.08 1.95 2.03 (0.10) (3.99) --
Growth Fund,
Class B
-------------
12/31/97 17.76 (0.15) 4.17 4.02 -- (0.85) --
12/31/96 15.50 (0.06) 3.13 3.07 -- (0.81) --
6/05/95-
12/31/95 17.59 0.06 1.92 1.98 (0.08) (3.99) --
Growth Fund,
Class C
-------------
12/31/97 17.76 (0.13) 4.13 4.00 -- (0.85) --
12/31/96 15.50 (0.05) 3.12 3.07 -- (0.81) --
6/05/95-
12/31/95 17.59 0.04 1.92 1.96 (0.06) (3.99) --
Growth Fund,
Class T
-------------
12/31/97 17.82 (0.17) 4.22 4.05 -- (0.85) --
12/31/96 15.53 (0.06) 3.16 3.10 -- (0.81) --
12/31/95 15.75 0.07 3.77 3.84 (0.07) (3.99) --
12/31/94 17.33 0.08 (1.41) (1.33) (0.08) (0.15) ($ 0.02)
12/31/93 16.36 0.02 1.67 1.69 (0.04) (0.67) (0.01)
12/31/92 16.37 0.02 1.30 1.32 (0.02) (1.31) --
12/31/91 12.49 0.09 4.62 4.71 (0.08) (0.75) --
12/31/90 13.85 0.10 (0.83) (0.73) (0.10) (0.51) (0.02)
Growth Fund,
Class I
-------------
3/31/97-
12/31/97 17.90 0.01 4.30 4.31 -- (0.85) --
Special Fund,
Class A
-------------
12/31/97 24.72 (0.02) 3.68 3.66 -- (0.61) --
12/31/96 20.92 (0.04) 3.84 3.80 -- -- --
6/05/95-
12/31/95 19.56 (0.09) 2.48 2.39 -- (1.03) --
Special Fund,
Class B
-------------
12/31/97 24.46 (0.19) 3.61 3.42 -- (0.61) --
12/31/96 20.84 (0.12) 3.74 3.62 -- -- --
6/05/95-
12/31/95 19.56 (0.12) 2.43 2.31 -- (1.03) --
Special Fund,
Class C
-------------
12/31/97 24.46 (0.20) 3.61 3.41 -- (0.61) --
12/31/96 20.84 (0.13) 3.75 3.62 -- -- --
6/05/95-
12/31/95 19.56 (0.15) 2.46 2.31 -- (1.03) --
Special Fund,
Class T
-------------
12/31/97 24.48 (0.18) 3.65 3.47 -- (0.61) --
12/31/96 20.84 (0.21) 3.85 3.64 -- -- --
12/31/95 19.64 (0.34) 2.57 2.23 -- (1.03) --
12/31/94 20.79 (0.25) (0.76) (1.01) -- (0.14) --
12/31/93 17.40 (0.32) 3.83 3.51 -- (0.12) --
12/31/92 15.74 (0.33) 2.61 2.28 -- (0.62) --
12/31/91 10.64 (0.21) 6.24 6.03 -- (0.93) --
12/31/90 11.67 (0.20) (0.83) (1.03) -- -- --
Balance Sheet Opportunities
Fund, Class A
-------------------------------
12/31/97 11.78 0.52 2.27 2.79 (0.54) (1.03) --
12/31/96 12.53 0.56 0.74 1.30 (0.57) (1.48) --
6/05/95-
12/31/95 12.77 0.43 1.06 1.49 (0.48) (1.25) --
Balance Sheet Opportunities
Fund, Class B
-------------------------------
12/31/97 11.74 0.44 2.25 2.69 (0.46) (1.03) --
12/31/96 12.51 0.50 0.71 1.21 (0.50) (1.48) --
6/05/95-
12/31/95 12.77 0.35 1.09 1.44 (0.45) (1.25) --
Balance Sheet Opportunities
Fund, Class C
-------------------------------
12/31/97 11.75 0.43 2.25 2.68 (0.45) (1.03) --
12/31/96 12.52 0.49 0.70 1.19 (0.48) (1.48) --
6/05/95-
12/31/95 12.77 0.38 1.07 1.45 (0.45) (1.25) --
Balance Sheet Opportunities
Fund, Class T
-------------------------------
12/31/97 11.79 0.50 2.24 2.74 (0.49) (1.03) --
12/31/96 12.54 0.53 0.73 1.26 (0.53) (1.48) --
12/31/95 11.54 0.57 2.27 2.84 (0.59) (1.25) --
12/31/94 12.94 0.57 (1.25) (0.68) (0.54) (0.16) (0.02)
12/31/93 12.05 0.49 1.20 1.69 (0.49) (0.31) --
12/31/92 11.66 0.55 0.36 0.91 (0.52) -- --
12/31/91 10.13 0.57 1.53 2.10 (0.57) -- --
12/31/90 10.71 0.61 (0.54) 0.07 (0.63) -- (0.02)
<CAPTION>
Ratio of
Ratio of net
Net Net expenses Ratio of investment
Asset Assets, to expense income to
Value, end of average reimbursement average
Period Total end of Total period net to average net Portfolio
ended Distributions period Return (000's) assets(1) net assets(1) assets(1) turnover
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
12/31/97 ($ 0.85) $21.26 23.59% $9,334 1.37% 0.03% 0.04% 32%
12/31/96 (0.81) 17.92 20.54 4,750 1.50 0.06 0.11 62
6/05/95-
12/31/95 (4.09) 15.53 11.55 1,355 1.42 -- 0.63 134
12/31/97 (0.85) 20.93 22.84 8,815 2.14 -- (0.95) 32
12/31/96 (0.81) 17.76 19.74 4,444 2.20 0.04 (0.55) 62
6/05/95-
12/31/95 (4.07) 15.50 11.27 1,987 2.07 -- 0.06 134
12/31/97 (0.85) 20.91 22.73 1,152 2.17 -- (1.00) 32
12/31/96 (0.81) 17.76 19.74 365 2.20 0.15 (0.57) 62
6/05/95-
12/31/95 (4.05) 15.50 11.17 69 2.11 -- 0.02 134
12/31/97 (0.85) 21.02 22.94 73,674 2.03 -- (0.81) 32
12/31/96 (0.81) 17.82 19.90 70,406 2.00 0.04 (3.05) 62
12/31/95 (4.06) 15.53 24.40 76,343 2.00 -- 0.37 134
12/31/94 (0.25) 15.75 (7.66) 76,391 2.00 -- 0.49 54
12/31/93 (0.72) 17.33 10.36 80,759 2.04 -- 0.13 42
12/31/92 (1.33) 16.36 8.05 56,759 2.15 -- 0.09 47
12/31/91 (0.83) 16.37 38.10 40,884 2.25 -- 0.66 64
12/31/90 (0.63) 12.49 (5.24) 24,927 2.33 -- 0.80 54
3/31/97-
12/31/97 (0.85) 21.36 24.29 113,529 1.02 -- 0.08 32
12/31/97 (0.61) 27.77 14.92 78,160 1.43 -- (0.07) 175
12/31/96 -- 24.72 18.16 65,660 1.46 0.01 (0.30) 140
6/05/95-
12/31/95 (1.03) 20.92 12.20 2,335 1.50 -- (0.91) 71
12/31/97 (0.61) 27.27 14.10 169,516 2.15 -- (0.78) 175
12/31/96 -- 24.46 17.37 126,859 2.17 0.01 (1.01) 140
6/05/95-
12/31/95 (1.03) 20.84 11.79 1,491 2.20 0.01 (1.64) 71
12/31/97 (0.61) 27.26 14.06 51,460 2.18 -- (0.82) 175
12/31/96 -- 24.46 17.37 37,342 2.20 0.01 (1.03) 140
6/05/95-
12/31/95 (1.03) 20.84 11.79 62 2.20 0.03 (1.60) 71
12/31/97 (0.61) 27.34 14.29 32,800 1.99 -- (0.62) 175
12/31/96 -- 24.48 17.47 35,670 2.07 0.04 (0.89) 140
12/31/95 (1.03) 20.84 11.34 33,557 2.16 -- (1.50) 71
12/31/94 (0.14) 19.64 (4.86) 38,848 2.16 -- (1.25) 39
12/31/93 (0.12) 20.79 20.16 28,838 2.34 -- (1.66) 35
12/31/92 (0.62) 17.40 14.54 11,336 2.84 -- (2.12) 40
12/31/91 (0.93) 15.74 57.27 5,480 2.95 0.74 (1.57) 85
12/31/90 -- 10.64 (8.83) 3,024 2.95 2.03 (0.97) 72
12/31/97 (1.57) 13.00 24.31 1,281 1.50 0.02 4.01 130
12/31/96 (2.05) 11.78 10.54 1,100 1.40 0.09 4.30 107
6/05/95-
12/31/95 (1.73) 12.53 11.95 797 1.27 -- 4.99 131
12/31/97 (1.49) 12.94 23.48 4,969 2.15 0.02 3.37 130
12/31/96 (1.98) 11.74 9.76 3,765 2.10 0.07 3.64 107
6/05/95-
12/31/95 (1.70) 12.51 11.56 1,759 1.95 -- 4.38 131
12/31/97 (1.48) 12.95 23.41 756 2.25 -- 3.30 130
12/31/96 (1.96) 11.75 9.72 372 2.10 0.10 3.61 107
6/05/95-
12/31/95 (1.70) 12.52 11.49 231 1.91 -- 4.49 131
12/31/97 (1.52) 13.01 23.91 53,201 1.83 0.04 3.70 130
12/31/96 (2.01) 11.79 10.18 59,490 1.69 0.06 3.99 107
12/31/95 (1.84) 12.54 25.11 72,472 1.68 -- 4.44 131
12/31/94 (0.72) 11.54 (5.33) 73,764 1.69 -- 4.36 59
12/31/93 (0.80) 12.94 14.08 80,841 1.77 -- 3.99 38
12/31/92 (0.52) 12.05 8.06 56,823 2.02 -- 4.73 59
12/31/91 (0.57) 11.66 21.17 49,367 2.06 -- 5.21 77
12/31/90 (0.65) 10.13 0.78 44,750 2.10 -- 5.73 57
</TABLE>
Average
Commission
Period Per
ended Share(2)
- ------------------------
12/31/97 $0.0609
12/31/96 0.0593
6/05/95-
12/31/95 --
12/31/97 0.0609
12/31/96 0.0593
6/05/95-
12/31/95 --
12/31/97 0.0609
12/31/96 0.0593
6/05/95-
12/31/95 --
12/31/97 0.0609
12/31/96 0.0593
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
3/31/97-
12/31/97 0.0609
12/31/97 0.0383
12/31/96 0.0392
6/05/95-
12/31/95 --
12/31/97 0.0383
12/31/96 0.0392
6/05/95-
12/31/95 --
12/31/97 0.0383
12/31/96 0.0392
6/05/95-
12/31/95 --
12/31/97 0.0383
12/31/96 0.0392
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
12/31/97 0.0629
12/31/96 0.0690
6/05/95-
12/31/95 --
12/31/97 0.0629
12/31/96 0.0690
6/05/95-
12/31/95 --
12/31/97 0.0629
12/31/96 0.0690
6/05/95-
12/31/95 --
12/31/97 0.0629
12/31/96 0.0690
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
(1) Annualized
(2) For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
See accompanying notes to financial statements.
42
<PAGE>
NORTHSTAR FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD -- (CONTINUED)
<TABLE>
<CAPTION>
Net realized Dividends
Net Asset & unrealized declared Distributions
Value, Net gain (loss) Total from from net declared from
Period beginning investment on investment investment net realized Distributions
ended of period income investments operations income gain from Capital
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
High Yield
Fund, Class A
-------------
12/31/97 $ 8.94 $ 0.73 $ 0.23 $ 0.96 ($0.76) -- --
12/31/96 8.56 0.76 0.44 1.20 (0.75) -- ($ 0.07)
12/31/95 8.68 0.48 (0.10) 0.38 (0.50) -- --
High Yield
Fund, Class B
-------------
12/31/97 8.95 0.67 0.23 0.90 (0.70) -- --
12/31/96 8.57 0.71 0.43 1.14 (0.69) -- ($ 0.07)
12/31/95 8.68 0.44 (0.09) 0.35 (0.46) -- --
High Yield
Fund, Class C
-------------
12/31/97 8.95 0.67 0.23 0.90 (0.70) -- --
12/31/96 8.57 0.72 0.42 1.14 (0.69) -- ($ 0.07)
12/31/95 8.68 0.44 (0.09) 0.35 (0.46) -- --
High Yield
Fund, Class T
-------------
12/31/97 8.94 0.71 0.23 0.94 (0.74) -- --
12/31/96 8.56 0.73 0.45 1.18 (0.73) -- ($ 0.07)
12/31/95 8.29 0.84 0.26 1.10 (0.83) -- --
12/31/94 9.31 0.81 (0.99) (0.18) (0.83) ($ 0.01) --
12/31/93 9.09 0.85 0.80 1.65 (0.83) (0.60) --
12/31/92 7.94 0.92 1.19 2.11 (0.94) (0.02) --
12/31/91 6.27 1.08 1.67 2.75 (1.08) -- --
12/31/90 8.55 1.12 (2.30) (1.18) (1.10) -- --
Strategic
Income Fund,
Class A
-------------
12/31/97 12.67 1.00 (0.69) 0.31 (0.94) -- --
12/31/96 12.40 0.93 0.35 1.28 (1.01) -- --
6/05/95-
12/31/95 12.24 0.63 0.13 0.76 (0.60) -- --
Strategic
Income Fund,
Class B
-------------
12/31/97 12.67 0.87 (0.66) 0.21 (0.85) -- --
12/31/96 12.39 0.85 0.36 1.21 (0.93) -- --
6/05/95-
12/31/95 12.24 0.55 0.15 0.70 (0.55) -- --
Strategic
Income Fund,
Class C
-------------
12/31/97 12.65 0.88 (0.65) 0.23 (0.86) -- --
12/31/96 12.38 0.85 0.35 1.20 (0.93) -- --
6/05/95-
12/31/95 12.24 0.55 0.14 0.69 (0.55) -- --
Strategic
Income Fund,
Class T
-------------
12/31/97 12.67 0.94 (0.70) 0.24 (0.87) -- --
12/31/96 12.39 0.88 0.35 1.23 (0.95) -- --
12/31/95 11.71 0.98 0.66 1.64 (0.96) -- --
7/01/94-
12/31/94 12.00 0.51 (0.25) 0.26 (0.49) (0.05) (0.01)
Government Securities Fund,
Class A
-------------------------------
12/31/97 9.48 0.68 -- 0.68 (0.63) -- --
12/31/96 10.07 0.63 (0.60) 0.03 (0.62) -- --
6/05/95-
12/31/95 9.51 0.34 0.59 0.93 (0.37) -- --
Government Securities Fund,
Class B
-------------------------------
12/31/97 9.48 0.52 0.11 0.63 (0.56) -- --
12/31/96 10.07 0.57 (0.60) (0.03) (0.56) -- --
6/05/95-
12/31/95 9.51 0.30 0.59 0.89 (0.33) -- --
Government Securities Fund,
Class C
-------------------------------
12/31/97 9.47 0.59 0.04 0.63 (0.56) -- --
12/31/96 10.07 0.58 (0.62) (0.04) (0.56) -- --
6/05/95-
12/31/95 9.51 0.30 0.59 0.89 (0.33) -- --
Government Securities Fund,
Class T
-------------------------------
12/31/97 9.48 0.57 0.10 0.67 (0.60) -- --
12/31/96 10.07 0.60 (0.59) 0.01 (0.60) -- --
12/31/95 8.74 0.58 1.35 1.93 (0.60) -- --
12/31/94 10.32 0.56 (1.56) (1.00) (0.57) -- (0.01)
12/31/93 9.22 0.59 1.09 1.68 (0.58) -- --
12/31/92 8.99 0.61 0.23 0.84 (0.61) -- --
12/31/91 8.47 0.67 0.52 1.19 (0.67) -- --
12/31/90 8.47 0.68 -- 0.68 (0.68) -- --
<CAPTION>
Ratio of
Ratio of net
Net Net expenses Ratio of investment
Asset Assets, to expense income to
Value, end of average reimbursement average
Period Total end of Total period net to average net Portfolio
ended Distributions period Return (000's) assets(1) net assets(1) assets(1) turnover
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
12/31/97 ($ 0.76) $ 9.14 11.18% $16,213 1.20% -- 8.06% 134%
12/31/96 (0.82) 8.94 14.74 13,146 1.11 -- 8.60 128
12/31/95 (0.50) 8.56 4.48 7,466 1.02 -- 9.83 103
12/31/97 (0.70) 9.15 10.38 108,469 1.91 -- 7.35 134
12/31/96 (0.76) 8.95 13.94 79,199 1.81 -- 7.88 128
12/31/95 (0.46) 8.57 4.17 29,063 1.71 -- 9.18 103
12/31/97 (0.70) 9.15 10.37 21,393 1.92 -- 7.35 134
12/31/96 (0.76) 8.95 13.93 14,275 1.82 -- 7.85 128
12/31/95 (0.46) 8.57 4.17 3,410 1.72 -- 9.29 103
12/31/97 (0.74) 9.14 10.86 109,320 1.47 -- 7.77 134
12/31/96 (0.80) 8.94 14.49 124,431 1.31 -- 8.43 128
12/31/95 (0.83) 8.56 13.71 139,711 1.33 -- 9.69 103
12/31/94 (0.84) 8.29 (2.18) 136,426 1.34 -- 9.08 86
12/31/93 (1.43) 9.31 18.89 125,095 1.40 -- 8.84 176
12/31/92 (0.96) 9.09 27.57 64,063 1.50 0.05% 10.30 122
12/31/91 (1.08) 7.94 46.49 25,651 1.50 0.46 14.84 57
12/31/90 (1.10) 6.27 (14.59) 11,342 1.44 0.81 15.15 156
12/31/97 (0.94) 12.04 2.50 12,523 1.45 0.03 7.75 225
12/31/96 (1.01) 12.67 10.88 17,293 1.40 0.05 7.55 130
6/05/95-
12/31/95 (0.60) 12.40 6.40 21,790 1.36 0.07 7.03 153
12/31/97 (0.85) 12.03 1.67 29,921 2.18 0.02 7.02 225
12/31/96 (0.93) 12.67 10.18 30,733 2.10 0.09 6.82 130
6/05/95-
12/31/95 (0.55) 12.39 5.89 22,143 2.06 0.06 6.47 153
12/31/97 (0.86) 12.02 1.75 4,397 2.17 0.02 7.03 225
12/31/96 (0.93) 12.65 10.11 4,222 2.10 0.11 6.79 130
6/05/95-
12/31/95 (0.55) 12.38 5.81 2,172 2.02 0.06 6.48 153
12/31/97 (0.87) 12.04 1.89 20,172 2.03 0.05 7.17 225
12/31/96 (0.95) 12.67 10.39 27,350 1.90 0.09 7.07 130
12/31/95 (0.96) 12.39 14.54 30,228 1.90 0.28 6.86 153
7/01/94-
12/31/94 (0.55) 11.71 2.14 25,252 1.90 0.63 7.92 156
12/31/97 (0.63) 9.53 7.46 1,744 1.15 0.17 6.44 129
12/31/96 (0.62) 9.48 0.57 14,185 1.09 0.20 6.85 101
6/05/95-
12/31/95 (0.37) 10.07 10.04 3,235 1.02 0.20 6.01 295
12/31/97 (0.56) 9.55 6.93 13,503 1.89 0.17 5.50 129
12/31/96 (0.56) 9.48 (0.15) 9,135 1.80 0.20 6.05 101
6/05/95-
12/31/95 (0.33) 10.07 9.61 2,790 1.70 0.20 5.20 295
12/31/97 (0.56) 9.54 6.93 542 1.85 0.17 5.67 129
12/31/96 (0.56) 9.47 (0.21) 1,147 1.80 0.21 6.22 101
6/05/95-
12/31/95 (0.33) 10.07 9.61 8 1.68 0.20 5.28 295
12/31/97 (0.60) 9.55 7.38 89,939 1.45 0.20 5.99 129
12/31/96 (0.60) 9.48 0.32 112,126 1.30 0.21 6.37 101
12/31/95 (0.60) 10.07 22.90 150,951 1.30 0.20 6.23 295
12/31/94 (0.58) 8.74 (9.82) 152,608 1.29 0.20 6.00 315
12/31/93 (0.58) 10.32 18.48 184,156 1.31 0.20 5.83 81
12/31/92 (0.61) 9.22 9.77 144,144 1.39 0.20 6.81 120
12/31/91 (0.67) 8.99 14.73 121,389 1.44 0.20 7.68 87
12/31/90 (0.68) 8.47 8.57 108,420 1.43 0.20 8.23 17
Average
Commission
Period Per
ended Share(2)
- ------------------------
12/31/97 --
12/31/96 $0.0777
12/31/95 --
12/31/97 --
12/31/96 0.0777
12/31/95 --
12/31/97 --
12/31/96 0.0777
12/31/95 --
12/31/97 --
12/31/96 0.0777
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
12/31/95 --
7/01/94-
12/31/94 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
</TABLE>
(1) Annualized
(2) For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
See accompanying notes to financial statements.
43
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- Northstar Growth Fund, Northstar Special Fund, Northstar
Balance Sheet Opportunities Fund, Northstar High Yield Fund, Northstar Strategic
Income Fund, and Northstar Government Securities Fund (collectively the "Funds")
are organized under the laws of the Commonwealth of Massachusetts and registered
under the Investment Company Act of 1940 as diversified open-end management
investment companies. Each is a separate investment company with its own
investment objective and specific investment goals set forth below:
NORTHSTAR GROWTH FUND ("Growth Fund") seeks to achieve long-term growth of
capital by investing principally in common stocks selected for their prospects
for capital appreciation.
NORTHSTAR SPECIAL FUND ("Special Fund") seeks to achieve capital
appreciation through investment in a diversified portfolio of equity securities
selected for their potential for growth, primarily in small and
mid-capitalization companies.
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND ("Balance Sheet Opportunities
Fund") seeks to realize income and secondarily, capital appreciation through
investments in a balance of debt securities, common and preferred stocks, and
securities convertible into common stock.
NORTHSTAR HIGH YIELD FUND ("High Yield Fund") seeks to achieve high current
income primarily through investments in long and intermediate-term high
yield-high risk, lower-rated and nonrated corporate debt instruments.
NORTHSTAR STRATEGIC INCOME FUND ("Strategic Income Fund") seeks to achieve
high current income by allocating its investments among the following three
sectors of the fixed income securities markets: debt obligations of the U.S.
Government, its agencies and instrumentalities; high yield-high risk,
lower-rated and nonrated U.S. and foreign fixed income securities, and
investment grade debt obligations of foreign governments, their agencies and
instrumentalities and obligations of supranational entities.
NORTHSTAR GOVERNMENT SECURITIES FUND ("Government Securities Fund") seeks to
achieve a high level of current income and to conserve principal by investing in
debt obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
Security Valuation -- Equity securities are valued 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 or 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 Funds. The books and records
of the Funds are maintained in U.S. dollars. Securities quoted in foreign
currencies are translated into in U.S. dollars based on the prevailing exchange
rates on that day. The Adviser uses independent pricing services to price the
Funds' securities.
Security Transactions, Investment Income and 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 accrued, 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 each Fund or class of shares based upon the relative net asset value.
Distributions to Shareholders -- Dividends from net investment income are
declared and paid monthly by the Government Securities, Strategic Income and
High Yield Funds, declared and paid quarterly by the Balance Sheet Opportunities
Fund and declared and paid annually by the Growth and Special Funds.
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 Funds 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 return of capital
distributions received on portfolio securities, and differing treatments of
foreign currency transactions, income earned from limited partnerships, and net
operating losses. As of December 31, 1997, the following amounts have been
reclassified from undistributed net investment income to accumulated net
realized gain(loss) on investments and paid-in-capital:
44
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED NET
NET INVESTMENT REALIZED GAIN
INCOME ON INVESTMENTS PAID-IN- CAPTIAL
-------------- --------------- ---------------
<S> <C> <C> <C>
Growth Fund $ 608,762 $ (696,823) $ 88,061
Special
Fund 1,848,388 0 (1,848,388)
Balance
Sheet
Opportunities
Fund 0 (43,151) 43,151
High Yield
Fund 817,699 0 (817,699)
Strategic
Income
Fund (341,750) 381,210 (39,460)
Government
Securities
Fund 681,367 2,387,010 (3,068,377)
</TABLE>
These restatements did not affect net investment income, net realized gain
on investments, or net assets for the year ended December 31, 1997.
Foreign Currency -- The Funds isolate 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 represent 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.
Forward Foreign Currency Contracts, Options and Futures -- The Funds may
enter into forward foreign currency contracts ("contracts") to purchase or sell
currencies at a specified rate at a future date. The Funds may enter into these
contracts solely for hedging purposes.
The Funds write and purchase put and call options on foreign currencies. The
premium paid or collected by the Funds for the purchase or sale 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 Funds
have purchased or sold expires on the stipulated expiration date, the Funds
realize a gain or loss in the amount of the cost of the option.
The amount of potential gain or loss to the Funds upon exercise of a written
call option is the value (in U.S. dollars) of the currency sold, less the value
of the U.S. dollars received in exchange. The amount of potential gain or loss
to the Funds upon exercise of a written put option is the value (in U.S.
dollars) of the currency received, less the value of the U.S. dollars paid in
exchange.
Risks may arise upon entering these contracts from the potential inability
of counterparties to meet the terms of their contract and from unanticipated
movement in the value of a foreign currency relative to the U.S. dollar.
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 market value of the contract
at the end of each day's trading.
Variation margin payments are received or made, depending upon whether
unrealized gains or losses are incurred. When the contract is closed, the Funds
record 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.
Repurchase Agreements -- The Funds' 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 Funds have 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 Funds may be delayed or limited.
Federal Income Taxes -- The Funds intend 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.
Organization Expenses -- Organization expenses have been capitalized by the
Funds and amortized on a straight-line basis over a 60 month period from the
commencement of operations of each Fund. Costs incurred by the Strategic Income
Fund in connection with its organization and its original registration amounted
to $105,074.
Management 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(s) of financial statements and the reported amounts of
45
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
income and expenses during the reporting period(s). Actual results could differ
from those estimates.
NOTE 2. INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
Northstar, Inc. (and its wholly owned operating subsidiaries, Northstar
Investment Management Corp., Northstar Distributors, Inc. and Northstar
Administrator Corp.) is a wholly owned subsidiary of ReliaStar Financial Corp.
Northstar Investment Management Corp. (the "Adviser") serves as each Fund's
investment adviser. Each Fund pays the Adviser an investment advisory fee
calculated at an annual rate of 0.60% of average daily net assets for High Yield
Fund, 0.65% of average daily net assets for the Government Securities, Strategic
Income and Balance Sheet Opportunities Funds, and 0.75% of average daily net
assets for the Growth and Special Funds. The Adviser has agreed to waive 0.20%
of its advisory fee for the Government Securities Fund through June 2, 1997 and
0.15% of its' fee from June 3, 1997 through December 31, 1997 therefore the rate
paid equals 0.45% and 0.50% of average daily net assets, respectively. For the
period ended December 31, 1997, the Adviser waived $201,863 of advisory fees for
the Government Securities Fund. For the period ended December 31, 1997, the
Funds paid advisory fees to Northstar Investment Management Corp. of $6,676,023.
Navellier Fund Management, Inc. ("Navellier"), a registered investment adviser,
serves as subadviser to the Special Fund pursuant to a Subadvisory Agreement
dated February 1, 1996, between the Adviser and Navellier. For its services,
Navellier receives from the adviser, an annual fee equal to 0.48% of the average
daily net assets of the Fund. For the period ended December 31, 1997, Navellier
received $1,498,283 in subadvisory fees from the Adviser.
The Adviser has voluntarily undertaken to limit the expenses through June 2,
1997 of the Growth Fund 1.50%(Class A), 2.20% (Class B & C), 2.00% (Class T),
and 1.20% (Class I); Balance Sheet Opportunities Fund 1.40% (Class A), 2.10%
(Class B & C), and 1.69% (Class T); Strategic Income Fund 1.40% (Class A), 2.10%
(Class B & C), and 1.90% (Class T), and Government Securities Fund 1.20% (Class
A), 1.90% (Class B & C), and 1.30% (Class T) of each respective class's average
net assets. The Adviser will reimburse the Funds for amounts in excess of such
limits, up to the total amount of fees received during the period. At December
31, 1997, the Advisor's reimbursements aggregated $10,655, $20,690, $21,320, and
$25,940 for the Growth, Balance Sheet Opportunities, Strategic Income, and
Government Securities Funds, respectively.
Northstar Administrators Corp.(the "Administrator"), an affiliate of the
Adviser, serves as administrator to the Funds pursuant to an Administrative
Services Agreement. The Funds pay the Administrator a fee calculated at an
annual rate of 0.10% of each Fund's average daily net assets, and an annual
shareholder account servicing fee of $5.00, payable semi-annually, for each
account of benefical owners of shares. For the period ended December 31, 1997,
the Administrator earned $758,819 in administrative and account servicing fees.
Northstar Distributors, Inc. (the "Distributor") an affiliate of the Adviser
and the Administrator, is the distributor of each Fund's shares. Under separate
Plans of Distribution pertaining to Class A, Class B, Class C, Class T and Class
I shares, the Funds pay 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, Class
C and Class T 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 for all Funds. Class T shares pay
monthly distribution fees at an annual rate of 0.40% of average daily net assets
for the Government Securities and High Yield Funds, 0.50% of average daily net
assets for the Balance Sheet Opportunities Fund and 0.70% of average daily net
assets for the Strategic Income, Growth and Special Funds. Class I does not pay
distribution and service fees. At December 31, 1997, the Funds owed the
Distributor $623,890 in service and distribution fees.
The Distributor also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares, and the contingent deferred
sales charge paid by shareholders upon certain redemptions of Class A, Class B,
Class C, and Class T shares. For the year ended December 31, 1997, the
Distributor earned the following amounts in sales charges:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
SHARES SHARES SHARES SHARES
-------- ---------- ------- --------
<S> <C> <C> <C> <C>
Initial sales
charges $168,527 N/A N/A N/A
Contingent deferred
sales charges 19,613 $1,191,059 $76,182 $295,636
</TABLE>
46
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
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, 1997, were
as follows:
<TABLE>
<CAPTION>
BALANCE SHEET GOVERNMENT
OPPORTUNITIES HIGH YIELD STRATEGIC SECURITIES
GROWTH FUND SPECIAL FUND FUND FUND INCOME FUND FUND
------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate purchases $145,656,638 $534,272,587 $73,053,600 $333,208,197 $149,909,671 $143,805,716
Aggregate sales $ 56,187,171 $519,072,484 $73,344,326 $303,449,640 $156,117,414 $154,326,702
</TABLE>
U.S. Government Securities included above were as follows:
<TABLE>
<CAPTION>
BALANCE SHEET STRATEGIC GOVERNMENT
OPPORTUNITIES HIGH YIELD INCOME SECURITIES
GROWTH FUND SPECIAL FUND FUND FUND FUND FUND
----------- ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate purchases $ 0 $ 0 $ 0 $ 0 $27,282,265 $138,357,901
Aggregate sales $ 0 $ 0 $ 0 $ 0 $15,800,159 $154,220,731
</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, 1997 were as
follows:
<TABLE>
<CAPTION>
BALANCE SHEET GOVERNMENT
OPPORTUNITIES HIGH YIELD STRATEGIC SECURITIES
GROWTH FUND SPECIAL FUND FUND FUND INCOME FUND FUND
------------ ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cost (tax basis) $156,411,258 $274,426,665 $50,986,181 $228,259,465 $55,363,998 $101,920,914
------------ ------------ ------------- ------------ ----------- ------------
Appreciated Securities 53,888,398 56,210,279 11,052,400 11,557,803 1,469,639 2,598,087
Depreciated Securities (4,432,062) (9,006,915) (2,471,709) (955,836) (1,470,117) (210,750)
------------ ------------ ------------- ------------ ----------- ------------
Net Unrealized Appreciation (Depreciation) $ 49,456,336 $ 47,203,364 $ 8,580,691 $ 10,601,967 ($ 478) $ 2,387,337
------------ ------------ ------------- ------------ ----------- ------------
</TABLE>
NOTE 5. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of each Fund for the period ended December
31, 1997, were as follows:
<TABLE>
<CAPTION>
GROWTH FUND
----------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T CLASS I
------------------------ ------------------- ------------------ ---------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ------- ---------- ------- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 4,948,104 $ 90,181,184 196,741 $4,073,833 45,632 $ 942,905 103,219 $ 2,051,076 5,103,096
Reinvested dividends 16,078 328,000 14,024 278,226 1,589 31,885 132,655 2,674,236 212,049
Shares redeemed (4,790,196) (92,183,541) (39,870) (806,346) (12,677) (268,724) (682,339) (13,898,169) 0
---------- ------------ ------- ---------- ------- --------- -------- ------------ ---------
Net increase (decrease) 173,986 ($ 1,674,357) 170,895 $3,545,713 34,544 $ 706,066 (446,465) ($ 9,172,857) 5,315,145
---------- ------------ ------- ---------- ------- --------- -------- ------------ ---------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 99,644,149
Reinvested dividends 4,342,756
Shares redeemed 0
------------
Net increase (decrease) $103,986,905
------------
</TABLE>
<TABLE>
<CAPTION>
SPECIAL FUND
------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ---------------------- --------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 1,364,964 $ 35,499,440 2,018,199 $ 52,638,926 875,397 $ 22,754,897 49,189
Reinvested dividends 50,419 1,341,158 88,461 2,311,517 16,358 427,279 25,930
Shares redeemed (1,257,205) (33,779,086) (1,077,764) (28,194,293) (531,137) (13,917,748) (332,440)
---------- ------------ ---------- ------------ -------- ------------ --------
Net increase (decrease) 158,178 $ 3,061,512 1,028,896 $ 26,756,150 360,618 $ 9,264,428 (257,321)
---------- ------------ ---------- ------------ -------- ------------ --------
<CAPTION>
AMOUNT
-----------
<S> <C>
Shares sold $ 1,297,161
Reinvested dividends 679,363
Shares redeemed (8,754,042)
-----------
Net increase (decrease) ($6,777,518)
-----------
</TABLE>
47
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
BALANCE SHEET OPPORTUNITIES FUND
-------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ----------------------- ---------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 18,655 $ 247,494 80,799 $ 1,029,162 26,217 $ 320,585 19,037
Reinvested dividends 9,094 115,909 34,359 436,019 6,029 76,490 399,395
Shares redeemed (22,622) (289,132) (51,749) (651,384) (5,429) (70,103) (1,374,726)
---------- ------------ ---------- ----------- --------- ----------- ----------
Net increase (decrease) 5,127 $ 74,271 63,409 $ 813,797 26,817 $ 326,972 (956,294)
---------- ------------ ---------- ----------- --------- ----------- ----------
HIGH YIELD FUND
-------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ----------------------- ---------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ----------- --------- ----------- ----------
Shares sold 673,910 $ 6,107,186 4,082,034 $36,992,626 1,196,278 $10,861,847 304,769
Reinvested dividends 68,304 617,643 223,181 2,020,829 30,648 277,663 552,318
Shares redeemed (438,817) (3,958,008) (1,299,119) (11,783,138) (483,573) (4,370,241) (2,811,948)
---------- ------------ ---------- ----------- --------- ----------- ----------
Net increase (decrease) 303,397 $ 2,766,821 3,006,096 $27,230,317 743,353 $ 6,769,269 (1,954,861)
---------- ------------ ---------- ----------- --------- ----------- ----------
STRATEGIC INCOME FUND
-------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ----------------------- ---------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ----------- --------- ----------- ----------
Shares sold 446,966 $ 5,589,832 475,283 $ 5,964,807 118,356 $ 1,483,699 25,790
Reinvested dividends 55,446 690,235 53,638 667,577 7,190 89,264 66,243
Shares redeemed (827,291) (10,431,620) (468,589) (5,851,465) (93,402) (1,163,649) (575,430)
---------- ------------ ---------- ----------- --------- ----------- ----------
Net increase (decrease) (324,879) ($ 4,151,553) 60,332 $ 780,919 32,144 $ 409,314 (483,397)
---------- ------------ ---------- ----------- --------- ----------- ----------
GOVERNMENT SECURITIES FUND
-------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ----------------------- ---------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ----------- --------- ----------- ----------
Shares sold 61,921 $ 582,690 578,504 $ 5,464,770 68,250 $ 644,001 37,047
Reinvested dividends 39,003 361,654 56,149 526,891 700 6,593 424,682
Shares redeemed (1,414,955) (13,335,151) (184,573) (1,732,986) (133,228) (1,259,675) (2,875,090)
---------- ------------ ---------- ----------- --------- ----------- ----------
Net increase (decrease) (1,314,031) ($12,390,807) 450,080 $ 4,258,675 (64,278) ($ 609,081) (2,413,361)
---------- ------------ ---------- ----------- --------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 257,056
Reinvested dividends 5,088,456
Shares redeemed (17,318,819)
------------
Net increase (decrease) ($11,973,307)
------------
AMOUNT
------------
Shares sold $ 2,758,156
Reinvested dividends 4,989,424
Shares redeemed (25,483,373)
------------
Net increase (decrease) ($17,735,793)
------------
AMOUNT
------------
Shares sold $ 325,287
Reinvested dividends 825,043
Shares redeemed (7,231,191)
------------
Net increase (decrease) ($ 6,080,861)
------------
AMOUNT
------------
Shares sold $ 353,721
Reinvested dividends 3,974,851
Shares redeemed (26,999,184)
------------
Net increase (decrease) ($22,670,612)
------------
</TABLE>
Transactions in capital shares of each Fund for the twelve months ended
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
GROWTH FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 215,652 $ 3,898,525 145,699 $ 2,385,877 17,690 $ 291,243 90,737
Reinvested dividends 10,967 198,714 8,536 152,930 723 12,843 158,321
Shares redeemed (48,822) (803,512) (32,185) (531,632) (2,328) (39,672) (1,215,332)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) 177,797 $ 3,293,727 122,050 $ 2,007,175 16,085 $ 264,414 (966,274)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 1,446,975
Reinvested dividends 2,852,925
Shares redeemed (20,167,999)
------------
Net increase (decrease) ($15,868,099)
------------
</TABLE>
<TABLE>
<CAPTION>
SPECIAL FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 3,480,949 $ 84,633,270 5,433,970 $131,453,623 1,739,092 $42,056,956 222,847
Shares redeemed (935,948) (22,565,835) (318,902) (7,614,905) (215,261) (5,187,697) (376,467)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) 2,545,001 $ 62,067,435 5,115,068 $123,838,718 1,523,831 $36,869,259 (153,620)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 5,269,646
Shares redeemed (8,387,893)
------------
Net increase (decrease) ($ 3,118,247)
------------
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET OPPORTUNITIES FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 31,867 $ 409,691 161,646 $ 2,068,438 13,747 $ 174,866 99,979
Reinvested dividends 11,446 136,696 34,438 407,500 4,068 48,215 663,010
Shares redeemed (13,528) (172,359) (16,102) (205,751) (4,631) (59,861) (1,498,511)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) 29,785 $ 374,028 179,982 $ 2,270,187 13,184 $ 163,220 (735,522)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 1,261,855
Reinvested dividends 7,920,589
Shares redeemed (19,346,300)
------------
Net increase (decrease) ($10,163,856)
------------
</TABLE>
48
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
HIGH YIELD FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 827,729 $ 7,207,156 5,911,912 $ 51,482,500 1,413,571 $12,306,310 248,508
Reinvested dividends 62,173 539,834 168,302 1,463,685 17,304 150,556 733,966
Shares redeemed (291,691) (2,549,211) (621,900) (5,398,570) (233,244) (2,046,070) (3,384,341)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) 598,211 $ 5,197,779 5,458,314 $ 47,547,615 1,197,631 $10,410,796 (2,401,867)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 2,151,630
Reinvested dividends 6,372,482
Shares redeemed (29,390,057)
------------
Net increase (decrease) ($20,865,945)
------------
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 474,942 $ 5,738,010 1,003,182 $ 12,151,460 212,149 $ 2,571,465 45,952
Reinvested dividends 50,560 625,158 54,402 672,776 5,092 62,954 90,573
Shares redeemed (918,406) (11,512,407) (418,455) (5,172,202) (59,061) (727,367) (416,724)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) (392,904) ($ 5,149,239) 639,129 $ 7,652,034 158,180 $ 1,907,052 (280,199)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 569,294
Reinvested dividends 1,119,728
Shares redeemed (5,150,096)
------------
Net increase (decrease) ($ 3,461,074)
------------
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 1,173,549 $ 10,970,069 741,529 $ 6,986,079 130,474 $ 1,220,625 42,726
Reinvested dividends 69,846 652,825 30,877 290,097 308 2,892 538,420
Shares redeemed (67,570) (639,341) (85,933) (814,043) (10,459) (98,119) (3,742,558)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) 1,175,825 $ 10,983,553 686,473 $ 6,462,133 120,323 $ 1,125,398 (3,161,412)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 399,726
Reinvested dividends 5,067,558
Shares redeemed (35,616,667)
------------
Net increase (decrease) ($30,149,383)
------------
</TABLE>
NOTE 6. CREDIT RISK AND DEFAULTED SECURITIES
Although the Funds have a diversified portfolio, the High Yield and
Strategic Income Funds had 91.0% and 49.2%, respectively, of their portfolios
invested in lower rated and comparable quality unrated high yield 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. At December 31, 1997, the
Balance Sheet Opportunities Fund held SA Telecommunications, Inc., security in
default. In addition, the High Yield Fund held Alliant Computer Systems, Inc.
and Capital Gaming International, Inc., securities in default.
For financial reporting purposes, it is each 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. FEDERAL INCOME TAX -- CAPITAL LOSS CARRYFORWARD
At December 31, 1997, the High Yield Fund had capital loss carryforwards
expiring December 31, 2003 and 2004 of $1,889,212 and $570,896, respectively.
The Government Securities Fund had capital loss carryforwards expiring December
31, 1998, 2002, and 2005 of $1,442,754, $16,737,216, and $2,339,660,
respectively. The Strategic Income Fund had capital loss carryforwards expiring
December 31, 2002 and 2003 of $640,074 and $1,301,325, respectively.
NOTE 8. COMPENSATING BALANCE ARRANGEMENT
The Funds have an informal compensating balance with the Custodian whereby
the Funds may have overdrafts in their respective accounts and have no interest
assessed on the overdrafts. In return, the Funds are required to maintain
positive balances to offset negative balances. The required deposits are
calculated by dividing the overdrawn amounts by 0.90. At December 31, 1997, the
Funds did not have any compensating balances.
49
<PAGE>
NORTHSTAR FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Trustees of
the Northstar Funds:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Northstar Funds, comprising Northstar
Growth Fund, Northstar Special Fund, Northstar Balance Sheet Opportunities Fund,
Northstar High Yield Fund, Northstar Strategic Income Fund, and Northstar
Government Securities Fund (collectively the "Funds") as of December 31, 1997,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each period presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective Funds constituting Northstar Funds as of December 31,
1997, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods referred to above, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 12, 1998
50
<PAGE>
[Northstar Funds logo appears here)
NORTHSTAR
FUNDS
