As filed with the Securities and Exchange Commission on December 31, 1998
Registration Nos. 33-849; 811-4431
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form N1-A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 25
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26
NORTHSTAR GROWTH FUND
---------------------------------------------------------------
(Exact name of Registrant as specified in charter)
300 First Stamford Place, Stamford, CT 06902
-----------------------------------------------------
(Address of Principal Executive Offices)
(203) 602-7881
--------------------------------------
(Registrant's telephone number)
Mark L. Lipson
c/o Northstar Investment Management Corporation
300 First Stamford Place, Stamford, CT 06902
-----------------------------------------------------
(Name and address for agent for service)
Copies of all correspondence to:
Jeff Steele, Esq.
Dechert, Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
<PAGE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
on [date] pursuant to paragraph (b)
- - -
60 days after filing pursuant to paragraph (a)(1)
- - -
X on March 1, 1999 pursuant to paragraph (a)(1)
- - -
75 days after filing pursuant to paragraph (a)(2)
- - -
on [date] pursuant to paragraph (a)(2) of Rule 485
- - -
If appropriate, check the following box:
this post-effective amendment designates a new effective
- - - date for a previously filed post-effective amendment.
- --------------------------------------------------------------------------------
<PAGE>
THE
NORTHSTAR GROWTH FUND AND
NORTHSTAR BALANCE SHEET
OPPORTUNITIES
FUND
PROSPECTUS
March 1, 1999
[GRAPHIC OMITTED]
This prospectus contains important information about investing in two Northstar
Funds: Northstar Growth Fund and Northstar Balance Sheet Opportunities Fund. As
with all mutual funds, the Securities and Exchange Commission has not judged
whether the information in this prospectus is accurate or complete or whether
these funds are good investments. Anyone who indicates otherwise is committing a
federal crime.
<PAGE>
WHAT'S
INSIDE
- --------------------------------------------------------------------------------
[CLIPART] OBJECTIVE
[CLIPART] INVESTMENT
STRATEGY
WHAT
[CLIPART] YOU PAY
TO INVEST
[CLIPART] RISKS
HOW THE
[CLIPART] FUND HAS
PERFORMED
- --------------------------------------------------------------------------------
These pages contain a description of each of our funds, including its objective,
investment strategy, risks and portfolio manager.
You'll also find:
WHAT YOU PAY TO INVEST. A list of the fees and expenses you pay -- both directly
and indirectly -- when you invest in a fund.
HOW THE FUND HAS PERFORMED. A chart that shows the fund's financial performance
for up to ten years.
- --------------------------------------------------------------------------------
NORTHSTAR GROWTH FUND 3
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND 5
MEET THE PORTFOLIO MANAGERS 7
YOUR GUIDE TO BUYING, SELLING AND
EXCHANGING SHARES OF NORTHSTAR FUNDS 8
MUTUAL FUND EARNINGS AND YOUR TAXES 15
THE BUSINESS OF MUTUAL FUNDS 17
FINANCIAL HIGHLIGHTS 18
WHERE TO GO FOR MORE INFORMATION back cover
- --------------------------------------------------------------------------------
<PAGE>
NORTHSTAR
GROWTH
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [CLIPART]
This fund seeks long-term growth of capital by investing primarily in domestic
common stocks.
INVESTMENT [CLIPART]
STRATEGY
The fund invests in small and mid-sized companies that the portfolio manager
feels have above average prospects for growth.
Under normal market conditions, the fund invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. The fund also holds preferred stocks and convertible securities.
It may invest up to 20% of its net assets in foreign issuers, but only 10% of
its net assets can be in securities that are not listed on a U.S. securities
exchange.
In periods of unusual market conditions, the fund may temporarily invest part
or all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
WHAT YOU PAY [CLIPART]
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
Fees you pay directly
<TABLE>
<CAPTION>
Class A Class B Class C Class T
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your
investment (as a % of offering price) % 4.75 none none none
- --------------------------------------------------------------------------------------------------------
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
- --------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 38 for details.
(2) This charge decreases over time. Please see page 38 for details.
Operating expenses paid each year by the fund
(as a % of average net assets)
Class A Class B Class C Class T
- --------------------------------------------------------------------------------
Management fee % 0.75 0.75 0.75 0.75
- --------------------------------------------------------------------------------
12b-1 fee(3) % 0.30 1.00 1.00 0.95
- --------------------------------------------------------------------------------
Other expenses % 0.32 0.39 0.42 0.33
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES % 1.37 2.14 2.17 2.03
- --------------------------------------------------------------------------------
- ----------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
Example
Here's an example of what you would pay in expenses if you invested $10,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A
if you sell your shares $
................................................................................
Class B
if you sell your shares $ (4)
if you don't sell your shares $ (4)
................................................................................
Class C
if you sell your shares $
if you don't sell your shares $
................................................................................
Class T
if you sell your shares $ (5)
if you don't sell your shares $ (5)
................................................................................
- ----------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(5) Class T shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
[CLIPART] If you have any questions, please call 1-800-595-7827.
Northstar Growth Fund 3
<PAGE>
NORTHSTAR Portfolio manager
GROWTH Mary Lisanti
FUND
- --------------------------------------------------------------------------------
RISKS [CLIPART]
All mutual funds involve risk - some more than others - and there's always the
chance that you could lose money or not earn as much as you hope.
Every fund is affected by the economy and by the investment decisions portfolio
managers make. Because it invests in equities of small and mid-sized companies,
this fund may offer the potential for higher returns, but its performance may
also go up or down rapidly depending on market conditions.
The fund's investments in smaller companies may be subject to more abrupt or
erratic movements in price because:
o the securities of smaller companies are traded in lower volume
o smaller companies are more likely to experience changes in earnings and
growth prospects than the securities of larger, more established companies
o the value of the securities depends on the success of products or
technologies that are in a relatively early stage of development and that
may not have been tested.
The fund trades securities actively. This may generate taxable capital gains,
and generally increases trading costs, which can lower performance.
- --------------------------------------------------------------------
HOW THE [CLIPART]
FUND HAS
PERFORMED
The table below compares the fund's long-term performance with the Russell 2000
Index, while the bar chart below shows you changes in the fund's performance
from year to year for the past 10 years. All figures assume reinvestment of
dividends and distributions. Looking at how a fund has performed in the past is
important - but it's no guarantee of how it will perform in the future.
Average annual total return(1)
Russell
2000
Class A Class B Class C Class T Index(2)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 %
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % N/A N/A N/A
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % N/A N/A N/A
- --------------------------------------------------------------------------------
- ------------------
(1) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on February 3, 1986.
(2) The Russell 2000 Index measures the performance of securities of small
companies.
Year by year total return (%)(3)
- ------------------
(3) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
[The following information was depicted as a bar graph in the printed material.]
BAR CHART TO COME
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best and worst quarterly performance during this period:
* quarter 19**: up *%
* quarter 19**: down *%
4 Northstar Growth Fund
<PAGE>
NORTHSTAR
BALANCE SHEET
OPPORTUNITIES
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [CLIPART]
This fund seeks income, with a secondary objective of capital appreciation,
primarily by investing in domestic debt and equity securities.
INVESTMENT [CLIPART]
STRATEGY
The portfolio manager reviews various factors relating to a potential issuer,
especially its financial statements, to determine which type of security -- debt
or equity -- offers the best potential for high current income combined with the
potential for capital growth.
Under normal market conditions, the fund invests at least 51% of its total
assets in income-producing securities. It may hold up to 50% of its assets in
debt securities rated as low as B by Moody's or S&P (junk bonds). Equity
securities include common stocks, preferred stocks, convertible securities and
warrants and other stock purchase rights. Income-producing securities have
varying maturities and pay fixed, floating or adjustable interest rates. The
fund may also hold pay-in-kind securities and discount obligations, including
zero coupon securities. The fund may invest up to 20% of its net assets in
foreign issuers, but only 10% of its net assets can be in securities that are
not listed on a U.S. securities exchange.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
WHAT YOU PAY [CLIPART]
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
Fees you pay directly
<TABLE>
<CAPTION>
Class A Class B Class C Class T
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your
investment (as a % of offering price) % 4.75 none none none
- --------------------------------------------------------------------------------------------------------
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
- --------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 38 for details.
(2) This charge decreases over time. Please see page 38 for details.
Operating expenses paid each year by the fund
(as a % of average net assets)
Class A Class B Class C Class T
- --------------------------------------------------------------------------------
Management fee % 0.65 0.65 0.65 0.65
- --------------------------------------------------------------------------------
12b-1 fee(3) % 0.30 1.00 1.00 0.75
- --------------------------------------------------------------------------------
Other expenses % 0.55 0.50 0.60 0.43
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES % 1.50 2.15 2.25 1.83
- --------------------------------------------------------------------------------
- -----------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
Example
Here's an example of what you would pay in expenses if you invested $10,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A
if you sell your shares $
................................................................................
Class B
if you sell your shares $ (4)
if you don't sell your shares $ (4)
................................................................................
Class C
if you sell your shares $
if you don't sell your shares $
................................................................................
Class T
if you sell your shares $ (5)
if you don't sell your shares $ (5)
................................................................................
- -----------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(5) Class T shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
[CLIPART] If you have any questions, please call 1-800-595-7827.
Northstar Balance Sheet Opportunities Fund 5
<PAGE>
NORTHSTAR Portfolio manager
BALANCE SHEET Thomas Ole Dial
OPPORTUNITIES
FUND
- --------------------------------------------------------------------------------
RISKS [CLIPART]
All mutual funds involve risk - some more than others - and there's always the
chance that you could lose money or not earn as much as you hope.
Every fund is affected by the economy and by the investment decisions portfolio
managers make. Because it invests in high yield securities and equities, this
fund may offer the potential for higher returns, but its performance may also go
up or down rapidly depending on market conditions.
This fund's performance is significantly affected by changes in interest rates.
When interest rates increase, the value of the fund's debt securities -
particularly those with longer durations - will go down. The value of the fund's
high yield securities are particularly sensitive to changes in interest rates,
and there is a higher risk that the company that issued the security may not be
able to meet its financial obligations, or that there won't be a market to sell
the security at a reasonable price.
Although the portfolio manager invests in a mix of debt securities and equities
to decrease volatility, the mix the portfolio manager chooses may also lower the
fund's performance.
This fund's performance will also be affected if the portfolio manager makes an
inaccurate assessment of economic conditions and investment opportunities, and
chooses a company that, for example, declares bankruptcy and is no longer able
to make interest or principal payments.
Foreign investments can also be affected by the following:
o political, social or economic developments in foreign countries
o unfavorable currency exchange rates
o a lack of liquidity in foreign markets
o inadequate or inaccurate information about foreign companies
o accounting, auditing and/or financial reporting standards that are different
from those in the United States.
- --------------------------------------------------------------------------------
HOW THE [CLIPART]
FUND HAS
PERFORMED
The table below compares the fund's long-term performance with the S&P 500
Index, while the bar chart below shows you changes in the fund's performance
from year to year for the past 10 years. All figures assume reinvestment of
dividends and distributions. Looking at how a fund has performed in the past is
important - but it's no guarantee of how it will perform in the future.
Average annual total return(1)
S&P 500
Class A Class B Class C Class T Index(2)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 %
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % N/A N/A N/A
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % N/A N/A N/A
- --------------------------------------------------------------------------------
- ------------------
(1) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on February 3, 1986.
(2) The S&P 500 Index measures the performance of common stocks.
Year by year total return (%)(3)
- ------------------
(3) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
[The following information was depicted as a bar graph in the printed material.]
BAR CHART TO COME
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best and worst quarterly performance during this period:
* quarter 19**: up *%
* quarter 19**: down *%
6 Northstar Balance Sheet Opportunities Fund
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
- --------------------------------------------------------------------------------
Thomas Ole Dial
Thomas Ole Dial has co-managed the Northstar High Total Return Fund II since
March 1998, and has managed the Northstar Balance Sheet Opportunities Fund
since May 1997. He has managed the Northstar High Total Return Fund since the
fund was formed. Mr. Dial, who has over 12 years of investment management
experience, joined Northstar in October 1993.
Before joining Northstar, Mr. Dial was Executive Vice President, Chief
Investment Officer-Fixed Income of National Securities & Research Corporation,
and Senior Portfolio Manager of the National Bond Fund from August 1990 through
July 1993.
Mary Lisanti
Mary Lisanti has been the co-manager of the Northstar Mid-Cap Growth Fund since
the fund was formed, manager of the Northstar Special Fund since July 1998 and
manager of the Northstar Growth Fund since August 1998. She joined Northstar in
May 1998.
Ms. Lisanti has over 20 years of experience in small and mid-cap investments.
Before joining Northstar, Ms. Lisanti was a Portfolio Manager at Strong Capital
Management where she managed the Strong Small Cap Fund and co-managed the
Strong Mid Cap Fund. From 1993 to 1996, Ms. Lisanti was a Managing Director and
Head of Small and Mid-Capitalization Equity Strategies at Bankers Trust Corp.
where she managed the BT Small Cap Fund and the BT Capital Appreciation Fund.
Prior to Bankers Trust, Ms. Lisanti was a Portfolio Manager with the Evergreen
Funds. She began her career as an analyst specializing in emerging growth
stocks with Donaldson, Lufkin & Jenrette and Shearson Lehman Hutton, was ranked
number one INSTITUTIONAL INVESTOR emerging growth stock analyst in 1989 and was
named to that survey two other times.
Ms. Lisanti earned her BA with honors from Princeton University. She is a
Chartered Financial Analyst, and a member of the New York Society of Security
Analysts and the Financial Analyst Federation.
- --------------------------------------------------------------------------------
NORTHSTAR INVESTMENT MANAGEMENT CORPORATION
Northstar Investment Management Corporation (Northstar) provides advice and
recommendations about investments made by all of the funds and oversees the
investment management of the funds by the sub-advisers.
Northstar is a registered investment adviser that currently manages over $4
billion in mutual funds and institutional accounts.
[CLIPART] If you have any questions, please call 1-800-595-7827.
7
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
THERE ARE THREE STEPS TO TAKE WHEN
YOU WANT TO BUY, SELL OR EXCHANGE SHARES OF OUR FUNDS:
o first, choose a share class
o second, open a Northstar account and make your first investment
o third, choose one of several ways to buy, sell or exchange shares.
- --------------------------------------------------------------------------------
CHOOSING A
SHARE CLASS
All Northstar funds are available in Class A, Class B and Class C shares.
The chart below summarizes the differences between the share classes -- your
choice of share class will depend on how much you are investing and for how
long. Large investments qualify for a reduced Class A sales charge and Class A
shares avoid the higher distribution fees of classes B and C. Investments in
Class B and Class C shares don't have a front-end sales charge but there is a
restriction on the amount you can invest at one time. Your financial consultant
can help you, or feel free to call us for more information.
Some of our funds also have Class T shares. You can no longer buy Class T shares
unless you are reinvesting income earned on Class T shares, or exchanging Class
T shares you already own, including Class T shares of the Cash Management Fund
of Salomon Brothers Investment Series (a money market fund that's available
through Northstar, but isn't one of the Northstar funds).
In addition to Class A, Class B and Class C shares, the Northstar Special Fund,
Northstar Mid-Cap Growth Fund and Northstar Research Enhanced Index Fund offer
Class I shares. Class I shares are only available to certain defined benefit
plans, insurance companies and foundations investing for their own account.
Class I shares may have different sales charges and other expenses, which may
affect performance. You can obtain additional information concerning Class I
shares by calling us at 1-800-595-7827.
We've listed actual expenses charged to the funds beginning on page 2.
- --------------------------------------------------------------------------------
Maximum CLASS A no limit
amount you CLASS B $ 500,000
can buy CLASS C $ 1,000,000
CLASS T can only be purchased by reinvesting income or
exchanging other Class T shares
- --------------------------------------------------------------------------------
Front-end CLASS A yes, varies by size of investment
sales charge CLASS B none
CLASS C none
CLASS T none
- --------------------------------------------------------------------------------
Deferred CLASS A only on investments of $1 million or more if
sales charge you sell within 18 months
CLASS B yes, if you sell within 5 years
CLASS C yes, if you sell within 1 year
CLASS T yes, if you sell within 4 years
- --------------------------------------------------------------------------------
Service fee CLASS A 0.25% per year
CLASS B 0.25% per year
CLASS C 0.25% per year
CLASS T 0.25% per year
- --------------------------------------------------------------------------------
Distribution CLASS A 0.05% per year
fee CLASS B 0.75% per year
CLASS C 0.75% per year
CLASS T from 0.40% to 0.75% per year (varies by fund)
- --------------------------------------------------------------------------------
Conversion CLASS B Class B shares convert to Class A shares after
8 years
CLASS T Class T shares convert to Class A shares after
8 years
- --------------------------------------------------------------------------------
8
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
FRONT-END SALES CHARGES
(Class A shares only)
<TABLE>
<CAPTION>
Amount retained by
Your investment Front-end sales charge dealers
- --------------------------------------------------------------------------------------------------
as a percentage as a percentage as a percentage
of your net investment of offering price of offering price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
up to $99,999 4.99 4.75 4.00
- --------------------------------------------------------------------------------------------------
$100,000 to $249,000 3.90 3.75 3.10
- --------------------------------------------------------------------------------------------------
$250,000 to $499,000 2.83 2.75 2.30
- --------------------------------------------------------------------------------------------------
$500,000 to $999,000 2.04 2.00 1.70
- --------------------------------------------------------------------------------------------------
$1,000,000 and over -- -- --
- --------------------------------------------------------------------------------------------------
</TABLE>
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
There are three ways you can reduce your front-end sales charges.
1. Take advantage of purchases you've already made
Rights of accumulation let you combine the value of all the Class A shares
you already own with your current investment to calculate your sales charge.
2. Take advantage of purchases you intend to make
By signing a non-binding letter of intent, you can combine investments you
plan to make over a 13 month period to calculate the sales charge you'll pay
on each investment.
3. Buy as part of a group of investors
You can combine your investments with others in a recognized group when
calculating your sales charge. The following is a general list of the groups
Northstar recognizes for this benefit:
o you, your spouse and your children under the age of 21
o a trustee or fiduciary for a single trust, estate or fiduciary account
(including qualifying pension, profit sharing and other employee benefit
trusts)
o any other organized group that has been in existence for at least six
months, and wasn't formed solely for the purpose of investing at a
discount.
You may not have to pay front-end sales charges or a CDSC if you are:
o an active or retired trustee, director, officer, partner or employee
(including immediate family) of
- Northstar or of any of its affiliated companies
- any Northstar affiliated investment company
- a dealer that has a sales agreement with the distributor
o a trustee or custodian of any qualified retirement plan or IRA
established for the benefit of anyone in the point above
o a dealer, broker or registered investment adviser who has entered into
an agreement with the distributor providing for the use of shares of the
funds in particular investment products such as "wrap accounts" or other
similar managed accounts for the benefit of your clients
o a service provider for Northstar, any Northstar affiliated company, or
any Northstar affiliated investment company
o a Brandes employee, officer or partner
o an owner, participant or beneficiary of life insurance and/or annuity
contracts with ReliaStar Life Insurance Company (ReliaStar) or any
ReliaStar affiliated life insurance company to the extent they invest
payments made to them under the contracts in one or more of the funds
within sixty days of payment under the contracts.
Pension, profit sharing and other benefit plans created pursuant to a plan
qualified under Section 401 of the Code or plans under Section 456 of the Code
don't pay a front-end sales charge or a CDSC, as long as the shares are
purchased by an employer sponsored plan with at least 50 eligible employees.
Investment advisors or financial planners who charge a management, consulting
or other fee for their service, don't pay a front-end sales charge or a CDSC
when they place trades for their own accounts or the accounts of their clients,
or when their clients place trades for their own accounts, as long as the
accounts are linked to the master account of the investment advisor or
financial planner on the books and records of the broker or agent.
Please call us or consult the SAI to find out if you are eligible to reduce
your sales charges using any of these methods.
[CLIPART] If you have any questions, please call 1-800-595-7827.
9
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
DEFERRED SALES
CHARGES
(Classes A, B, C & T)
We deduct a contingent deferred sales charge (CDSC) from the proceeds when you
sell shares as indicated below. A CDSC is charged on the current market value
of the shares, or on the price you paid for them, whichever is less. You aren't
charged a CDSC on shares you acquired by reinvesting your dividends, or on
amounts representing appreciation.
When you ask us to sell shares, we will sell those that are exempt from the
CDSC first, and then sell the shares you have held the longest. This helps keep
your CDSC as low as possible.
CLASS A SHARES
There is generally no CDSC on Class A shares, except for purchases of $1
million or more, when you sell them within 18 months of when you bought them.
Your investment CDSC on shares being sold
- --------------------------------------------------------------------------------
First $1,000,000 to $2,499,999 1.00%
- --------------------------------------------------------------------------------
$2,500,000 to $4,999,999 0.50%
- --------------------------------------------------------------------------------
$5,000,000 and over 0.25%
- --------------------------------------------------------------------------------
CLASS B, C & T SHARES
Years after you
bought the shares Class B Class C Class T
- --------------------------------------------------------------------------------
1st year 5.00% 1.00% 4.00%
- --------------------------------------------------------------------------------
2nd year 4.00% -- 3.00%
- --------------------------------------------------------------------------------
3rd year 3.00% -- 2.00%
- --------------------------------------------------------------------------------
4th year 2.00% -- 1.00%
- --------------------------------------------------------------------------------
5th year 2.00% -- --
- --------------------------------------------------------------------------------
after 5 years -- -- --
- --------------------------------------------------------------------------------
WHEN THE CDSC MIGHT BE WAIVED
We may waive the CDSC for Class B and Class C shares if:
o the shareholder dies or becomes disabled
o you're selling your shares through our systematic withdrawal program
o you're selling shares of a retirement plan and you are over 70 1/2 years old
o you're exchanging Class B, C or T shares for the same class of shares of
another Northstar fund
o you fall into any of the waiver categories listed on page 37.
Please call us or consult the SAI to find out if you are eligible for a CDSC
waiver.
10
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
OPENING A
NORTHSTAR
ACCOUNT
Once you've chosen the funds you would like to invest in and the share class you
prefer, you're ready to open an account.
First, determine how much money you want to invest. The minimum initial
investment for Northstar funds is:
o $2,500 for non-retirement accounts (we reserve the right to accept smaller
amounts)
o $250 for retirement accounts
o $25 if you are investing using our automatic investment plan (see page 41).
Next, open an account in one of two ways:
o give a check to your financial consultant, who will open an account for you,
or
o complete the application enclosed with this prospectus and mail it to us,
along with your check made payable to Northstar funds.
TAX-SHELTERED RETIREMENT PLANS
Call or write to us about opening your Northstar account as any one of the
following retirement plans:
o Roth IRAs
o IRAs
o SEP-IRAs
o Simple IRAs.
- --------------------------------------------------------------------------------
BUYING, SELLING
AND EXCHANGING
Once you've opened an account and made your first investment, you can choose one
of three ways to buy, sell or exchange shares of Northstar funds:
o through your financial consultant
o directly, by mail or over the telephone
o using one of our automatic plans.
We'll send you a confirmation statement every time you make a transaction that
affects your account balance, except when we pay distributions.
Some broker-dealers or agents might charge you a fee if you buy or sell shares
through them.
Instructions for each option appear in the chart on page 41, but here are a few
things you should know before you begin.
- --------------------------------------------------------------------------------
HOW SHARES ARE
PRICED
The price you pay or receive when you buy, sell or exchange shares is
determined by the net asset value (NAV) per share of the share class. NAV is
calculated each business day at the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern time) by dividing the net assets of
each fund class by the number of shares outstanding. To calculate NAV, we
determine the fair market value of the fund's portfolio securities using the
method described in the SAI.
When you're buying shares, you'll pay the NAV that is next calculated after we
receive your order in proper form, plus any sales charges that apply.
When you're selling shares, you'll receive the NAV that is next calculated after
we receive your order in proper form, less any deferred sales charges that
apply.
- --------------------------------------------------------------------------------
SOME RULES FOR
BUYING
o The minimum amount of each investment after your first one is:
- $100 for non-retirement accounts
- $25 for retirement accounts
- $25 if you are investing using our automatic investment plan (see page
41).
o We record most shares on our books electronically. We will issue a
certificate if you ask us to in writing, however most of our shareholders
prefer not to have their shares in certificate form because certificated
shares can't be sold or exchanged by telephone or using the systematic
withdrawal program.
o We have the right to refuse a request to buy shares.
[CLIPART] If you have any questions, please call 1-800-595-7827.
11
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
SOME RULES FOR
SELLING
o Selling your shares may result in a deferred sales charge. Please refer to
the table on page .
o We'll pay you within three days from the time we receive your request to
sell, unless you're selling shares you recently paid for by check. In that
case, we'll pay you when your check has cleared, which may take up to 15
days.
o If you are a corporation, partnership, executor, administrator, trustee,
custodian, guardian or you are selling shares of a retirement plan, you'll
need to complete special documentation and give us your request in writing.
Please call us for information.
o You can reinvest part or all of the proceeds of any shares you sell without
paying a sales charge. You must let us know in writing 30 days from the day
you sold the shares, and buy the same class of shares you sold. We will
reimburse you for any CDSC you paid. Please see page for information about
how this can affect your taxes.
o If selling shares results in the value of your account falling below $500,
we have the right to close your account, so long as your account has been
open for at least a year. We'll let you know 60 days in advance, and if you
don't bring the account balance above $500, we'll sell your shares, mail the
proceeds to you and close your account. We may also close your account if
you give us an incorrect social security number or taxpayer identification
number.
o In unusual circumstances, we may temporarily suspend the processing of
requests to sell.
- --------------------------------------------------------------------------------
SOME RULES FOR
EXCHANGING
o When you exchange shares, you are selling shares of one fund and using the
proceeds to buy shares of another fund. Please see page for information
about how this can affect your taxes.
o Before you make an exchange, be sure to read the prospectus that discusses
the shares you're exchanging to.
o You can exchange shares of any fund for the same class of shares of any
other fund, or for shares of the Cash Management Fund without a sales
charge. You will, however, pay a sales charge if you buy shares of the Cash
Management Fund, and then exchange them for Class A shares of any of the
funds.
o For the purposes of calculating CDSC, shares you exchange will continue to
age from the day you first purchased them, even if you're exchanging into
the Cash Management Fund.
o We'll let you know 60 days in advance if we want to make any changes to
these rules.
12
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
WAYS TO BUY, SELL OR EXCHANGE WHEN TO USE THIS OPTION
- ------------------------------------------- --------------------------------
THROUGH YOUR FINANCIAL CONSULTANT o buy
o sell
o exchange
- ------------------------------------------- --------------------------------
BY MAIL
Please call us if you have any questions -- o buy
we can't process your request until we have o sell
all of the documents we need. o exchange
- ------------------------------------------- --------------------------------
BY TELEPHONE
To sign up for this service, complete o sell
section 9 of the application or call us at o exchange
1-800-595-7827.
- ------------------------------------------- --------------------------------
AUTOMATIC INVESTMENT PLAN
To sign up for this service, complete o buy
section 7 of the application or call us at
1-800-595-7827.
- ------------------------------------------- --------------------------------
SYSTEMATIC WITHDRAWAL PROGRAM
To sign up for this service, complete o sell
section 8 of the application or call us at
1-800-595-7827.
[CLIPART] If you have any questions, please call 1-800-595-7827.
13
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
HOW TO USE IT
- --------------------------------------------------------------------------------
If you're BUYING shares, make your check payable to Northstar Funds and give it
to your financial consultant, who will forward it to us.
When you're SELLING, give your written request to your financial consultant,
who may charge you a fee for this service.
- --------------------------------------------------------------------------------
Send your request to buy, sell or exchange in writing to:
Northstar Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5131
Westborough MA 01581-5131
Your letter should tell us:
o your account number
o your social security number or taxpayer identification number
o the name the account is registered in
o the fund name and share class you're buying or selling, and, for exchanges,
the fund name and share class you're exchanging to
o the dollar value or number of shares you want to buy, sell or exchange.
If you're BUYING include a check payable to Northstar Funds with your request.
If you're SELLING or EXCHANGING, your request must be signed by all registered
owners of the account.
We'll ask you to guarantee the signatures if:
o you are selling more than $50,000 worth of shares
o your address of record has changed in the past 30 days
o you want us to send the payment to someone other than the registered owner,
to an address other than the address of record, or in any form other than by
check.
Signatures can be guaranteed by a bank, a member of the national stock exchange
or another eligible institution.
- --------------------------------------------------------------------------------
You can SELL or EXCHANGE up to $50,000 of your shares by telephone.
Call us at 1-800-595-7827 between 8:30 a.m. and 4:00 p.m. Eastern time.
When you're calling with your request, we'll ask you for your name, social
security number, broker of record or other identification. If we don't ask for
these things and process an unauthorized telephone transaction, we are
responsible for any losses to your account. Otherwise you are responsible for
any unauthorized use of the telephone transaction service.
We'll mail the proceeds of the sale to the address of record or wire $1,000 or
more to any commercial bank in the U.S. that is a member of the Federal Reserve
System. Northstar does not charge a fee for this service, but your bank may
charge you a fee for receiving a wire transfer.
- --------------------------------------------------------------------------------
You can authorize us to automatically withdraw a minimum of $25 each month from
your bank account and use it to buy shares in Northstar funds.
There's no charge for this service, but your bank may charge you a small set-up
or transaction fee. You can cancel the program at any time.
- --------------------------------------------------------------------------------
You can ask us to automatically transfer money from your Northstar account into
your bank account.
We will sell shares or share fractions on your behalf monthly, quarterly or
annually and automatically deposit the proceeds into your bank account. There
may be a sales charge on shares we sell on your behalf.
You must have at least $5,000 worth of shares in your account to participate in
this program. The minimum transfer amount is $25.
It isn't to your advantage to buy and sell shares of the same fund at the same
time, so you can't set up a systematic withdrawal program and an automatic
investment plan on the same account.
14
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW THE FUNDS
PAY DISTRIBUTIONS
Each Northstar fund distributes virtually all of its net investment income and
net capital gains to shareholders at least annually in the form of dividends.
The Northstar Growth Fund pays dividends annually, while the Northstar Balance
Sheet Opportunities Fund pays dividends monthly.
As a shareholder, you are entitled to a share of the income and capital gains a
fund distributes. The amount you receive is based on the number of shares you
own.
DISTRIBUTION OPTIONS
You can take your distributions as cash or reinvest them in the same class of
shares of any of our funds. You specify your preference when you open your
account. Distribution options vary by share class, as follows.
CLASS A, B & C SHARES
o reinvest both income dividends and capital gain distributions to buy
additional Class A, B or C shares of any fund you choose
o receive income dividends in cash and reinvest capital gain distributions to
buy additional Class A, B or C shares of any fund you choose
o receive both income dividends and capital gain distributions in cash.
If you want your distributions sent to an address other than the one we have on
record, please request so in writing.
If you don't specify how you would like to receive your distributions, we'll
automatically reinvest both income dividends and capital gain distributions in
additional shares of the same fund.
CLASS T SHARES
You can choose to receive your distributions in cash or by reinvesting them in
additional Class T shares of the same fund or any other fund that offers Class
T shares.
[CLIPART] If you have any questions, please call 1-800-595-7827.
15
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW YOUR
DISTRIBUTIONS
ARE TAXED
Each Northstar fund intends to meet the requirements for being a tax-qualified
regulated investment company, which means they generally do not pay federal
income tax on the earnings they distribute to shareholders.
As a result, you'll generally have to pay taxes on any distributions you
receive. Income distributions, whether you take them as cash or reinvest them,
are taxable as ordinary income. Capital gain distributions are taxable as
long-term capital gains, regardless of how long you've held the shares.
Distributions may also be subject to state, local or foreign taxes.
If income distributed to you includes dividends paid by U.S. corporations, part
of the dividends the fund pays may be eligible for the corporate
dividends-received deduction.
TIMING YOUR PURCHASE
If you buy shares of a fund just before it makes a distribution, you will pay
the full price but part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax-deferred account, such as an
IRA, this is not to your advantage because you'll pay tax on the dividend but
will not have shared in the increase in the net asset value of the fund.
WHEN DISTRIBUTIONS ARE DECLARED
For tax purposes, distributions declared by the fund in October, November or
December and paid to you in January are taxable in the calendar year in which
they were declared.
BACKUP WITHHOLDING TAX
We'll notify you each year of the tax status of dividends and distributions. If
we don't have your tax identification number, or if you have been told by the
IRS that you are subject to backup withholding tax, we may be required to
withhold U.S. federal income tax on any distributions at the rate of 31%.
WHEN YOU SELL YOUR SHARES
When you sell or exchange shares you will realize a capital gain or loss,
depending on the difference between what your shares cost you and what you
receive for them. A capital gain or loss will be long-term or short-term,
depending on the length of time you held the shares.
In your federal income tax return you report a capital gain as income and a
capital loss as a deduction.
CONSULT YOUR TAX ADVISER
The information above is general in nature. You should consult your tax adviser
to discuss how investing in Northstar funds affects your personal tax
situation.
16
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
- --------------------------------------------------------------------------------
HOW DEALERS ARE
COMPENSATED
Dealers are paid in three ways for selling shares of Northstar funds:
THEY RECEIVE A COMMISSION WHEN YOU BUY SHARES
The amount of the commission depends on the amount you invest and the share
class you buy. Sales commissions are detailed in the chart below.
o CLASS A INVESTMENTS
(% OF OFFERING PRICE)
Commission Amount
received by dealers paid
out of sales charges by the
you pay distributor
- --------------------------------------------------------------------------------
up to $99,999 4.00 --
- --------------------------------------------------------------------------------
$100,000 to $249,999 3.10 --
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.30 --
- --------------------------------------------------------------------------------
$500,000 to $999,999 1.70 --
- --------------------------------------------------------------------------------
$1,000,000 to $2,499,999 -- 1.00
- --------------------------------------------------------------------------------
$2,500,000 to $4,999,999 -- 0.50
- --------------------------------------------------------------------------------
$5,000,000 and over -- 0.25
- --------------------------------------------------------------------------------
o CLASS B INVESTMENTS
- --------------------------------------------------------------------------------
Receives 4% of the sale price from the distributor
- --------------------------------------------------------------------------------
o CLASS C INVESTMENTS
- --------------------------------------------------------------------------------
Receives 1% of the sale price from the distributor
- --------------------------------------------------------------------------------
THEY ARE PAID A FEE BY THE DISTRIBUTOR FOR SERVICING YOUR ACCOUNT
They receive a service fee depending on the average net asset value of the
class of shares their clients hold in Northstar funds. These fees are paid from
the 12b-1 fee deducted from each fund class. In addition to covering the cost
of commissions and service fees, the 12b-1 fee is used to pay for other
expenses such as sales literature, prospectus printing and distribution and
compensation to the distributor and its wholesalers. You'll find the 12b-1 fees
listed in the fund information beginning on page 2. Service and distribution
fee percentages appear on page 30.
THEY MAY RECEIVE ADDITIONAL BENEFITS AND REWARDS
Selling shares of Northstar funds may make dealers eligible for awards or to
participate in sales programs sponsored by Northstar. The costs of these
benefits and rewards are not deducted from the assets of the funds -- they are
paid from the distributor's own resources.
The distributor may also pay additional compensation to dealers including
Advest, Inc. out of its own resources for marketing and other services to
shareholders. All payments it receives for Class T shares are paid to Advest,
Inc.
[CLIPART] If you have any questions, please call 1-800-595-7827.
17
<PAGE>
NORTHSTAR
GROWTH
FUND
FINANCIAL
HIGHLIGHTS
The following chart shows the fund's financial performance by share class. The
1995, 1996, 1997 and 1998 figures have been audited by PricewaterhouseCoopers
LLP, independent accountants.
Audited by other independent accountants prior to 1995.
The fund's performance is also reported in national newspapers under these
trading symbols: GRWTHA or GRWTHT.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
Year ended December 31, 1998 1997 1996 1995(1) 1998 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at
the beginning of the period $ 17.92 15.53 17.59 17.76 15.50 17.59
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 0.03 0.02 0.08 (0.15) (0.06) 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments $ 4.16 3.18 1.95 4.17 3.13 1.92
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS $ 4.19 3.20 2.03 4.02 3.07 1.98
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ -- -- (0.10) -- -- (0.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized
gain on investments sold $ (0.85) (0.81) (3.99) (0.85) (0.81) (3.99)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.85) (0.81) (4.09) (0.85) (0.81) (4.07)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT THE END
OF THE PERIOD $ 21.26 17.92 15.53 20.93 17.76 15.50
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 23.59 20.54 11.55 22.84 19.74 11.27
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of
the period ($000s) $ 9,334 4,750 1,355 8,815 4,444 1,987
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets % 1.37 150 1.42(3) 2.14 2.20 2.07(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to
average net assets % 0.03 0.06 -- -- 0.04 --
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets % 0.04 0.11 0.63(3) (0.95) (0.55) 0.06(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 32 62 134 32 62 134
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class C
Year ended December 31, 1998 1997 1996 1995(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance
- -------------------------------------------------------------------------------------------------------
Net asset value at
the beginning of the period $ 17.76 15.50 17.59
- -------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.13) (0.05) 0.04
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments $ 4.13 3.12 1.92
- -------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS $ 4.00 3.07 1.96
- -------------------------------------------------------------------------------------------------------
Dividends from net investment income $ -- -- (0.06)
- -------------------------------------------------------------------------------------------------------
Dividends from net realized
gain on investments sold $ (0.85) (0.81) (3.99)
- -------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.85) (0.81) (4.05)
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT THE END
OF THE PERIOD $ 20.91 17.76 15.50
- -------------------------------------------------------------------------------------------------------
Total investment return(2) % 22.73 19.74 11.17
- -------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------
Net assets at the end of
the period ($000s) $ 1,152 365 69
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets % 2.17 220 2.11(3)
- -------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to
average net assets % -- 0.15 --
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets % (1.00) (0.57) 0.02(3)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 32 62 134
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class T
Year ended December 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at the beginning of the period $ 17.82 15.53 15.75 17.33
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.17) (0.06) 0.07 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments $ 4.22 3.16 3.77 (1.41)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS $ 4.05 3.10 3.84 (1.33)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ -- -- (0.07) (0.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold $ (0.85) (0.81) (3.99) (0.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital $ -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.85) (0.81) (4.06) (0.25)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT THE END OF THE PERIOD $ 21.02 17.82 15.53 15.75
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 22.94 19.90 24.40 (7.66)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 73,674 70,406 76,343 76,391
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 2.03 2.00 2.00 2.00
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets % -- 0.04 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net
assets % (0.81) (3.05) 0.37 0.49
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 32 62 134 54
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
18
<PAGE>
NORTHSTAR
BALANCE SHEET
OPPORTUNITIES
FUND
The following chart shows the fund's financial performance by share class. The
1995, 1996, 1997 and 1998 figures have been audited by PricewaterhouseCoopers
LLP, independent accountants.
Audited by other independent accountants prior to 1995.
The fund's performance is also reported in national newspapers under this
trading symbol: BASHOPT.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
Year ended December 31, 1998 1997 1996 1995(1) 1998 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at
the beginning of
the period $ 11.78 12.53 12.77 11.74 12.51 12.77
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.52 0.56 0.43 0.44 0.50 0.35
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain on
investments $ 2.27 0.74 1.06 2.25 0.71 1.09
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS $ 2.79 1.30 1.49 2.69 1.21 1.44
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net
investment income $ (0.54) (0.57) (0.48) (0.46) (0.50) (0.45)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net
realized gain on
investments sold $ (1.03) (1.48) (1.25) (1.03) (1.48) (1.25)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (1.57) (2.05) (1.73) (1.49) (1.98) (1.70)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT THE
END OF THE PERIOD $ 13.00 11.78 12.53 12.94 11.74 12.51
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 24.31 10.54 11.95 23.48 9.76 11.56
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end
of the period ($000s) $ 1,281 1,100 797 4,969 3,765 1,759
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets % 1.50 1.40 1.27(3) 2.15 2.10 1.95(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement
to average net assets % 0.02 0.09 -- 0.02 0.07 --
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets % 4.01 4.30 4.99(3) 3.37 3.64 4.38(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 130 107 131 130 107 131
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class C
Year ended December 31, 1998 1997 1996 1995(1)
- --------------------------------------------------------------------------------
Operating performance
Net asset value at
the beginning of
the period $ 11.75 12.52 12.77
- --------------------------------------------------------------------------------
Net investment income $ 0.43 0.49 0.38
- --------------------------------------------------------------------------------
Net realized and
unrealized gain on
investments $ 2.25 0.70 1.07
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS $ 2.68 1.19 1.45
- --------------------------------------------------------------------------------
Dividends from net
investment income $ (0.45) (0.48) (0.45)
- --------------------------------------------------------------------------------
Dividends from net
realized gain on
investments sold $ (1.03) (1.48) (1.25)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (1.48) (1.96) 1.70
- --------------------------------------------------------------------------------
NET ASSET VALUE AT THE
END OF THE PERIOD $ 12.95 11.75 12.52
- --------------------------------------------------------------------------------
Total investment return(2) % 23.41 9.72 11.49
- --------------------------------------------------------------------------------
Ratios and supplemental data
Net assets at the end
of the period ($000s) $ 756 372 231
- --------------------------------------------------------------------------------
Ratio of expenses to
average net assets % 2.25 2.10 1.91(3)
- --------------------------------------------------------------------------------
Ratio of expense reimbursement
to average net assets % -- 0.10 --
- --------------------------------------------------------------------------------
Ratio of net investment income
to average net assets % 3.30 3.61 4.49(3)
- --------------------------------------------------------------------------------
Portfolio turnover rate % 130 107 131
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class T
Year ended December 31, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance
- -------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 11.79 12.54 11.54 12.94
- -------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.50 0.53 0.57 0.57
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments $ 2.24 0.73 2.27 (1.25)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS $ 2.74 1.26 2.84 (0.68)
- -------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ (0.49) (0.53) (0.59) (0.54)
- -------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments
sold $ (1.03) (1.48) (1.25) (0.16)
- -------------------------------------------------------------------------------------------------------------------------
Distributions from capital $ -- -- (0.02) --
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (1.52) (2.01) (1.84) (0.72)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT THE END OF THE PERIOD $ 13.01 11.79 12.54 11.54
- -------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 23.91 10.18 25.11 (5.33)
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 53,201 59,490 72,472 73,764
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.83 1.69 1.68 1.69
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net
assets % 0.04 0.06 -- --
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net
assets % 3.70 3.99 4.44 4.36
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 130 107 131 59
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[CLIPART] If you have any questions, please call 1-800-595-7827.
19
<PAGE>
WHERE TO GO
FOR MORE
INFORMATION
- --------------------------------------------------------------------------------
You'll find more information about the Northstar family of funds in our:
ANNUAL/SEMIANNUAL REPORTS
Include a discussion of recent market conditions and investment strategies that
significantly affected performance, the financial statements and the auditor's
reports (in annual report only).
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains more detailed information about the Northstar funds. The SAI
is legally part of this prospectus (it is incorporated by reference). A copy
has been filed with the Securities and Exchange Commission.
Please write or call for a free copy of the current Annual/semiannual reports
or the SAI:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
1-800-595-7827
This information may also be obtained for a fee by contacting the SEC:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-6009
1-800-SEC-0330
Or obtain the information at no cost by visting the Internet website at
http://www.sec.gov.
When contacting the SEC, you will want to refer to the fund's SEC file number.
The file numbers are as follows:
Northstar Growth Fund 811-4431
Northstar Balance Sheet Opportunities Fund 811-2239
<PAGE>
NORTHSTAR GROWTH FUND
INSTITUTIONAL CLASS SHARES
PROSPECTUS
March 1, 1999
[GRAPHIC OMITTED]
This Prospectus contains important information about investing in the Northstar
Growth Fund. As with all mutual funds, the Securities and Exchange Commission
has not judged whether the information in this prospectus is accurate or
complete or whether this fund is a good investment. Anyone who indicates
otherwise is committing a federal crime.
<PAGE>
WHAT'S
INSIDE
- --------------------------------------------------------------------------------
[CLIPART] OBJECTIVE
[CLIPART] INVESTMENT
STRATEGY
[CLIPART] WHAT
YOU PAY
TO INVEST
[CLIPART] RISKS
[CLIPART] HOW THE
FUND HAS
PERFORMED
- --------------------------------------------------------------------------------
These pages contain a description of the fund, including its objective,
investment strategy, risks and portfolio manager.
You'll also find:
WHAT YOU PAY TO INVEST. A list of the fees and expenses you pay -- both directly
and indirectly -- when you invest in the fund.
HOW THE FUND HAS PERFORMED. A chart that shows the fund's financial performance
for up to ten years.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NORTHSTAR GROWTH FUND 1
MEET THE PORTFOLIO MANAGER 3
YOUR GUIDE TO BUYING, SELLING AND EXCHANGING
CLASS I SHARES OF NORTHSTAR GROWTH FUND 4
MUTUAL FUND EARNINGS AND YOUR TAXES 7
FINANCIAL HIGHLIGHTS 8
WHERE TO GO FOR MORE INFORMATION 9
- --------------------------------------------------------------------------------
<PAGE>
Portfolio manager NORTHSTAR
Mary Lisanti GROWTH
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [CLIPART]
This fund seeks long-term growth of capital by investing primarily in domestic
common stocks.
INVESTMENT [CLIPART]
STRATEGY
The fund invests in small and mid-sized companies that the portfolio manager
feels have above average prospects for growth.
Under normal market conditions, the fund invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. The fund also holds preferred stocks and convertible securities.
It may invest up to 20% of its net assets in foreign issuers, but only 10% of
its net assets can be in securities that are not listed on a U.S. securities
exchange.
In periods of unusual market conditions, the fund may temporarily invest part
or all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
WHAT YOU PAY [CLIPART]
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
Fees You Pay Directly
Class I
- --------------------------------------------------------------------------------
Maximum sales charge on your initial
investment (as a % of offering price) % none
- --------------------------------------------------------------------------------
Maximum deferred sales charge % none
- --------------------------------------------------------------------------------
Operating Expenses Paid Each Year by the Fund
(as a % of average net assets)
Class I
- --------------------------------------------------------------------------------
Management fee % 0.75
- --------------------------------------------------------------------------------
12b-1 fee % 0.00
- --------------------------------------------------------------------------------
Other expenses % 0.27
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES % 1.02
- --------------------------------------------------------------------------------
Example
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance vary.
Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class I
with redemptions $10 $32 $56 $125
without redemptions $10 $32 $56 $125
- --------------------------------------------------------------------------------
[CLIPART] If you have any questions, please call 1-800-595-7827.
1
<PAGE>
NORTHSTAR
GROWTH
FUND
- --------------------------------------------------------------------------------
RISKS [CLIPART]
All mutual funds involve risk - some more than others - and there's always the
chance that you could lose money or not earn as much as you hope.
Every fund is affected by the economy and by the investment decisions portfolio
managers make. Because it invests in equities of small and mid-sized companies,
this fund may offer the potential for higher returns, but its performance may
also go up or down rapidly depending on market conditions.
The fund's investments in smaller companies may be subject to more abrupt or
erratic movements in price because:
o the securities of smaller companies are traded in lower volume
o smaller companies are more likely to experience changes in earnings and
growth prospects than the securities of larger, more established companies
o the value of the securities depends on the success of products or
technologies that are in a relatively early stage of development and that
may not have been tested.
The fund trades securities actively. This may generate taxable capital gains,
and generally increases trading costs, which can lower performance.
- --------------------------------------------------------------------------------
HOW THE [CLIPART]
FUND HAS
PERFORMED
The table below compares the fund's long-term performance with the Russell 2000
Index, while the bar chart below shows you changes in the fund's performance
from year to year for the past 10 years. All figures assume reinvestment of
dividends and distributions. Looking at how a fund has performed in the past is
important - but it's no guarantee of how it will perform in the future.
Average annual total return
Russell
2000
Class I Index(1)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 %
- --------------------------------------------------------------------------------
Since March 31, 1997 % N/A
- --------------------------------------------------------------------------------
- ------------------
(1) The Russell 2000 Index measures the performance of securities of small
companies.
Year by year total return (%)(2)
- ------------------
(2) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
[The following information was depicted as a line graph in the printed material]
BAR CHART TO COME 1998
Best and worst quarterly performance during this period:
* quarter 19**: up *%
* quarter 19**: down *%
2
<PAGE>
MEET THE
PORTFOLIO
MANAGER
- --------------------------------------------------------------------------------
Mary Lisanti
Mary Lisanti has been the co-manager of the Northstar Mid-Cap Growth Fund since
inception, manager of the Northstar Special Fund since July 1998 and manager of
the Northstar Growth Fund since August 1998. She joined Northstar in May 1998.
Ms. Lisanti has over 20 years of experience in small and mid-cap investments.
Before joining Northstar, Ms. Lisanti was a Portfolio Manager at Strong Capital
Management where she managed the Strong Small Cap Fund and co-managed the
Strong Mid Cap Fund. From 1993 to 1996, Ms. Lisanti was a Managing Director and
Head of Small and Mid-Capitalization Equity Strategies at Bankers Trust Corp.
where she managed the BT Small Cap Fund and the BT Capital Appreciation Fund.
Prior to Bankers Trust, Ms. Lisanti was a Portfolio Manager with the Evergreen
Funds. She began her career as an analyst specializing in emerging growth
stocks with Donaldson, Lufkin & Jenrette and Shearson Lehman Hutton, was ranked
number one INSTITUTIONAL INVESTOR emerging growth stock analyst in 1989 and was
named to that survey two other times.
Ms. Lisanti earned her BA with honors from Princeton University. She is a
Chartered Financial Analyst, member of the New York Society of Security
Analysts and the Financial Analyst Federation.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
NORTHSTAR INVESTMENT MANAGEMENT CORPORATION
Northstar Investment Management Corporation (Northstar) provides advice and
recommendations about investments made by all of the funds and oversees the
investment management of the funds by the sub-advisers.
Northstar is a registered investment adviser that currently manages over $4
billion in mutual funds and institutional accounts.
[CLIPART] If you have any questions, please call 1-800-595-7827.
3
<PAGE>
YOUR GUIDE TO BUYING AND SELLING
CLASS I SHARES OF
NORTHSTAR GROWTH FUND
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
o The minimum initial investment for Class I shares is $20,000,000. Class I
shares are only available to certain defined benefit plans, insurance
companies and foundations investing for their own account.
- --------------------------------------------------------------------------------
BUYING AND SELLING
Once you've opened an account and made your first investment, you can choose one
of two ways to buy or sell shares of the Northstar Growth Fund:
o through your financial consultant or
o directly, either by mail or over the telephone.
We'll send you a confirmation statement every time you make a transaction that
affects your account balance, except when we pay distributions.
Instructions for each option appear in the chart beginning on page five, but
here are a few things you should know before you begin.
- --------------------------------------------------------------------------------
HOW SHARES ARE
PRICED
The price you pay or receive when you buy, sell or exchange shares is
determined by the fund's net asset value (NAV) per share and share class. NAV
is calculated each business day at the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern Time) by dividing the net assets of
each fund class by the number of shares outstanding.
When you're buying shares, you'll pay the NAV that is next calculated after we
receive your order in proper form, plus any sales charges that apply. When
you're selling shares, you'll receive the NAV that is next calculated after we
receive your order in proper form, less any deferred sales charges that apply.
- --------------------------------------------------------------------------------
SOME RULES FOR
BUYING
o The minimum amount of each Class I investment after your first one is .
o We record most shares on our books electronically. We will issue a
certificate if you ask us to in writing, however most of our shareholders
prefer not to have their shares in certificate form because certificated
shares can't be sold or exchanged by telephone or using the systematic
withdrawal program.
o We have the right to refuse a request to buy shares.
- --------------------------------------------------------------------------------
SOME RULES FOR
SELLING
o We'll pay you within three days from the time we receive your request to
sell, unless you're selling shares you recently paid for by check. In that
case, we'll pay you when your check has cleared, which may take up to 15
days.
o If you are a corporation, partnership, executor, administrator, trustee,
custodian, guardian or you are selling shares of a retirement plan, you'll
need to complete special documentation and give us your request in
writing. Please call us for information.
o You won't pay a service charge when you sell your shares, but your dealer
may charge you fee.
o If selling shares results in the value of your account falling below $ ,
we have the right to close your account, so long as your account has been
open for at least a year. We'll let you know 60 days in advance, and if
you don't bring the account balance above $ , we'll sell your shares, mail
the proceeds to you and close your account. We may also close your account
if you give us an incorrect social security number or taxpayer
identification number.
o In unusual circumstances, we may temporarily suspend the processing of
requests to sell.
4
<PAGE>
YOUR GUIDE TO BUYING AND SELLING
CLASS I SHARES OF
NORTHSTAR GROWTH FUND
- --------------------------------------------------------------------------------
WAYS TO BUY OR SELL WHEN TO USE THIS OPTION
- -------------------------------------- --------------------------
THROUGH YOUR FINANCIAL CONSULTANT o buy
o sell
- -------------------------------------- --------------------------
BY MAIL
Please call us if you have any questions -- o buy
we can't process your request until we have o sell
all of the documents we need.
- -------------------------------------- --------------------------
BY TELEPHONE
To sign up for this service, complete section 9 of o sell
the application or call us at 1-800-595-7827.
[CLIPART] If you have any questions, please call 1-800-595-7827.
5
<PAGE>
YOUR GUIDE TO BUYING AND SELLING
CLASS I SHARES OF
NORTHSTAR GROWTH FUND
- --------------------------------------------------------------------------------
HOW TO USE IT
- --------------------------------------------------------------------------------
If you're BUYING shares, make your check payable to Northstar Funds and give it
to your financial consultant, who will forward it to us.
When you're SELLING, give your written request to your financial consultant,
who may charge you a fee for this service.
- --------------------------------------------------------------------------------
SEND YOUR REQUEST TO BUY, SELL OR EXCHANGE IN WRITING TO:
Northstar Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5131
Westborough MA 01581-5131
Your letter should tell us:
o your request
o your account number
o your social security number or taxpayer identification number
o the name the account is registered in
o the fund name and share class you're buying or selling
o the dollar value or number of shares you want to buy or sell.
If you're BUYING, include a check payable to Northstar Funds with your request.
If you're SELLING, your request must be signed by all registered owners of the
account.
We'll ask you to guarantee the signatures if:
o you are selling more than $50,000 worth of shares
o your address of record has changed in the past 30 days
o you want us to send the payment to someone other than the registered
owner, to an address other than the address of record, or in any form
other than by check.
Signatures can be guaranteed by a bank, a member of the national stock exchange
or another eligible institution.
- --------------------------------------------------------------------------------
You can SELL up to $50,000 of your shares by telephone.
Call us at 1-800-595-7827 between 8:30 a.m. and 4:00 p.m. EST.
When you're calling with your request, we'll ask you for your name, social
security number, broker of record or other identification. If we don't ask for
these things and process an unauthorized telephone transaction, we may be
responsible for losses to your account. Otherwise you are responsible for any
unauthorized use of the telephone transaction service.
We'll mail the proceeds of the sale to the address of record or wire $1,000 or
more to any commercial bank in the U.S. that is a member of the Federal Reserve
System. There is no fee for this service.
6
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW THE FUND
PAYS DISTRIBUTIONS
The Northstar Growth Fund distributes virtually all of its net investment income
and net capital gains to shareholders annually in the form of dividends.
As a shareholder, you are entitled to a share of the income and capital gains a
fund distributes. The amount you receive is based on the number of shares you
own.
DISTRIBUTION OPTIONS
You can take your distributions as cash or reinvest them in the same class of
shares of any of our funds. You specify your preference when you open your
account. Distribution options vary by share class, as follows. You can change
your distribution instructions at any time by notifying us by phone (if going
to the address of record), or in writing.
o reinvest both income dividends and capital gain distributions to buy
additional Class I shares of the Northstar Special, Mid-Cap Growth,
Research Enhanced Index or Growth Funds
o receive income dividends in cash and reinvest capital gain distributions
to buy additional Class I shares of the Northstar Special, Mid-Cap Growth,
Research Enhanced Index or Growth Funds
o receive both income dividends and capital gain distributions in cash.
If you don't specify how you would like to receive your distributions, we'll
automatically reinvest both income dividends and capital gain distributions in
additional Class I shares of the Northstar Growth Fund.
- --------------------------------------------------------------------------------
HOW YOUR
DISTRIBUTIONS
ARE TAXED
The Northstar Growth Fund intends to meet the requirements for being a
tax-qualified regulated investment company, which means it generally does not
pay federal income tax on the earnings it distributes to shareholders.
As a result, distributions that you receive will generally be considered to be
taxable in your hands. Income distributions, whether you take them as cash or
reinvest them, are taxable as ordinary income. Capital gain distributions are
taxable as long-term capital gains, regardless of how long you've held the
shares.
Distributions may also be subject to state, local or foreign taxes.
If income distributed to you includes dividends paid by U.S. corporations, part
of the dividends the fund pays may be eligible for the corporate
dividends-received deduction.
TIMING YOUR PURCHASE
If you buy shares of a fund just before it makes a distribution, you will pay
the full price but part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax-deferred account, such as an
IRA, this is not to your advantage because you'll pay tax on the dividend but
will not have shared in the increase in the net asset value of the fund.
WHEN DISTRIBUTIONS ARE DECLARED
For tax purposes, distributions declared by the fund in October, November or
December and paid to you in January are taxable in the calendar year in which
they were declared.
BACKUP WITHHOLDING TAX
We'll notify you each year of the tax status of dividends and distributions. If
we don't have your tax identification number, or if you have been told by the
IRS that you are subject to backup withholding tax, we may be required to
withhold U.S. federal income tax on any distributions at the rate of 31%.
WHEN YOU SELL YOUR SHARES
When you sell or exchange shares you will realize a capital gain or loss,
depending on the difference between what your shares cost you and what you
receive for them. A capital gain or loss will be long-term or short-term,
depending on the length of time you held the shares. In your federal income tax
return you report a capital gain as income and a capital loss as a deduction.
CONSULT YOUR TAX ADVISER
The information above is general in nature. You should consult your tax adviser
to discuss how investing in the Northstar Growth Fund affects your personal tax
situation.
[CLIPART] If you have any questions, please call 1-800-595-7827.
7
<PAGE>
NORTHSTAR
GROWTH
FUND
The following chart shows the fund's financial performance for Class I shares.
The figures have been audited by PricewaterhouseCoopers LLP, independent
accountants.
FINANCIAL [CLIPART]
HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 1997(1)
- --------------------------------------------------------------------------------
Operating Performance
- --------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 17.90
- --------------------------------------------------------------------------------
Net investment income (loss) $ 0.01
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 4.30
- --------------------------------------------------------------------------------
Total from investment operations $ 4.31
- --------------------------------------------------------------------------------
Dividends from net investment income $ --
- --------------------------------------------------------------------------------
Dividends from net realized gain on investments sold $ (0.85)
- --------------------------------------------------------------------------------
Total distributions $ (0.85)
- --------------------------------------------------------------------------------
Net asset value at the end of the period $ 21.36
- --------------------------------------------------------------------------------
Total Investment Return % 24.29
- --------------------------------------------------------------------------------
Ratios and Supplemental Data
- --------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 113,529
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.02
- --------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets % --
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets % 0.08
- --------------------------------------------------------------------------------
Average commissions per share $ 0.0609
- --------------------------------------------------------------------------------
Portfolio turnover rate % 32
- --------------------------------------------------------------------------------
(1) Class I shares of the Fund commenced operations on March 31, 1997.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
8
<PAGE>
WHERE TO GO
FOR MORE
INFORMATION
- --------------------------------------------------------------------------------
You'll find more information about the Northstar Growth Fund in our:
ANNUAL/SEMIANNUAL REPORTS
Include a discussion of recent market conditions and investment strategies that
significantly affected performance, the financial statements and the auditor's
reports (in annual report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information about the fund. The SAI is legally
part of this prospectus (it is incorporated by reference). A copy has been
filed with the Securities and Exchange Commission.
Please write or call for a free copy of the current Annual/semiannual reports
or the SAI:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
1-800-595-7827
PROSPECTUS FOR CLASS A, B, C AND T SHARES
Class A, B, C and T shares of the Northstar Growth Fund are discussed in a
separate prospectus. Class A, B, C and T shares have sales charges and other
expenses thay may affect performance. You may obtain a prospectus for Class A,
B, C and T shares of the fund by calling 1-800-595-7827 or writing:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
This information may also be obtained for a fee by contacting the SEC:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-6009
1-800-SEC-0330
Or obtain the information at no cost by visiting the Internet website at
http://www.sec.gov. When contacting the SEC, you will want to refer to the
fund's SEC file number. The file number for the Northstar Growth Fund is
811-4431.
[CLIPART] If you have any questions, please call 1-800-595-7827.
9
<PAGE>
NORTHSTAR
GROWTH
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [CLIPART]
This fund seeks long-term growth of capital by investing primarily in domestic
common stocks.
INVESTMENT [CLIPART]
STRATEGY
The fund invests in small and mid-sized companies that the portfolio manager
feels have above average prospects for growth.
Under normal market conditions, the fund invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. The fund also holds preferred stocks and convertible securities.
It may invest up to 20% of its net assets in foreign issuers, but only 10% of
its net assets can be in securities that are not listed on a U.S. securities
exchange.
In periods of unusual market conditions, the fund may temporarily invest part
or all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
WHAT YOU PAY [CLIPART]
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
Fees you pay directly
<TABLE>
<CAPTION>
Class A Class B Class C Class T
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your
investment (as a % of offering price) % 4.75 none none none
- --------------------------------------------------------------------------------------------------------
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
- --------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 38 for details.
(2) This charge decreases over time. Please see page 38 for details.
Operating expenses paid each year by the fund
(as a % of average net assets)
Class A Class B Class C Class T
- --------------------------------------------------------------------------------
Management fee % 0.75 0.75 0.75 0.75
- --------------------------------------------------------------------------------
12b-1 fee(3) % 0.30 1.00 1.00 0.95
- --------------------------------------------------------------------------------
Other expenses % 0.32 0.39 0.42 0.33
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES % 1.37 2.14 2.17 2.03
- --------------------------------------------------------------------------------
- ----------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
Example
Here's an example of what you would pay in expenses if you invested $10,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A
if you sell your shares $
................................................................................
Class B
if you sell your shares $ (4)
if you don't sell your shares $ (4)
................................................................................
Class C
if you sell your shares $
if you don't sell your shares $
................................................................................
Class T
if you sell your shares $ (5)
if you don't sell your shares $ (5)
................................................................................
- ----------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(5) Class T shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
[CLIPART] If you have any questions, please call 1-800-595-7827.
Northstar Growth Fund 3
<PAGE>
NORTHSTAR Portfolio manager
GROWTH Mary Lisanti
FUND
- --------------------------------------------------------------------------------
RISKS [CLIPART]
All mutual funds involve risk - some more than others - and there's always the
chance that you could lose money or not earn as much as you hope.
Every fund is affected by the economy and by the investment decisions portfolio
managers make. Because it invests in equities of small and mid-sized companies,
this fund may offer the potential for higher returns, but its performance may
also go up or down rapidly depending on market conditions.
The fund's investments in smaller companies may be subject to more abrupt or
erratic movements in price because:
o the securities of smaller companies are traded in lower volume
o smaller companies are more likely to experience changes in earnings and
growth prospects than the securities of larger, more established companies
o the value of the securities depends on the success of products or
technologies that are in a relatively early stage of development and that
may not have been tested.
The fund trades securities actively. This may generate taxable capital gains,
and generally increases trading costs, which can lower performance.
- --------------------------------------------------------------------
HOW THE [CLIPART]
FUND HAS
PERFORMED
The table below compares the fund's long-term performance with the Russell 2000
Index, while the bar chart below shows you changes in the fund's performance
from year to year for the past 10 years. All figures assume reinvestment of
dividends and distributions. Looking at how a fund has performed in the past is
important - but it's no guarantee of how it will perform in the future.
Average annual total return(1)
Russell
2000
Class A Class B Class C Class T Index(2)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 %
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % N/A N/A N/A
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % N/A N/A N/A
- --------------------------------------------------------------------------------
- ------------------
(1) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on February 3, 1986.
(2) The Russell 2000 Index measures the performance of securities of small
companies.
Year by year total return (%)(3)
- ------------------
(3) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
[The following information was depicted as a bar graph in the printed material.]
BAR CHART TO COME
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best and worst quarterly performance during this period:
* quarter 19**: up *%
* quarter 19**: down *%
4 Northstar Growth Fund
<PAGE>
NORTHSTAR
BALANCE SHEET
OPPORTUNITIES
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [CLIPART]
This fund seeks income, with a secondary objective of capital appreciation,
primarily by investing in domestic debt and equity securities.
INVESTMENT [CLIPART]
STRATEGY
The portfolio manager reviews various factors relating to a potential issuer,
especially its financial statements, to determine which type of security -- debt
or equity -- offers the best potential for high current income combined with the
potential for capital growth.
Under normal market conditions, the fund invests at least 51% of its total
assets in income-producing securities. It may hold up to 50% of its assets in
debt securities rated as low as B by Moody's or S&P (junk bonds). Equity
securities include common stocks, preferred stocks, convertible securities and
warrants and other stock purchase rights. Income-producing securities have
varying maturities and pay fixed, floating or adjustable interest rates. The
fund may also hold pay-in-kind securities and discount obligations, including
zero coupon securities. The fund may invest up to 20% of its net assets in
foreign issuers, but only 10% of its net assets can be in securities that are
not listed on a U.S. securities exchange.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
WHAT YOU PAY [CLIPART]
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
Fees you pay directly
<TABLE>
<CAPTION>
Class A Class B Class C Class T
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your
investment (as a % of offering price) % 4.75 none none none
- --------------------------------------------------------------------------------------------------------
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
- --------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 38 for details.
(2) This charge decreases over time. Please see page 38 for details.
Operating expenses paid each year by the fund
(as a % of average net assets)
Class A Class B Class C Class T
- --------------------------------------------------------------------------------
Management fee % 0.65 0.65 0.65 0.65
- --------------------------------------------------------------------------------
12b-1 fee(3) % 0.30 1.00 1.00 0.75
- --------------------------------------------------------------------------------
Other expenses % 0.55 0.50 0.60 0.43
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES % 1.50 2.15 2.25 1.83
- --------------------------------------------------------------------------------
- -----------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
Example
Here's an example of what you would pay in expenses if you invested $10,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A
if you sell your shares $
................................................................................
Class B
if you sell your shares $ (4)
if you don't sell your shares $ (4)
................................................................................
Class C
if you sell your shares $
if you don't sell your shares $
................................................................................
Class T
if you sell your shares $ (5)
if you don't sell your shares $ (5)
................................................................................
- -----------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(5) Class T shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
[CLIPART] If you have any questions, please call 1-800-595-7827.
Northstar Balance Sheet Opportunities Fund 5
<PAGE>
NORTHSTAR Portfolio manager
BALANCE SHEET Thomas Ole Dial
OPPORTUNITIES
FUND
- --------------------------------------------------------------------------------
RISKS [CLIPART]
All mutual funds involve risk - some more than others - and there's always the
chance that you could lose money or not earn as much as you hope.
Every fund is affected by the economy and by the investment decisions portfolio
managers make. Because it invests in high yield securities and equities, this
fund may offer the potential for higher returns, but its performance may also go
up or down rapidly depending on market conditions.
This fund's performance is significantly affected by changes in interest rates.
When interest rates increase, the value of the fund's debt securities -
particularly those with longer durations - will go down. The value of the fund's
high yield securities are particularly sensitive to changes in interest rates,
and there is a higher risk that the company that issued the security may not be
able to meet its financial obligations, or that there won't be a market to sell
the security at a reasonable price.
Although the portfolio manager invests in a mix of debt securities and equities
to decrease volatility, the mix the portfolio manager chooses may also lower the
fund's performance.
This fund's performance will also be affected if the portfolio manager makes an
inaccurate assessment of economic conditions and investment opportunities, and
chooses a company that, for example, declares bankruptcy and is no longer able
to make interest or principal payments.
Foreign investments can also be affected by the following:
o political, social or economic developments in foreign countries
o unfavorable currency exchange rates
o a lack of liquidity in foreign markets
o inadequate or inaccurate information about foreign companies
o accounting, auditing and/or financial reporting standards that are different
from those in the United States.
- --------------------------------------------------------------------------------
HOW THE [CLIPART]
FUND HAS
PERFORMED
The table below compares the fund's long-term performance with the S&P 500
Index, while the bar chart below shows you changes in the fund's performance
from year to year for the past 10 years. All figures assume reinvestment of
dividends and distributions. Looking at how a fund has performed in the past is
important - but it's no guarantee of how it will perform in the future.
Average annual total return(1)
S&P 500
Class A Class B Class C Class T Index(2)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 %
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % N/A N/A N/A
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % N/A N/A N/A
- --------------------------------------------------------------------------------
- ------------------
(1) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on February 3, 1986.
(2) The S&P 500 Index measures the performance of common stocks.
Year by year total return (%)(3)
- ------------------
(3) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
[The following information was depicted as a bar graph in the printed material.]
BAR CHART TO COME
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best and worst quarterly performance during this period:
* quarter 19**: up *%
* quarter 19**: down *%
6 Northstar Balance Sheet Opportunities Fund
<PAGE>
[GRAPHIC OMITTED]
NORTHSTAR
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1999
*NORTHSTAR Growth Fund
*NORTHSTAR Balance Sheet Opportunities Fund
300 First Stamford Place
Stamford, Connecticut 06902
(203) 602-7950
(800) 595-7827
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectuses of
the Funds dated March 1, 1999, as each may be revised from time to time. To
obtain a copy of a Prospectus for the Funds, please contact Northstar Investment
Management Corporation at the address or phone number listed above.
Northstar Investment Management Corporation ("Northstar" or the "Adviser")
serves as the Funds' investment adviser. Northstar Distributors, Inc. (the
"Underwriter") is the underwriter to the Funds. Northstar Administrators
Corporation (the "Administrator") is the Funds' administrator. The Underwriter
and the Administrator are affiliates of Northstar.
------------
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS .................................................... 2
INVESTMENT TECHNIQUES ...................................................... 3
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION ............................ 10
SERVICES OF NORTHSTAR AND THE ADMINISTRATOR ................................ 12
NET ASSET VALUE ............................................................ 13
PURCHASES AND REDEMPTIONS .................................................. 13
DIVIDENDS, DISTRIBUTIONS AND TAXES ......................................... 15
UNDERWRITER AND DISTRIBUTION SERVICES ...................................... 18
TRUSTEES AND OFFICERS ...................................................... 21
OTHER INFORMATION .......................................................... 23
PERFORMANCE INFORMATION .................................................... 24
FINANCIAL STATEMENTS ....................................................... 26
APPENDIX ................................................................... A-1
<PAGE>
INVESTMENT RESTRICTIONS
Northstar Growth and Balance Sheet Opportunities Funds. The Funds have
adopted investment restrictions numbered 1 through 12 as fundamental policies.
These restrictions cannot be changed without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended) of such
Fund's outstanding voting shares. Investment restrictions numbered 13 through 21
are not fundamental policies and may be changed by vote of a majority of the
Trust's Board members at any time. Each Fund may not:
1. Borrow money, except from a bank and as a temporary measure for
extraordinary or emergency purposes, provided the Fund maintains asset coverage
of 300% for all borrowings;
2. Purchase securities of any one issuer (except U.S. Government
securities) if, as a result, more than 5% of the Fund's total assets would be
invested in that issuer, or the Fund would own or hold more than 10% of the
outstanding voting securities of the issuer; provided, however, that up to 25%
of the Fund's total assets may be invested without regard to these limitations;
3. Underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter;
4. Concentrate its assets in the securities of issuers all of which
conduct their principal business activities in the same industry (this
restriction does not apply to obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities);
5. Make any investment in real estate, commodities or commodities
contracts, except that these Funds may: (a) purchase or sell readily marketable
securities that are secured by interest in real estate or issued by companies
that deal in real estate, including real estate investment and mortgage
investment trusts; and (b) engage in financial futures contracts and related
options, as described herein and in the Fund's Prospectus;
6. Make loans, except that these Funds may: (a) invest in repurchase
agreements, and (b) loan its portfolio securities in amounts up to one-third of
the market or other fair value of its total assets;
7. Issue senior securities, except as appropriate to evidence indebtedness
that it is permitted to incur, provided that the deposit or payment by the Fund
of initial or maintenance margin in connection with futures contracts and
related options is not considered the issuance of senior securities;
8. Borrow money in excess of 5% of its total assets (taken at market
value);
9. Pledge, mortgage or hypothecate in excess of 5% of its total assets
(the deposit or payment by a Fund of initial or maintenance margin in connection
with futures contracts and related options is not considered a pledge or
hypothecation of assets);
10. Purchase more than 10% of the voting securities of any one issuer,
except U.S. government securities;
11. Invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than 7 days, that cannot be
disposed of within the normal course of business at approximately the amount at
which the Fund has valued the securities, excluding restricted securities that
have been determined by the Trustees of the Fund (or the persons designated by
them to make such determinations) to be readily marketable;
12. Purchase securities of any issuer with a record of less than 3 years
of continuous operations, including predecessors, except U.S. Government
Securities and obligations issued or guaranteed by any foreign government or its
agencies or instrumentalities, if such purchase would cause the investments of a
Fund in all such issuers to exceed 5% of the total assets of the Fund taken at
market value;
13. Purchase securities on margin, except these Funds may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities (the deposit or payment by a Fund of initial or maintenance margin
in connection with futures contracts or related options is not considered the
purchase of a security on margin);
14. Write put and call options, unless the options are covered and the
Fund invests through premium payments no more than 5% of its total assets in
options transactions, other than options on futures contracts;
15. Purchase and sell futures contracts and options on futures contracts,
unless the sum of margin deposits on all futures contracts held by the Fund, and
premiums paid on related options held by the Fund, does not exceed more than 5%
of the Fund's total assets, unless the transaction meets certain "bona fide
hedging" criteria (in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing the 5%);
2
<PAGE>
16. Invest in securities of any issuer if any officer or trustee of the
Fund or any officer or director of Northstar owns more than 1/2 of 1% of the
outstanding securities of the issuer, and such officers, directors and trustees
own in the aggregate more than 5% of the securities of such issuer;
17. Invest in interests in oil, gas or other mineral exploration or
development programs (although it may invest in issuers that own or invest in
such interests);
18. Purchase securities of any investment company, except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase, or except when such purchase, though not made in the open
market, is part of a plan of merger, consolidation, reorganization or
acquisition of assets;
19. Purchase more than 3% of the outstanding voting securities of another
investment company, invest more than 5% of its total assets in another
investment company, or invest more than 10% of its total assets in other
investment companies;
20. Purchase warrants if, as a result, warrants taken at the lower of cost
or market value would represent more than 5% of the value of the Fund's net
assets or if warrants that are not listed on the New York or American Stock
Exchanges or on an exchange with comparable listing requirements, taken at the
lower of cost or market value, would represent more than 2% of the value of the
Fund's net assets (for this purpose, warrants attached to securities will be
deemed to have no value); or
21. Make short sales, unless, by virtue of its ownership of other
securities, the Fund has the right to obtain securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is made
upon the same conditions, except in connection with arbitrage transactions. The
Strategic Income Fund, additionally, may not invest in interests of real estate
limited partnerships.
In addition to the restrictions described above, each of these Funds may,
from time to time, agree to additional investment restrictions for purposes of
compliance with the securities laws of those state and foreign jurisdictions
where that Fund intends to offer or sell its shares.
INVESTMENT TECHNIQUES
Derivative Instruments. The Funds may invest in Derivative Instruments (as
defined in the Funds' Prospectus) for a variety of reasons, including to enhance
return, hedge certain market risks, or provide a substitute for purchasing or
selling particular securities. Derivatives may provide a cheaper, quicker or
more specifically focused way for the Fund to invest than "traditional"
securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (i.e., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, Northstar and the Sub-Advisers will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as they would review the credit quality of a security to be purchased by
a Fund. Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the Derivative to be interested in bidding for
it.
Futures Transactions -- In General. The Funds may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the United States, such as the London International
Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may
have greater risk potential than domestic markets. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. In
addition, any profits that the Fund might realize in trading could be eliminated
by adverse changes in the exchange rate, or the Fund could incur losses as a
result of those changes. Transactions on foreign exchanges
3
<PAGE>
may include both commodities which are traded on domestic exchanges and those
which are not. Unlike trading on domestic commodity exchanges, trading on
foreign commodity exchanges is not regulated by the Commodity Futures Trading
Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's or
Sub-Adviser's ability to predict correctly movements in the direction of the
relevant market, and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction being
hedged and the price movements of the futures contract. For example, if the Fund
uses futures to hedge against the possibility of a decline in the market value
of securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission (the "SEC"), the Fund may be required to segregate cash or
high quality money market instruments in connection with its commodities
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of limiting the
Fund's ability otherwise to invest those assets.
Specific Futures Transactions. The Funds may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
The Funds may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
The Funds may purchase and sell currency futures. A foreign currency
future obligates the Fund to purchase or sell an amount of a specific currency
at a future date at a specific price.
The International Value Fund and Emerging Markets Value Fund will engage
in futures transactions only as a hedge against the risk of unexpected changes
in the values of securities held or intended to be held by these Funds. As a
general rule, the International Value Fund and Emerging Markets Value Fund will
not purchase or sell futures if, immediately thereafter, more than 25% of its
net assets would be hedged. In addition, these Funds will not purchase or sell
futures or related options if, immediately thereafter, the sum of the amount of
margin deposits on the Funds' existing futures positions and premiums paid for
such options would exceed 5% of the market value of the Funds' net assets.
Options -- In General. The Funds may purchase and write (i.e., sell) call
or put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period.
A covered call option written by a Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by a Fund is
covered when, among other things, cash or liquid securities having a value equal
to or greater than the exercise price of the option are placed in a segregated
account with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
4
<PAGE>
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Specific Options Transactions. The Funds may purchase and sell call and
put options in respect of specific securities (or groups or "baskets" of
specific securities) or stock indices listed on national securities exchanges or
traded in the over-the-counter market. An option on a stock index is similar to
an option in respect of specific securities, except that settlement does not
occur by delivery of the securities comprising the index. Instead, the option
holder receives an amount of cash if the closing level of the stock index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. Thus, the effectiveness
of purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
The Funds may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a price
which is expected to be lower or higher than the spot price of the currency at
the time the option is exercised or expires.
The Funds may purchase cash-settlement options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps in
pursuit of its investment objective. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating-rate payments for fixed-rate
payments) denominated in U.S. dollars or foreign currency. Equity index swaps
involve the exchange by the Fund with another party of cash flows based upon the
performance of an index or a portion of an index of securities which usually
includes dividends. A cash-settled option on a swap gives the purchaser the
right, but not the obligation, in return for the premium paid, to receive an
amount of cash equal to the value of the underlying swap as of the exercise
date. These options typically are purchased in privately negotiated transactions
from financial institutions, including securities brokerage firms.
Successful use by the Funds of options will be subject to the ability of
Northstar and the sub-advisers to predict correctly movements in the prices of
individual stocks, the stock market generally, foreign currencies or interest
rates. To the extent the Manager's predictions are incorrect, the Funds may
incur losses.
Short Sales. The Funds may make short sales "against the box." A
short-sale is a transaction in which a party sells a security it does not own in
anticipation of decline in the market value of that security. A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain securities identical to those sold short. When the Fund makes a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities, and is often obligated to pay
over any accrued interest on such borrowed securities.
Privately Issued Collateralized Mortgage-Backed Obligations, Interest
Obligations and Principal Obligations. Each of High Total Return Fund II and
Income and Growth Fund may invest up to 5% of its net assets in Privately Issued
Collateralized Mortgage-Backed Obligations ("CMOs"), Interest Obligations
("IOs") and Principal Obligations ("POs") when Northstar believes that such
investments are consistent with the Fund's investment objective. Collateralized
mortgage obligations or "CMOs" are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, privately issued CMOs are
collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but also
may be collateralized by whole loans or private pass-throughs (such collateral
collectively hereinafter referred to as "Mortgage Assets"). Privately issued
CMOs are per se illiquid. Multi-class pass-through securities are equity
interest in a trust composed of Mortgage Assets. Unless the context indicates
otherwise, all references herein to CMOs include multi-class pass-through
securities. Payments of principal of and interest on the Mortgage Assets, and
any reinvestment income thereon, are the sources of funds used to pay debt
service on the CMOs or make scheduled distributions on the multi-class
pass-through securities.
On a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or
5
<PAGE>
final distribution dates. The principal of and interest on the Mortgage Assets
may be allocated among the several classes of a series of a CMO in innumerable
ways. The Funds may also invest in, among others, parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally call for payments of a
specified amount of principal on each payment date.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.
SMBS are structured with two or more classes of securities that receive
different proportions of the interest and principal distributions on a pool of
Mortgage Assets. A common type of SMBS will have at least one class receiving
only a small portion of the interest and a larger portion of the principal from
the Mortgage Assets, while the other classes will receive primarily interest and
only a small portion of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
a rapid rate of principal payments may have a material adverse effect on such
security's yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, a Fund may fail to recoup
fully its initial investment in these securities. The determination of whether a
particular government-issued IO or PO backed by fixed-rate mortgage is liquid is
made by Northstar under guidelines and standards established by the Board of
Trustees. Such a security may be deemed liquid if it can be disposed of promptly
in the ordinary course of business at a value reasonably close to that used in
the calculation of net asset value per share.
Index Warrants. Index warrants are generally issued by banks or other
financial institutions and give the holder the right, at any time during the
term of the warrant, to receive upon exercise of the warrant a cash payment from
the issuer, based on the value of the underlying index at the time of exercise.
In general, if the value of the underlying index rises above the exercise price
of the index warrant, the holder of a call warrant will be entitled to receive a
cash payment from the issuer upon exercise, based on the difference between the
value of the index and the exercise price of the warrant; if the value of the
underlying index falls, the holder of a put warrant will be entitled to receive
a cash payment from the issuer upon exercise, based on the difference between
the exercise price of the warrant and the value of the index. The holder of a
warrant would not be entitled to any payments from the issuer at any time when,
in the case of a call warrant, the exercise price is greater than the value of
the underlying index, or, in the case of a put warrant, the exercise price is
less than the value of the underlying index. If the Strategic Income Fund were
not to exercise an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant. The Strategic
Income Fund will normally use index warrants in a manner similar to its use of
options on securities indices. The risks of the Fund's use of index warrants are
generally similar to those relating to its use of index options. Unlike most
index options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution that issues the warrant. Also, index warrants
generally have longer terms than index options. Although the Strategic Income
Fund will normally invest only in exchange-listed warrants, index warrants are
not likely to be as liquid as certain index options backed by a recognized
clearing agency. In addition, the terms of index warrants may limit a Fund's
ability to exercise the warrants at such time, or in such quantities, as the
Fund would otherwise wish to do.
Repurchase Agreements. Repurchase agreements are agreements under which a
Fund buys a money market instrument and obtains a simultaneous commitment from
the seller to repurchase the instrument at a specified time and at an agreed
upon yield. Northstar and the Sub-Advisers will use standards set by the
relevant Fund's Trustees in reviewing the creditworthiness of parties to
repurchase agreements with such Fund. In addition, no more than an aggregate of
15% of a Fund's net assets, at the time of investment, will be invested in
illiquid investments, including repurchase agreements having maturities longer
than seven days. In the event of failure of the executing bank or broker-dealer,
a Fund could experience some delay in obtaining direct ownership of the
underlying collateral and might incur a loss if the value of the security should
decline, as well as costs in disposing of the security.
Pursuant to an Exemptive Order under Section 17(d) and Rule 17d-1 obtained
by the Northstar Growth and Balance Sheet Opportunities Funds, on March 5, 1991,
the Funds may deposit uninvested cash balances into a single joint account to be
used to enter into repurchase agreements.
6
<PAGE>
As an alternative to using repurchase agreements, a Fund may, from time to
time, invest up to 5% of its assets in money market investment companies
sponsored by a third party for short-term liquidity purposes. Such investments
are subject to the non-fundamental investment limitations described herein.
Reverse Repurchase Agreements and Dollar Roll Agreements. The Funds may
enter into reverse repurchase agreements and dollar roll agreements. Under a
reverse repurchase agreement or a dollar roll agreement, a Fund sells securities
and agrees to repurchase them, or substantially similar securities in the case
of a dollar roll agreement, at a mutually agreed upon date and price. At the
time the Fund enters into a reverse repurchase or dollar roll agreement, it will
establish and maintain a segregated account with its custodian, containing cash,
U.S. government securities, or other liquid assets from its portfolio, having a
value not less than the repurchase price (including accrued interest). The Funds
do not account for dollar rolls as a borrowing.
These agreements may involve the risk that the market value of the
securities to be repurchased by a Fund may decline below the price at which the
Fund is obligated to repurchase. Also, in the event the buyer of securities
under a reverse repurchase agreement or a dollar roll agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement or the dollar roll agreement may effectively be
restricted pending such a decision.
Lending Portfolio Securities. A Fund may lend portfolio securities to
broker-dealers and other financial institutions in an amount up to one-third of
the value of its total assets, provided that such loans are callable at any time
by the Fund and are at all times secured by collateral held by the Fund at least
equal to the market value, determined daily, of the loaned securities. A Fund
will continue to receive any income on the loaned securities, while
simultaneously earning interest on cash collateral (which will be invested in
short-term debt obligations) or a securities lending fee (in the case of
collateral in the form of U.S. government securities).
There may be risks of delay in recovery of the loaned securities and, in
some cases, loss of rights in the collateral should the borrower of the
securities fail financially. Loans of portfolio securities will only be made to
firms considered by Northstar to be creditworthy under guidelines adopted by the
Trustees.
Firm Commitments and When-Issued Securities. Each Fund may enter into firm
commitment agreements to purchase securities at an agreed-upon price on a
specified future date. An amount of cash or short-term U.S. Government
Securities equal to the Fund's commitment will be deposited in a segregated
account at the Fund's custodian bank to secure the Fund's obligation. Although a
Fund will generally enter into firm commitments to purchase securities with the
intention of actually acquiring the securities for its portfolio (or for
delivery pursuant to options contracts it has entered into), the Fund may
dispose of a security prior to settlement if Northstar deems it advisable to do
so. A Fund entering into the forward commitment may realize short-term gains or
losses in connection with such sales.
A Fund may enter into To Be Announced ("TBA") sale commitments wherein the
unit price and the estimated principal amount are established upon entering into
the contract, with the actual principal amount being within a specified range of
the estimate. A Fund will enter into TBA sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, the Fund will maintain, in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. Unsettled
TBA sale commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, the Fund realizes a gain or loss on the
commitment without regard to any unrealized gain or loss on the underlying
security. If the Fund delivers securities under the commitment, the Fund
realizes a gain or loss from the sale of the securities, based upon the unit
price established at the date the commitment was entered into.
A Fund may also purchase securities on a when-issued or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date, normally within one month. The value of the security on the
settlement date may be more or less than the price paid as a result of, among
other things, changes in the level of interest rates or other market factors.
Accordingly, there is a risk of loss, which is in addition to the risk of
decline in the value of the Fund's other assets. The Fund will establish a
segregated account with its custodian in which it will maintain cash and
marketable securities equal in value to commitments for when-issued or delayed
delivery securities. While when-issued or delayed delivery securities may be
sold prior to the settlement date, it is intended that a Fund will purchase such
securities with the purpose of actually acquiring them, unless a sale appears
desirable for investment reasons.
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Floating or Variable Rate Instruments. The Funds may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Such bonds are
frequently secured by letters of credit or other credit support arrangements
provided by banks. Floating or variable rate instruments provide for adjustments
in the interest rate at specified intervals (weekly, monthly, semiannually,
etc.). A Fund would anticipate using these bonds as cash equivalents, pending
longer term investment of its funds. Other longer term fixed-rate bonds, with a
right of the holder to request redemption at certain times (often annually,
after the lapse of an intermediate term), may also be purchased by a Fund. These
bonds are more defensive than conventional long-term bonds (protecting to some
degree against a rise in interest rates), while providing greater opportunity
than comparable intermediate term bonds since the Fund may retain the bond if
interest rates decline. By acquiring these kinds of bonds, a Fund obtains the
contractual right to require the issuer of the security, or some other person
(other than a broker or dealer), to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person.
Zero Coupon Securities. Zero coupon securities are fixed income securities
that have been stripped of their unmatured interest coupons. Zero coupon
securities are sold at a (usually substantial) discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. The amount of this discount is accredited over the life of the
security, and the accretion constitutes the income earned on the security for
both accounting and tax purposes. Because of these features, the market prices
of zero coupon securities are generally more volatile than the market prices of
securities that have a similar maturity but that pay interest periodically. Zero
coupon securities are likely to respond to a greater degree to interest rate
changes than are non-zero coupon securities with similar maturity and credit
qualities. Each Fund may invest a portion of its total assets in "zero coupon"
Treasury securities, which consist of Treasury bills or stripped interest or
principal components of U.S. Treasury bonds or notes.
Zero coupon Treasury bonds or notes consist of stripped interest or
principal components held in STRIPS form issued through the U.S. Treasury's
STRIPS program, which permits the beneficial ownership of the component to be
recorded directly in the Treasury book-entry system. The Funds may also purchase
custodial receipts evidencing beneficial ownership of direct interests in
component parts of U.S. Treasury bonds or notes held by a bank in a custodian or
trust account.
Additional Information on GNMAs. The Funds may invest in U.S. government
securities, which are obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities. A substantial portion of the assets of the
government securities Fund have, at various times, been invested in obligations
of the Government National Mortgage Association (popularly called GNMAs or
Ginnie Maes). All of the other Funds may also invest in GNMAs from time to time.
GNMAs are mortgage backed securities representing part ownership of a pool
of mortgage loans, in which the timely payment of principal and interest is
guaranteed by the full faith and credit of the U.S. Government. GNMA may borrow
U.S. Treasury funds to the extent needed to make payments under the guarantee.
The Funds purchase "modified pass-through" type GNMA Certificates for which
principal and interest are guaranteed, rather than the "straight pass through"
Certificates for which such guarantee is not available. The Funds also purchase
"variable rate" GNMA Certificates and may purchase other types that may be used
with GNMA's guarantee.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagors or when foreclosure occurs, such principal payments are passed
through to the Certificate holders (such as a Fund). Accordingly, the life of
the GNMA Certificate is likely to be substantially shorter than the stated
maturity of the mortgages in the underlying pool, which will have maturities of
up to 30 years. Because of such variation in prepayment rights, it is not
possible to accurately predict the life of a particular GNMA Certificate.
Payments to holders of GNMA Certificates consist of the monthly
distributions of interest and principal, less the GNMA and issuer's fees. The
portion of the monthly payment that represents a return of principal may be
reinvested by a Fund holding the GNMA in then-available GNMA obligations, which
may bear interest at a rate higher or lower than the obligation from which the
payment was received, or in a differing security. The actual yield to be earned
by the holder of a GNMA Certificate is calculated by dividing such payments by
the purchase price paid for the GNMA Certificate (which may be at a premium or a
discount from the face value of the Certificate). Unpredictable prepayments of
principal, however, can greatly change realized yields. In a period of declining
interest rates it is more likely that mortgages contained in GNMA pools will be
prepaid, thus reducing the effective yield. Moreover, any premium paid on the
purchase of a GNMA Certificate will be lost if the obligation is prepaid. In
periods of falling interest rates, this potential for prepayment may reduce the
general upward price increase of GNMA Certificates that might otherwise occur.
As with other debt instruments, the price of GNMA Certificates is likely to
decrease in times of rising interest rates. Price changes of the GNMA
Certificates held by a Fund have a direct impact on the net asset value per
share of the Fund.
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When interest rates rise, the value of a GNMA Certificate will generally
decline. Conversely, when rates fall, the GNMA Certificate value may rise,
although not as much as other debt issues, due to the prepayment feature. As a
result, the price per share the shareholder receives on redemption may be more
or less than the price paid for the shares. The dividends per share paid by the
government securities Fund may also vary.
Risks of International Investing
The Funds may invest in foreign securities as noted in the prospectus.
Investments in foreign securities involve special risks, including currency
fluctuations, political or economic instability in the country of issue and the
possible imposition of exchange controls or other laws or restrictions. In
addition, securities prices in foreign markets are generally subject to
different economic, financial, political and social factors than are the prices
of securities in U.S. markets. With respect to some foreign countries there may
be the possibility of expropriation or confiscatory taxation, limitations on
liquidity of securities or political or economic developments which could affect
the foreign investments of a Fund. Moreover, securities of foreign issuers
generally will not be registered with the SEC, and such issuers will generally
not be subject to the SEC's reporting requirements. Accordingly, there is likely
to be less publicly available information concerning certain of the foreign
issuers of securities held by the Fund than is available concerning U.S.
companies. Foreign companies are also generally not subject to uniform
accounting, auditing and financial reporting standards or to practices and
requirements comparable to those applicable to U.S. companies. There may also be
less government supervision and regulation of foreign broker-dealers, financial
institutions and listed companies than exists in the U.S. Commission rates in
foreign countries, which are generally fixed rather than subject to negotiation
as in the U.S., are likely to be higher. These factors could make foreign
investments, especially those in developing countries, more volatile. All of the
above issues should be considered before investing in the Fund.
Emerging Markets and Related Risks
Emerging markets are the capital markets of any country that is generally
considered a developing country by the international financial community.
Currently, these markets include, but are not limited to, the markets of
Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hong
Kong, Hungary, India, Indonesia, Jordan, Malaysia, Mexico, Pakistan, Peru,
Philippines, Poland, Portugal, Russia, Singapore, South Africa, Thailand,
Turkey, Venezuela and Zaire. As opportunities to invest in other emerging
markets countries develop, the Funds expect to expand and diversify further the
countries in which they invest.
Investing in emerging market securities involves risks which are in
addition to the usual risks inherent in foreign investments. Some emerging
markets countries may have fixed or managed currencies that are not
free-floating against the U.S. dollar. Further, certain currencies may not be
traded internationally. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which a Fund's portfolio securities are denominated may have a detrimental
impact on the Fund.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
Emerging securities markets typically have substantially less volume than
U.S. markets, securities in many of such markets are less liquid, and their
prices often are more volatile than securities of comparable U.S. companies.
Such markets often have different clearance and settlement procedures for
securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets which the Fund desires to invest in emerging
markets may be uninvested. Settlement problems in emerging markets countries
also could cause the Fund to miss attractive investment opportunities.
Satisfactory custodial services may not be available in some emerging markets
countries, which may result in the Fund incurring additional costs and delays in
the transportation and custody of such securities.
Additional Information on Foreign Securities. The Funds may invest in
securities of foreign issuers. Each Fund may invest up to 20% of its net assets
in foreign securities, of which 10% of its net assets may be invested in foreign
securities that are not listed on a U.S. securities exchange.
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<PAGE>
Additional Information on High Yield Securities. The Balance Sheet
Opportunities Fund may invest in lower-rated fixed income securities to the
extent described in the Prospectus. The lower ratings of certain securities held
by the Fund reflects a greater possibility that adverse changes in the financial
condition of the issuer or economic conditions in general, or both, or an
unanticipated rise in interest rates, may impair the ability of the issuer to
make payments of interest and principal. The inability (or perceived inability)
of issuers to make timely payment of interest and principal would likely make
the values of securities held by these Funds more volatile and could limit a
Fund's ability to sell its securities at prices approximating the values the
Fund had placed on such securities. In the absence of a liquid trading market
for the securities held by it, a Fund may be unable at times to establish the
fair value of such securities. The rating assigned to a security by Moody's
Investors Service, Inc. or S & P (or by any other nationally recognized
securities rating organization) does not reflect an assessment of the volatility
of the security's market value or the liquidity of an investment in the
security. See the Appendix for a description of a security.
Like those of other fixed income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of a Fund's
assets. Conversely, during periods of rising interest rates, the value of a
Fund's assets will generally decline. In addition, the values of such securities
are also affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of any fixed income security and in
the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in the value of portfolio
securities generally will not affect cash income derived from such securities,
but will effect a Fund's net asset value. A Fund will not necessarily dispose of
a security when its rating is reduced below its rating at the time of purchase,
although Northstar will monitor the investment to determine whether its
retention will assist in meeting a Fund's investment objective.
Certain securities held by a Fund may permit the issuer at its option to
call, or redeem, its securities. If an issuer were to redeem securities held by
a Fund during a time of declining interest rates, the Fund may not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
Loan Participations and Assignments. The Funds may invest in loan
participations and loan assignments. A Fund's investment in loan participations
typically will result in the Fund having a contractual relationship only with
the Lender and not with the borrower. The Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participations and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations, the
Fund generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any right of set-off
against the borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund may be subject to the credit risk of both the borrower and the Lender
that is selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
When a Fund purchases a loan assignment from Lenders, it will acquire
direct rights against the borrowers on the Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Funds anticipate that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular assignments or participations when necessary to meet redemptions
of Fund shares, to meet the Fund's liquidity needs or when necessary in response
to a specific economic event, such as deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for assignments and
participations also may make it more difficult for a Fund to value these
securities for purposes of calculating its net asset value.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Northstar places orders for the purchase and sale of the Funds'
securities, supervises their execution and negotiates brokerage commissions on
behalf of each Fund. It is the practice of Northstar to seek the best prices and
best execution of orders and to negotiate brokerage commissions that in the
Adviser's opinion, are reasonable in relation to the value of the brokerage
services provided by the executing broker. Northstar seeks to obtain fair
commission rates fom brokers. If the execution is satisfactory and if the
requested rate approximates rates currently being quoted by the other brokers
selected by Northstar, the rate is deemed by Northstar to be reasonable. Brokers
may ask for higher rates of commission if all or a portion of the securities
involved in the transaction are positioned by the broker, if the broker
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<PAGE>
believes it has brought a Fund an unusually favorable trading opportunity, or if
the broker regards its research services as being of exceptional value and
payment of such commissions is authorized by Northstar after the transaction has
been consummated. If Northstar more than occasionally differs with the broker's
appraisal of opportunity or value, the broker would not be selected to execute
trades in the future. Northstar believes that each Fund benefits with a
securities industry comprised of many and diverse firms and that the long term
interest of shareholders of the Funds is best served by its brokerage policies
that include paying a fair commission, rather than seeking to exploit its
leverage to force the lowest possible commission rate. Over-the-counter
purchases and sales are transacted directly with principal market-makers, except
in those circumstances where, in the opinion of Northstar, better prices and
execution are available elsewhere.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry groups
and individual issues. Research services will vary from firm to firm, with
broadest coverage generally from the large full-line firms. Smaller firms, in
general, tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor federal,
state, local and foreign political developments; many of the brokers also
provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff, since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, the outside research provides Northstar with a
diverse perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to Northstar and is available for
the benefit of other accounts advised by Northstar and its affiliates; and not
all of this information will be used in connection with the Funds. While this
information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value, and, in the
opinion of Northstar, it does not reduce the Adviser's expenses by a
determinable amount. The extent to which Northstar makes use of statistical,
research and other services furnished by brokers is considered by Northstar in
the allocation of brokerage business, but there is no formula by which such
business is allocated. Northstar does so in accordance with its judgment of the
best interests of the Funds and their shareholders.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. Each Fund will also
purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed income securities transactions consists primarily of dealer
spreads and underwriting commissions.
In purchasing and selling fixed income securities, it is the policy of
each Fund to obtain the best results, while taking into account the dealer's
general execution and operational facilities, the type of transaction involved
and other factors, such as the dealer's risk in positioning the securities
involved. While Northstar generally seeks reasonably competitive spreads or
commissions, the Funds will not necessarily pay the lowest spread or commission
available.
Each Fund may, under circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Funds. By allocating
transactions in this manner, Northstar is able to supplement its research and
analysis with the views and information of other securities firms. During the
fiscal years ended December 31, 1998, 1997 and 1996 the Growth and Balance Sheet
Opportunities Funds paid the total brokerage commissions indicated below,
including, commissions to Advest, Inc. ("Advest"), an affiliate of the Funds'
former investment adviser.
Brokerage Commissions Paid During Fiscal Years
Ended December 31, 1998, 1997 and 1996 for the Funds
December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
Growth Fund ............................... $ 169,066 124,024
Balance Sheet Opportunities Fund .......... $ 81,371 90,283
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A change in securities held in the portfolio of a Fund is known as
"Portfolio Turnover" and may involve the payment by a Fund of dealer markups or
brokerage or underwriting commissions and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
Portfolio turnover rate for a fiscal year is the percentage determined by
dividing the lesser of the cost of purchases or proceeds from sales of portfolio
securities by the average of the value of portfolio securities during such year,
all excluding securities whose maturities at acquisition were one year or less.
Each Fund's historical portfolio turnover rates are included in the Financial
Highlights tables in the prospectus. In evaluating a Fund's portfolio turnover
rate, you should keep in mind that a 100% annual turnover rate would occur, for
example, if all the securities in the portfolio were replaced once in a period
of one year. A Fund's portfolio turnover rate may be higher than that described
above if a Fund finds it necessary to significantly change its portfolio to
adopt a temporary defensive position or respond to economic or market events. A
high turnover rate would increase commission expenses and may involve
realization of gains that would be taxable to shareholders.
SERVICES OF NORTHSTAR AND THE ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with each Fund, Northstar
Investment Management Corporation acts as the Investment Adviser to each Fund.
Northstar is an indirect, wholly-owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar"). ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the life insurance business. Through ReliaStar Life
Insurance Company ("ReliaStar Life") and other subsidiaries, ReliaStar issues
and distributes individual life insurance and annuities, group life and health
insurance and life and health reinsurance, and provides related investment
management services. The address of Northstar is 300 First Stamford Place,
Stamford, Connecticut 06902. The address of ReliaStar is 20 Washington Avenue
South, Minneapolis, Minnesota 55401.
Northstar charges a fee under each advisory agreement to Growth Fund and
Balance Sheet Opportunities Fund, at an annual rate, after voluntary waivers or
expense reimbursements, of 0.75% and 0.65%, respectively, of each Fund's average
daily net assets. This fee is accrued daily and payable monthly.
The Investment Advisory Agreement for both Funds was approved by the
Trustees of each Fund on March 1, 1995 and by the shareholders of both Funds on
June 2, 1995. Each Investment Advisory Agreement continues in effect from year
to year if specifically approved annually by (a) the Trustees, acting separately
on behalf of the particular Fund, including a majority of the Disinterested
Trustees, or (b) a majority of the outstanding voting securities of each class
of such Fund as defined in the 1940 Act. The Agreements were last approved on
April 30, 1998.
Either Fund's Investment Advisory Agreement may be terminated as to any
class, without penalty and at any time, by a similar vote upon not more than 60
days nor less than 30 days written notice by Northstar, the Trustees, or a
majority of the outstanding voting securities of such class of such Fund as
defined in the 1940 Act. Such agreement will automatically terminate in the
event of its assignment, as defined in Section 2(a)(4) of the 1940 Act.
Northstar Administrators Corporation serves as administrator for the
Funds, pursuant to an Administrative Services Agreement with each Fund. Subject
to the supervision of the Board of Trustees, the Administrator provides the
overall business management and administrative services necessary to the proper
conduct of the Funds' business, except for those services performed by Northstar
under the Investment Advisory Agreements, the custodian for the Funds under the
Custodian Agreements, the transfer agent for the Funds under the Transfer Agency
Agreements, and such other service providers as may be retained by the Funds
from time to time. The Administrator acts as liaison among these service
providers to the Funds. The Administrator is also responsible for ensuring that
the Funds operate in compliance with applicable legal requirements and for
monitoring Northstar for compliance with requirements under applicable law and
with the investment policies and restrictions of the Funds. The Administrator is
an affiliate of Northstar. The address of the Administrator is: 300 First
Stamford Place, Stamford, Connecticut 06902.
The Administrative Services Agreement for the Funds was approved by the
Trustees of each Fund on March 1, 1995, and continued in effect until June 2,
1998. The agreement was renewed by the Trustees for one year on April 30, 1998
and will continue in effect from year to year thereafter, provided such
continuance is approved annually by a majority of the Disinterested Trustees of
the affected Fund.
The Administrator's fee is accrued daily against the value of each Fund's
net assets and is payable by each Fund monthly at an annual rate of 0.10% of
each Fund's average daily net assets. In addition, the Administrator charges an
annual account fee of $5.00 for each account of beneficial owners of shares in a
Fund for providing certain shareholder services and assisting broker-dealer
shareholder accounts.
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During the fiscal years ended December 31, 1998, 1997 and 1996,
respectively, the Funds paid Northstar and the Administrator the following
investment advisory and administrative fees:
Total Advisory and Administrative Fees Paid
During Fiscal Year Ended December 31,
1998 1998 1997 1997 1996 1996
Advisory Admin. Advisory Admin. Advisory Admin.
Fees Fees Fees Fees Fees Fees
-------- ------ -------- ------- -------- -------
Growth Fund(1) .. 1,412,949 136,648 575,383 0
Balance Sheet
Opportunities
Fund(1) ....... 398,127 46,191 464,088 0
- ---------
(1) Does not reflect expense reimbursement of $10,635 for the Growth Fund,
$20,690 for the Balance Sheet Opportunities Fund for the year ended December
31, 1997 or expense reimbursement of $34,126 for the Growth Fund, $41,925
for the Balance Sheet Opportunities Fund for the year ended December 31,
1996.
NET ASSET VALUE
For the Northstar Growth and Balance Sheet Opportunities, portfolio
securities, options and futures contracts and options thereon that are traded on
national exchanges or in the NASDAQ System are valued at the last sale or
settlement price on the exchange or market where primarily traded or, if none
that day, at the mean of the last reported bid and asked prices, using prices as
of the close of trading on the applicable exchange or market. Securities and
options that are traded in the OTC market (other than on the NASDAQ System) are
valued at the mean of the last available bid and asked prices. Such valuations
are based on quotations of one or more dealers that make markets in the
securities as obtained from such dealers or from a pricing service. Securities
(including OTC options) for which market quotations are not readily available
(which may constitute a major portion of the High Yield Fund's portfolio) and
other assets are valued at their fair value as determined by or under the
direction of the Trustees. Such fair value may be determined by various methods,
including utilizing information furnished by pricing services that determine
calculations for such securities using methods based, among other things, upon
market transactions for comparable securities and various relationships between
securities that are generally recognized as relevant.
The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern time), on each business day that the
Exchange is open. Net asset value per share is computed by determining the value
of a Fund's assets (securities held plus cash and other assets, including
dividend and interest accrued but not received) less all liabilities of the Fund
(including accrued expenses other than class specific expenses), and dividing
the result by the total number of shares outstanding at such time. The specific
expenses borne by each class of shares will be deducted from that class and will
result in different net asset values and dividends. The net asset value per
share of the Class B, Class C and Class T shares of each Fund will generally be
lower than that of the Class A or Class I shares because of the higher class
specific expenses borne by each of the Class B, Class C and Class T shares.
Under normal market conditions, daily prices for securities are obtained from
independent pricing services, determined by them in accordance with the
registration statement for each Fund. Securities are valued at market value or,
if a market quotation is not readily available, at their fair value, determined
in good faith under procedures established by and under the supervision of the
Trustees. Money market instruments maturing within 60 days are valued using the
amortized cost method of valuation. This involves valuing a security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a Fund
would receive if it sold the instrument. See "How Net Asset Value is Determined"
in the Prospectus.
PURCHASES AND REDEMPTIONS
Shares issued pursuant to the automatic reinvestment of income dividends
or capital gains distributions are not subject to a front-end or contingent
deferred sales load. There is no sales charge for qualified persons. "Qualified
Persons" are the following (a) active or retired Trustees, Directors, Officers,
Partners or Employees (including immediate family) of (i) Northstar or any of
its affiliated companies, (ii) the Funds or any Northstar affiliated investment
company or (iii) dealers
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having a sales agreement with the Underwriter, (b) trustees or custodians of any
qualified retirement plan or IRA established for the benefit of a person in (a)
above; (c) dealers, brokers or registered investment advisers that have entered
into an agreement with the Underwriter providing for the use of shares of the
Funds in particular investment products such as "wrap accounts" or other similar
managed accounts for the benefit of the clients of such brokers, dealers and
registered investment advisers, and (d) pension, profit sharing or other benefit
plans created pursuant to a plan qualified under Section 401 of the Code or
plans under Section 457 of the Code, provided that such shares are purchased by
an employer sponsored plan with at least 50 eligible employees and (e) service
providers of (i) Northstar or any of its affiliated companies or (ii) the Funds
or any Northstar affiliated investment company and (f) Brandes employees,
officers and partners. Class A shares of the Funds may be purchased at net asset
value, through a dealer, where the amount invested represents redemption
proceeds from another open-end fund sold with a sales load and the same or
similar investment objective, and provided the following conditions are met:
such redemption occurred no more than 60 days prior to the purchase of shares of
a Northstar Fund, the redeemed shares were held for at least six months prior to
redemption, and the proceeds of the redemption are sent directly to Northstar or
its agent, or maintained in cash or a money market fund. No commissions will be
paid to dealers in connection with such purchases. There is also no initial
sales charge for "Purchasers" (defined below) if the initial amount invested in
the Funds is at least $1,000,000 or the Purchaser signs a $1,000,000 Letter of
Intent, as hereinafter defined.
Reduced Sales Charges on Class A Shares. Investors choosing the initial
sales alternative may under certain circumstances be entitled to pay reduced
sales charges. The sales charge varies with the size of the purchase and reduced
charges apply to the aggregate of purchases of a Fund made at one time by any
"Purchaser," which term includes (i) an individual and his/her spouse and their
children under the age of 21, (ii) a trustee or fiduciary purchasing for a
single trust, estate or single fiduciary account (including IRAs, pension,
profit-sharing or other employee benefit trusts created pursuant to a plan
qualified under Section 401 of the Code, a Simplified Employee Pension ("SEP"),
Salary Reduction and other Elective Simplified Employee Pension Accounts
("SARSEP")) and 403(b) and 457 plans, although more than one beneficiary or
participant is involved; and (iii) any other organized group of persons, whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase at a discount of
redeemable securities of a registered investment company. The circumstances
under which "Purchasers" may pay reduced sales charges are described in the
Prospectus.
Redemptions. The right to redeem shares may be suspended and payment
therefore postponed during periods when the New York Stock Exchange is closed,
other than customary weekend and holiday closings, or, if permitted by rules of
the SEC, during periods when trading on the Exchange is restricted, or during
any emergency that makes it impracticable for any Fund to dispose of its
securities or to determine fairly the value of its net assets or during any
other period permitted by order of the SEC for the protection of investors.
Furthermore, the Transfer Agent will not mail redemption proceeds until checks
received for shares purchased have cleared, but payment will be forwarded
immediately upon the funds becoming available. Class B, Class C and Class T
shareholders will be subject to the applicable deferred sales charge, if any,
for their shares at the time of redemption.
The contingent deferred sales load will be waived with respect to Class T
shares in the following instances: (i) any partial or complete redemption of
shares of a shareholder who dies or becomes disabled, so long as the redemption
is requested within one year of death or the initial determination of
disability; (ii) any partial or complete redemption in connection with
distributions under Individual Retirement Accounts ("IRAs") or other qualified
retirement plans in connection with a lumpsum or other form of distribution
following retirement within the meaning of Section 72(t)(2)(A) (iv) or (v) of
the Code, disability or death, or after attaining the age of 59 1/2 in the case
of an IRA, Keogh Plan or custodial account pursuant to Section 403(b)(7) of the
Code, or on any redemption that results from a taxfree return of an excess
contribution pursuant to Section 408(d)(4) or (5) of the Code or Section 4979(f)
of the Code; (iii) redemptions effected pursuant to the Funds' right to
liquidate a shareholder's account if the aggregate net asset value of the shares
held in the account is less than $500; (iv) redemptions effected by (A)
employees of The Advest Group, Inc. ("AGI") and its subsidiaries, (B) IRAs,
Keogh plans and employee benefit plans for those employees, and (C) spouses and
minor children of those employees, so long as orders for shares are placed on
behalf of the spouses or children by the employees; (v) redemptions effected by
accounts managed by investment advisory subsidiaries of AGI registered under the
Investment Advisers Act of 1940; and (vi) redemptions in connection with
exchanges of Fund Class T shares, including shares of the Class T account of the
Money Market Portfolio.
Exchanges. The following conditions must be met for all exchanges among
the Funds and the Money Market Portfolio: (i) the shares that will be acquired
in the exchange (the "Acquired Shares") are available for sale in the
shareholder's state of residence; (ii) the Acquired shares will be registered to
the same shareholder account as the shares to be surrendered (the "Exchanged
Shares"); (iii) the Exchanged Shares must have been held in the shareholder's
account for at least 30 days prior
14
<PAGE>
to the exchange; (iv) except for exchanges into the Money Market Portfolios, the
account value of the Fund whose shares are to be acquired must equal or exceed
the minimum initial investment amount required by that Fund after the exchange
is implemented; and (v) a properly executed exchange request has been received
by the Transfer Agent.
Each Fund reserves the right to delay the actual purchase of the Acquired
Shares for up to five business days if it determines that it would be
disadvantaged by an immediate transfer of proceeds from the redemption of
Exchanged Shares. Normally, however, the redemption of Exchanged Shares and the
purchase of Acquired Shares will take place on the day that the exchange request
is received in proper form. Each Fund reserves the right to terminate or modify
its exchange privileges at any time upon prominent notice to shareholders. Such
notice will be given at least 60 days in advance. It is the policy of Northstar
to discourage and prevent frequent trading by shareholders among the Funds in
response to market fluctuations. Accordingly, in order to maintain a stable
asset base in each Fund and to reduce administrative expenses borne by each
Fund, Northstar generally restricts shareholders to a maximum of six exchanges
across the Northstar Fund complex each calendar year. If a shareholder exceeds
this limit, future exchange requests may be denied.
Conversion Feature. Class B shares of each Fund will automatically convert
to Class A shares without a sales charge at the relative net asset values of
each of the classes after eight years from the acquisition of the Class B
shares, and as a result, will thereafter be subject to the lower distribution
fee (but same service fee) under the Class A Rule 12b-1 plan for each Fund.
Class T Shares convert to Class A shares at the end of the month that is eight
years after the Class T Shares were purchased.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"). In order to so
qualify, the Fund must, among other things, (i) derive each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies; (ii) derive less than 30% of its gross
income each taxable year from the sale or other disposition of certain assets,
including securities, held for less than three months (the "30% Limitation");
and (iii) at the end of each quarter of the taxable year maintain at least 50%
of the value of its total assets in cash, government securities, securities of
other regulated investment companies, and other securities of issuers that
represent, with respect to each issuer, no more than 5% the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
with no more than 25% of its assets invested in the securities (other than those
of the U.S. Government or other regulated investment companies) of any one
issuer or of two or more issuers that the Fund controls and that are engaged in
the same, similar or related trades and businesses. As a regulated investment
company, each Fund generally will not be subject to federal income tax on its
income and gains that it distributes to shareholders, if at least 90% of its
investment company taxable income (which includes dividends, interest and the
excess of any short-term capital gains over long-term capital losses) for the
taxable year is distributed.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
a Fund's "required distribution" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a Fund's ordinary income for
the calendar year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 plus undistributed amounts from prior
years. Each Fund intends to make distributions sufficient to avoid imposition of
the excise tax. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund during October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable as if
received on December 31 in the year they are declared by the Fund, rather than
the year in which they are received.
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by a Fund for selling a put or call option is not included in income at
the time of receipt. If the option expires, the premium is a short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is a
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining the gain or loss.
15
<PAGE>
Certain options, futures contracts and forward contracts in which a Fund
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses ("60/40 gains or losses"); however, foreign currency gains or
losses (as discussed below) arising from certain section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by a Fund
at the end of each taxable year (and, generally, for purposes of the 4% excise
tax, on October 31 of each year) are treated as sold on such date at fair market
value, resulting in unrealized gains or losses being treated as though they were
realized.
Hedging transactions undertaken by a Fund may result in straddles for U.S.
federal income tax purposes. The straddle rules may accelerate income to a Fund,
defer losses to a Fund, and affect the character of gains (or losses) realized
by a Fund. Hedging transactions may increase the amount of short-term capital
gains realized by a Fund that is taxed as ordinary income when distributed to
shareholders. A Fund may make one or more of the various elections available
under the Code with respect to hedging transactions. If a Fund makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected positions will be determined under rules that vary
according to the elections made.
Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time a Fund accrues interest or other receivables,
or accrues expenses or other liabilities, denominated in a foreign currency and
the time the Fund actually collects such receivables, or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and certain
options, futures and forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
A Fund will not realize a gain or loss on a short sale of a security until
it closes the transaction by delivering the borrowed security to the lender. All
or a portion of any gain arising from a short sale may be treated as short-term
capital gain, regardless of the period for which he Fund held the security used
to close the short sale. In addition, the Fund's holding period for any security
that is substantially identical to that which is sold short may be reduced or
eliminated as a result of the short sale.
Investments by a Fund in zero coupon securities will result in income to
the Fund equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Fund receives no cash interest payments.
This income is included in determining the amount of income that the Fund must
distribute to maintain its status as a regulated investment company and to avoid
the payment of federal income tax and the 4% excise tax. If a Fund invests in
certain high yield original issue discount obligations issued by corporations, a
portion of the original issue discount accruing on the obligations may be
eligible for the deduction for dividends received by corporations. In such
event, a portion of the dividends of investment company taxable income received
from the Fund by its corporate shareholders may be eligible for this deduction.
Gains derived by a Fund from the disposition of any market discount bonds
(i.e., bonds purchased other than at original issue, where the face value of the
bonds exceeds their purchase price) held by the Fund will be taxed as ordinary
income to the extent of the accrued market discount on the bonds, unless the
Fund elects to include the market discount in income as it accrues.
If a Fund invests in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), these investments would be subject to special tax rules
designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's
earnings. In the absence of certain elections to report these earnings on a
current basis, regardless of whether the Fund actually receives any
distributions from the PFIC, investors in the Fund would be required to report
certain "excess distributions" from, and any gains from the disposition of stock
of, the PFIC as ordinary income. This ordinary income would be allocated ratably
to the Fund's holding period for the stock. Any amounts allocated to prior years
would be taxable at the highest rate of tax applicable in that year, increased
by an interest charge determined as though the amounts were underpayments of
tax.
Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. If more than
50% of the value of a Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible and
may elect to "pass through" to the Fund's shareholders the amount of foreign
taxes paid by the Fund. Pursuant to this election, a shareholder will be
required to include in gross income (in addition to dividends actually received)
its pro rata share of the foreign taxes paid by the Fund, and may be entitled
either to deduct its pro rata share of the foreign taxes in computing its
taxable income or to use the amount as a foreign tax credit
16
<PAGE>
against its U.S. Federal income tax liability, subject to limitations. Each
shareholder will be notified within 60 days after the close of the Fund's
taxable year whether the foreign taxes paid by the Fund will "pass through" for
that year. If a Fund is not eligible to make the election to "pass through" to
its shareholders its foreign taxes, the foreign taxes it pays will reduce its
investment company taxable income and distributions by the Fund will be treated
as U.S. source income.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to its foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Fund's income flows through to its shareholders. With respect to
the Funds, gains from the sale of securities will be treated as derived from
U.S. sources and certain currency fluctuation gains, including fluctuation gains
from foreign currency denominated debt securities, receivables and payables, and
options, futures and forward transactions, will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income (as defined for purposes of the
foreign tax credit), including the foreign source passive income passed through
by the Funds.
The current position of the Internal Revenue Service (the "IRS") generally
is to treat a regulated investment company, such as the Special Fund, as owning
its proportionate share of the income and assets of any partnership in which it
is a partner, in applying the 90% qualifying income requirement, the 30%
Limitation and the asset diversification requirements that, as described above,
each Fund must satisfy to qualify as a regulated investment company under the
Code. These requirements may limit the extent to which the Special Fund may
invest in limited partnerships, especially in the case of limited partnerships
that do not primarily invest in a diversified portfolio of stocks and
securities.
Dividends paid out of a Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of a Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated as capital
gain dividends are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the relevant Fund on the
reinvestment date. A distribution of an amount in excess of a Fund's current and
accumulated earnings and profits will be treated by a shareholder as a return of
capital that is applied against and reduces the shareholder's basis in his or
her shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as a gain from a sale or exchange of the shares. Shareholders will
be notified annually as to the U.S. federal tax status of distributions, and
shareholders receiving distributions in the form of additional shares will
receive a report as to the net asset value of those shares.
Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a capital gain or loss that will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund originally
acquired with a sales charge are disposed of within 90 days after the date on
which they were acquired and new shares of a regulated investment company are
acquired without a sales charge or at a reduced sales charge. In that case, the
gain or loss realized on the disposition will be determined by excluding from
the tax basis of the shares all or a portion of the sales charge incurred in
acquiring those shares. This exclusion applies to the extent that the otherwise
applicable sales charge with respect to the newly acquired shares is reduced as
a result of the shareholder having incurred a sales charge paid for the new
shares. This rule may be applied to successive acquisitions of shares of stock.
Distributions by a Fund reduce the net asset value of that particular
Fund's shares. Should a distribution reduce the net asset value of a share below
a shareholder's cost for the share, such a distribution nevertheless generally
would be taxable to the shareholder as ordinary income or long-term capital
gains, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution by a Fund. The
price of shares purchased at that time may include the amount of the forthcoming
distribution, but the distribution generally would be taxable to them.
17
<PAGE>
Some shareholders may be subject to withholding of Federal income tax on
dividends and redemption payments from a Fund ("backup withholding") at the rate
of 31%. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. Generally, shareholders
subject to backup withholding will be (i) those for whom a certified taxpayer
identification number is not on file with a Fund, (ii) those about whom
notification has been received (either by the shareholder or by a Fund) from the
IRS that they are subject to backup withholding or (iii) those who, to a Fund's
knowledge, have furnished an incorrect taxpayer identification number.
Generally, to avoid backup withholding, an investor must, at the time an account
is opened, certify under penalties of perjury that the taxpayer identification
number furnished is correct and that he or she is not subject to backup
withholding.
The foregoing discussion relates solely to U.S. Federal income tax law.
Dividends and distributions also may be subject to state, local and foreign
taxes. Dividends paid by a Fund from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers regarding the possible exclusion
of this portion of their dividends for state and local tax purposes. Non-U.S.
investors also should consult their tax advisers concerning the tax consequences
of ownership of shares of a Fund, including the possibility that distributions
may be subject to a 30% U.S.withholding tax (or a reduced rate of withholding
provided by treaty).
Shareholders of Class A, Class B and Class C shares may direct that income
dividends and capital gain distributions be paid to them through various options
listed in the "How Funds Pay Distributions -- Distribution Options" section of
the Funds' current Prospectus. If a shareholder selects either of two such
options (that: (a) income dividends be paid in cash and capital gain
distributions be paid in additional shares of the same class of a designated
Fund at net asset value; or (b) income dividends and capital gain distributions
both be paid in cash), and the dividend/distribution checks cannot be delivered,
or, if such checks remain uncashed for six months, each Fund reserves the right
to reinvest the dividend or distribution in the shareholder's account at the
then-current net asset value and to convert the shareholder's election to
automatic reinvestment in shares of the Fund from which the distributions were
made. Each Fund has received from the IRS, rulings to the effect that (i) the
implementation of the multiple class purchase arrangement will not result in a
Fund's dividends or distributions constituting "preferential dividends" under
the Code, and (ii) that any conversion feature associated with a class of shares
does not constitute a taxable event under federal income tax law.
UNDERWRITER AND DISTRIBUTION SERVICES
Pursuant to Underwriting Agreements, Northstar Distributors, Inc. is the
Underwriter for each Fund and as such conducts a continuous offering pursuant to
a "best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. The Underwriter is an affiliate of the
Adviser and the Administrator.
The Underwriting Agreements may be terminated at any time on not more than
60 days written notice, without payment of a penalty, by the Underwriter, by
vote of a majority of the outstanding class of voting securities of the affected
Fund, or by vote of a majority of the Trustees of such Fund, who are not
"interested persons" of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements. The Underwriting
Agreements will terminate automatically in the event of their assignment.
In addition to the amount paid to dealers pursuant to the sales charge
table in the Prospectus, the Underwriter from time to time pays, from its own
resources or pursuant to the Plans, a bonus or other incentive to dealers (other
than the Underwriter) that employ a registered representative who sells a
minimum dollar amount of the shares of a Fund during a specific period of time.
Dealers may not use sales of any of the Fund's shares to qualify for or
participate in such programs to the extent such may be prohibited by a dealer's
internal procedures or by the laws of any state or any self-regulatory agency,
such as the National Association of Securities Dealers, Inc. Such bonuses or
other incentives take the form of payment for travel expenses, including
lodging, incurred in connection with trips taken by qualifying registered
representatives and members of their families to places within or outside the
United States, or other bonuses such as certificates for airline tickets, dining
establishments or the cash equivalent of such bonuses. The Underwriter, from
time to time, reallows all or a portion of the sales charge on Class A shares,
which it normally reallows to individual selling dealers. However, such
additional reallowance generally will be made only when the selling dealer
commits to substantial marketing support such as internal wholesaling through
dedicated personnel, internal communications and mass mailings.
Each Fund has adopted separate distribution plans under Rule 12b-1 of the
1940 Act for each class of shares of the Fund (collectively the "Plans"). The
Plans permit each Fund to compensate the Underwriter in connection with
activities intended to promote the sale of shares of each class of shares of
each Fund.
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<PAGE>
Pursuant to the Plan for Class A shares, each Fund may compensate the
Underwriter up to 0.30% of average daily net assets of such Fund's Class A
shares. Under the Plans for Class B and Class C shares, each Fund may compensate
the Underwriter up to 1.00% of the average daily net assets attributable to the
respective class of such Fund. Pursuant to the Plan for Class T shares, each
Fund compensates the Underwriter in an amount equal to 0.95% (in the case of the
Growth Fund), 0.75% (in the case of the Balance Sheet Opportunities Fund) of
annual average daily net assets of such Fund's Class T shares. However, each of
the Class T Plans provides for compensation of up to 1.00% of annual average
daily net assets. Expenditures by the Underwriter under the Plans shall consist
of: (i) commissions to sales personnel for selling shares of the Funds
(including underwriting fees and financing expenses incurred in connection with
the sale of Class B and Class C shares); (ii) compensation, sales incentives and
payments to sales, marketing and service personnel; (iii) payments to
broker-dealers and other financial institutions that have entered into
agreements with the Underwriter in the form of a Dealer Agreement for Northstar
Funds for services rendered in connection with the sale and distribution of
shares of the Funds; (iv) payment of expenses incurred in sales and promotional
activities, including advertising expenditures related to the Funds; (v) the
costs of preparing and distributing promotional materials; (vi) the cost of
printing the Funds' Prospectus and SAI for distribution to potential investors;
and (vii) other activities that are reasonably calculated to result in the sale
of shares of the Funds. With respect to each Class T Plan, it is anticipated
that all of the payments received by the Underwriter under the Plan will be paid
to Advest as compensation for its prior distribution related and current
shareholder servicing related activities in connection with the Class T Shares.
A portion of the fees paid to the Underwriter pursuant to the 12b-1 plans
not exceeding 0.25% annually of the average daily net assets of each Fund's
shares may be paid as compensation for providing services to each Fund's
shareholders, including assistance in connection with inquiries related to
shareholder accounts (the "Service Fee"). In order to receive Service Fees under
the Plans, participants must meet such qualifications as are established in the
sole discretion of the Underwriter, such as services to each Fund's
shareholders; or services providing each Fund with more efficient methods of
offering shares to coherent groups of clients, members or prospects of a
participant; or services permitting purchases or sales of shares, or
transmission of such purchases or sales by computerized tape or other electronic
equipment; or other processing.
The Plans are designed to be compensation plans and therefore amounts
spent by the distributor in excess of plan limits are not carried over from year
to year for reimbursement. The Plans do, however, contemplate that amounts paid
to the distributor may compensate it for past distribution efforts without
regard to any particular time period.
If the Plans are terminated in accordance with their terms, the
obligations of a Fund to compensate the Underwriter for distribution related
services pursuant to the Plans will cease; however, subject to approval by the
Trustees, including a majority of the independent Trustees, a Fund may continue
to make payments past the date on which each Plan terminates up to the annual
limits set forth in each Plan for the purpose of compensating the Underwriter
for services that were incurred during the term of the Plan.
The Trustees have concluded that there is a reasonable likelihood that the
Plans will benefit each Fund and its shareholders and that the Plans should
result in greater sales and/or fewer redemptions of Fund shares. On a quarterly
basis, the Trustees will review a report on expenditures under the Plans and the
purposes for which expenditures were made. The Trustees will conduct an
additional, more extensive review annually in determining whether the Plans
shall be continued. By their terms, continuation of the Plans from year to year
is contingent on annual approval by a majority of the Trustees acting separately
on behalf of each Fund and by a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plans or any related agreements (the
"Plan Trustees"). The Plans provide that they may not be amended to increase
materially the costs that a Fund may bear pursuant to the applicable Plan
without approval of the shareholders of the affected Fund and that other
material amendments to the Plans must be approved by a majority of the Plan
Trustees acting separately on behalf of each Fund, by vote cast in person at a
meeting called for the purpose of considering such amendments. The Plans further
provide that while each plan is in effect, the selection and nomination of
Trustees who are not "interested persons" shall be committed to the discretion
of the Trustees who are not "interested persons." A Plan may be terminated at
any time by vote of a majority of the Plan Trustees or a majority of the
outstanding class of shares of the affected Fund to which the Plan relates.
During their fiscal year ended December 31, 1998, each class of shares of
the Funds listed below, paid the following 12b-1 distribution and service fees
pursuant to the Distribution Plan for each class:
Class A Class B Class C Class T
------- ------- ------- -------
Growth Fund .................... $
Balance Sheet
Opportunities Fund ........... $
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<PAGE>
During the fiscal year ended December 31, 1998, expenses incurred by the
Distributor (or Advest with respect to Class T Shares prior to June 2, 1995) for
certain distribution related activities with respect to each class of shares of
the Funds listed below were as follows:
Growth Fund
-------------------------------------------------
Class A Class B Class C Class T
--------- --------- --------- ---------
EXPENSE
Salaries/Overrides ....... $ $ $ $
Commissions Paid ......... $ $ $ $
Marketing/Convention/
RMM Expense ............ $ $ $ $
Total .................... $ $ $ $
Balance Sheet Opportunities Fund
-------------------------------------------------
Class A Class B Class C Class T
--------- --------- --------- ---------
EXPENSE
Salaries/Overrides ....... $ $ $ $
Commissions Paid ......... $ $ $ $
Marketing/Convention/
RMM Expense ............ $ $ $ $
Total .................... $ $ $ $
For the following Funds' fiscal year ended December 31, 1998, the
Distributor (or Advest) received the following amounts in sales charges, after
reallowance to Dealers:
Class A Class B Class C Class T
--------- --------- --------- ---------
Growth Fund .............. $ $ $ $
Balance Sheet Fund ....... $ $ $ $
20
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal Officers of each Fund and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and Officers is 300 First Stamford
Place, Stamford, Connecticut 06902.
Robert B. Goode, Jr., Trustee. Age: 68
Currently retired. From 1990 to 1991, Chairman of The First Reinsurance
Company of Hartford. From 1987 to 1989, President and Director of American
Skandia Life Assurance Company. Since October 1993, Trustee of the Northstar
affiliated investment companies.
Paul S. Doherty, Trustee. Age: 64.
President, Doherty, Wallace, Pillsbury and Murphy, P.C., Attorneys.
Director, Tambrands, Inc. Since October 1993, Trustee of the Northstar
affiliated investment companies.
David W. Wallace, Trustee. Age: 74.
Chairman of Putnam Trust Company, Lone Star Industries and FECO Engineered
Systems, Inc. He is also President and Trustee of Robert R. Young Foundation and
Governor of the New York Hospital. Director of UMC Electronics and Zurn
Industries, Inc. Former Chairman and Chief Executive Officer, Todd Shipyards and
Bangor Punta Corporation, and former Chairman and Chief Executive Officer of
National Securities & Research Corporation. Since October 1993, Trustee of the
Northstar affiliated investment companies.
*Mark L. Lipson, Trustee and President. Age: 49.
Director, Chairman and Chief Executive Officer of Northstar and Northstar,
Inc. Director and President of Northstar Administrators Corporation and Director
and Chairman of Northstar Distributors, Inc., President and Trustee of the
Northstar affiliated investment companies since October 1993. Prior to August,
1993, Director, President and Chief Executive Officer of National Securities &
Research Corporation and President and Director/Trustee of the National
Affiliated Investment Companies and certain of National's subsidiaries.
*John G. Turner, Trustee. Age: 59.
Since May 1993, Chairman and CEO of ReliaStar Financial Corporation and
Northwestern NationalLife Insurance Co. and Chairman of other ReliaStar
Affiliated Insurance Companies since 1995. Since October 1993, Director of
Northstar and affiliates. Prior to May 1993, President and CEO of ReliaStar and
Northwestern National.
Alan L. Gosule, Trustee. Age: 58.
Partner, Rogers & Wells. Director, F.L. Putnam Investment Management Co.,
Inc.
David W.C. Putnam, Trustee. Age: 59.
President, Clerk and Director of F.L. Putnam Securities Company,
Incorporated, F.L. Putnam Investment Management Company, Incorporated,
Interstate Power Company, Inc., Trust Realty Corp. and Bow Ridge Mining Co.;
Director of Anchor Investment Management Corporation; President and Trustee of
Anchor Capital Accumulation Trust, Anchor International Bond Trust, Anchor Gold
and Currency Trust, Anchor Resources and Commodities Trust and Anchor Strategic
Assets Trust.
John R. Smith, Trustee. Age: 75.
From 1970-1991, Financial Vice President of Boston College; President of
New England Fiduciary Company (financial planning) since 1991; Chairman of
Massachusetts Educational Financing Authority since 1987; Vice Chairman of
Massachusetts Health and Education Authority.
Walter H. May, Trustee. Age: 62.
Retired. Former Senior Executive for Piper Jaffrey, Inc.
Stephanie L. Beckner, Vice President and Secretary. Age: 30.
Vice President, Secretary and Counsel of Northstar, Northstar affiliated
companies and Northstar affiliated investment companies.
Thomas Ole Dial, Vice President. Age: 42.
Executive Vice President and Chief Investment Officer-Fixed Income of
Northstar and Principal, T.D. & Associates, Inc. From 1989 to August 1993,
Executive Vice President and Chief Investment Officer-Fixed Income of National
Securities and Research Corporation, Vice President of National Affiliated
Investment Companies, and Vice President of NSR Asset Management Corporation.
From 1988 to 1989, President of Dial Capital Management.
- ---------------
*Deemed to be an "interested person" of the Trust, as defined by the 1940 Act.
21
<PAGE>
Mary Lisanti, Vice President. Age: 42.
Executive Vice President and Chief Investment Officer-Equities of
Northstar. From September 1996 to May 1998, Portfolio Manager with Strong
Capital Management. From March 1993 to August 1996, Managing Director and
Portfolio Manager with Bankers Trust Corporation.
Agnes Mullady, Vice President and Treasurer. Age: 40.
Senior Vice President and Chief Financial Officer of Northstar, Senior
Vice President and Treasurer of Northstar Administrators Corporation, and Vice
President and Treasurer of Northstar Distributors, Inc. From 1987 to 1993, Vice
President and Treasurer of National Securities & Research Corporation.
Northstar and Northstar Administrators Corporation make their personnel
available to serve as Officers and "Interested Trustees" of the Funds. All
Officers and Interested Trustees of the Funds are compensated by Northstar or
Northstar Administrators Corporation. Trustees who are not "interested persons"
of the Adviser are paid an annual retainer fee of $6,000 for their combined
services as Trustees to the Funds and to retail funds sponsored or advised by
the Adviser, and a per meeting fee of $1,500 for attendance at each joint
meeting of the Funds and the other Northstar retail funds. The Funds also
reimburse Trustees for expenses incurred by them in connection with such
meetings.
As of December 31, 1998, all Trustees and executive officers of each Fund
as a group owned beneficially or of record less than 1% of the outstanding
securities of such Fund. To the knowledge of the Funds, as of December 31, 1998,
no shareholder owned beneficially (b) or of record (r) more than 5% of a Fund's
outstanding shares, except as set forth below:
(1) Growth Fund
I
Northstar Investment Management Corp. % (b)
Stamford, Connecticut
ReliaStar Pension Account % (r)
Minneapolis, Minnesota
Compensation Table
Period Ended December 31, 1998
<TABLE>
<CAPTION>
Pension Benefits Estimated Annual Total Compensation
Compensation Accrued as Part of Benefits Upon from All Funds(18) in
from Funds(a) Fund Expenses Retirement Northstar Complex(b)
------------- ------------- ---------- --------------------
<S> <C> <C> <C>
Robert B. Goode, Jr. ..... 0 0
Paul S. Doherty .......... 0 0
David W. Wallace ......... 0 0
Mark L. Lipson ........... 0 0 0
John G. Turner ........... 0 0 0
Alan L. Gosule ........... 0 0
David W.C. Putnam ........ 0 0
John R. Smith ............ 0 0
Walter H. May ............ 0 0
</TABLE>
- ----------
(a) See table below for Fund specific compensation.
(b) Compensation paid by the Northstar Trust Funds, the Northstar Galaxy Trust
Funds, Northstar Equity Trust Fund and the remaining five funds, Northstar
Special, Government Securities, High Yield Growth and Balance Sheet
Opportunities Funds formerly advised by BSC.
22
<PAGE>
Individual Fund(1)
Fiscal Year Compensation Tables
<TABLE>
<CAPTION>
Mid-Cap Growth + International Emerging Income + Government
Special Growth Value Value Markets Growth Securities
------- --------- ---------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert B. Goode, Jr. ...
Paul S. Doherty ........
David W. Wallace .......
Mark L. Lipson .........
John G. Turner .........
Alan L. Gosule .........
David W.C. Putnam ......
John R. Smith ..........
Walter H. May ..........
</TABLE>
High High Balance
High Total Total Sheet
Yield Return II Return Growth Opportunities
----- --------- ------ ------ -------------
Robert B. Goode, Jr. ...
Paul S. Doherty ........
David W. Wallace .......
Mark L. Lipson .........
John G. Turner .........
Alan L. Gosule .........
David W.C. Putnam ......
John R. Smith ..........
Walter H. May ..........
- ----------
(1) The Northstar Research Enhanced Index Fund commenced operations on December
30, 1998.
OTHER INFORMATION
Independent Accountants. PricewaterhouseCoopers LLP has been selected as
the independent accountants of the Northstar Trust and each of the remaining
Northstar Funds. PricewaterhouseCoopers LLP audits the Funds' annual financial
statements and expresses an opinion thereon.
Custodian. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, acts as custodian, and fund accounting agent for
the Funds, the Northstar Trust and the Northstar Equity Trust.
Transfer Agent. First Data Investor Services Group Inc., 4400 Computer
Drive, Westborough, Massachusetts 01581-5120, acts as the transfer agent for
each Fund.
Reports to Shareholders. The fiscal year of each Fund ends on December 31.
Each Fund will send financial statements to its shareholders at least
semiannually. An annual report containing financial statements audited by the
independent accountants will be sent to shareholders each year.
Organizational and Related Information. Growth Fund (formerly Advantage
Growth Fund) was organized in 1986 and Balance Sheet Opportunities Fund
(formerly Advantage Income Fund) was organized in 1986.
The shares of each Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders will be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares of the affected Fund or class having voting rights. Except as
set forth above and subject to the 1940 Act, the Trustees will continue to hold
office and appoint successor Trustees.
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Amended and Restated
Declaration of Trust for each Fund contains provisions intended to limit such
liability and to provide indemnification out of Fund property
23
<PAGE>
of any shareholder charged or held personally liable for obligations or
liabilities of a Fund solely by reason of being or having been a shareholder of
a Fund and not because of such shareholder's acts or omissions or for some other
reason. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a Fund itself would
be unable to meet its obligations.
Year 2000 Compliance. The services provided to the Funds by the Adviser,
the Administrator and the Funds' other service providers are dependent on those
service providers' computer systems. Many computer software and hardware systems
in use today cannot distinguish between the year 2000 and the year 1900 because
of the way dates are encoded and calculated (the "Year 2000 Issue"). The failure
to make this distinction could have a negative implication on handling
securities trades, pricing and account services. The Adviser, the Administrator
and the Funds' other service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Issue with respect to the computer
systems that they use. Although there can be no assurances, the Funds believe
these steps will be sufficient to avoid any material adverse impact on the
Funds. The costs or consequences of incomplete or untimely resolution of the
Year 2000 Issue are unknown to the Adviser, Administrator and the Funds' other
service providers at this time but could have a material adverse impact on the
operations of the Funds and the Adviser, Administrator and the Funds' other
service providers. Further, there can be no assurances, that the systems of the
companies in which the Funds invest will be timely converted or that the value
of such investments will not be adversely affected by Year 2000 Issue.
PERFORMANCE INFORMATION
Performance information for the Funds may be compared in reports and
promotional literature to (1) the S&P 500, Dow Jones Industrial Average
("DJIA"), or other unmanaged indices, so that investors may compare each Fund's
results to those of a group of unmanaged securities that are widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm that ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; (iii) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in a Fund; and (iv) well known monitoring
sources of certificates of deposit performance rates, such as Solomon Brothers,
Federal Reserve Bulletin, American Bankers and Tower Data/The Wall Street
Journal. Unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for administrative and management costs and
expenses. Performance rankings are based on historical information and are not
intended to indicate future performance.
In addition, the Funds may, from time to time, include various measures of
a Fund's performance, including the current yield, the tax equivalent yield and
the average annual total return of shares of the Funds in advertisements,
promotional literature or reports to shareholders or prospective investors. Such
materials may occasionally cite statistics to reflect a Fund's volatility risk.
Yield. Quotations of yield for a specific class of shares of a Fund will
be based on all investment income attributable to that class earned during a
particular 30-day (or one month) period (including dividends and interest), less
expenses accrued during the period ("net investment income"), and will be
computed by dividing the net investment income per share of that class earned
during the period by the maximum offering price per share on the last day of the
month, according to the following formula:
Yield = [2[(a-b + 1) to the power of 6 -1]]/cd
Where:
a = dividends and interest earned during the period attributable to a
specific class of shares
b = expenses accrued for the period attributable to that class (net of
reimbursements)
c = the average daily number of shares of that class outstanding during
the period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period
The maximum offering price includes a maximum contingent deferred sales
load of 4%, in the case of Class T shares, 5% for Class B shares, and 1%, for
Class C shares.
All accrued expenses are taken into account as follows. Accrued expenses
include all recurring expenses that are charged to all shareholder accounts in
proportion to the length of the base period, including but not limited to
expenses under the Funds' distribution plans. Except as noted, the performance
results take the contingent deferred sales load into account.
24
<PAGE>
The yield for Class A, B, C and T shares of the Growth and Balance Sheet
Opportunities Funds for the month ended December 31, 1998 was as follows:
Yield
Fund Class A Class B Class C Class T
- ---- ------- ------- ------- -------
Growth Fund .................... % % % %
Balance Sheet
Opportunities Fund ........... % % % %
Average Annual Total Return. Standardized quotations of average annual
total return ("Standardized Return") for each class of shares will be expressed
in terms of the average annual compounded rate of return for a hypothetical
investment in such class of shares over periods of 1, 5 and 10 years or up to
the life of the class of shares, calculated for each class separately pursuant
to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = the annual total return
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures reflect the deduction of a proportional share of
each class's expenses (on an annual basis), the deduction of the maximum initial
sales load (in the case of Class A shares) and the maximum contingent deferred
sales charge applicable to a complete redemption of the investment (in the case
of Class B, Class C and Class T shares), and assume that all dividends and
distributions are reinvested when paid.
Non-Standardized Return. In addition to the performance information
described above, the Funds may provide total return information that is not
calculated according to the formula set forth above ("Non-Standardized Return").
Neither initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return. Excluding a Fund's sales charge from a
total return calculation produces a higher total return figure.
The following table summarizes the calculation of Total Return for Class
A, B and C shares of the Growth and Balance Sheet Opportunities Funds for the
period from commencement of operations of such classes (June 5, 1995) through
December 31, 1998, assuming the maximum sales charge HAS been assessed:
Fund Class of Shares One Year Since Inception
- ---- --------------- -------- ---------------
Growth Fund Class A % %
Class B % %
Class C % %
Balance Sheet
Opportunities Fund Class A % %
Class B % %
Class C % %
The following table summarizes the calculation of Total Return for Class
A, B and C shares of the Growth and Balance Sheet Opportunities Funds for the
period from commencement of operations of such classes (June 5, 1995) through
December 31, 1998, assuming the maximum sales charge HAS NOT been assessed:
Fund Class of Shares One Year Since Inception
- ---- --------------- -------- ---------------
Growth Fund Class A % %
Class B % %
Class C % %
Balance Sheet
Opportunities Fund Class A % %
Class B % %
Class C % %
The following table summarizes the calculation of Total Return for Class T
shares of the Growth and Balance Sheet Opportunities Funds for the periods
indicated through December 31, 1998, assuming the maximum sales charge HAS been
assessed:
Since
One Year Five Years Ten Years Inception(3)
-------- ---------- --------- -----------
Growth Fund ..................... % % % %
Balance Sheet Fund .............. % % % %
25
<PAGE>
The following table summarizes the calculation of Total Return for Class T
shares of the Growth and Balance Sheet Opportunities Funds for the periods
indicated through December 31, 1998, assuming the maximum sales charge HAS NOT
been assessed:
Since
One Year Five Years Ten Years Inception(3)
-------- ---------- --------- ------------
Growth Fund ..................... % % % %
Balance Sheet Fund .............. % % % %
- ----------
(3) The inception date for Class T shares was February 1, 1986.
A Fund may quote its performance in various ways, using various types of
comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied by
the Funds in advertising is historical and is not intended to indicate future
returns. Each Fund's share prices and total returns fluctuate in response to
market conditions and other factors, and the value of the Fund's shares when
redeemed may be more or less than their original cost.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Funds, including reprints of, or
selections from, editorials or articles about a Fund. These editorials or
articles may include quotations of performance from other sources, such as
Lipper or Morningstar. Sources for Fund performance information and articles
about the Fund may include the following: Banxquote, Barron's, Business Week,
CDA Investment Technologies, Inc., Changing Times, Consumer Digest, Financial
World, Forbes, Fortune, IBC/Donoghues's Money Fund Report, Ibbotson Associates,
Inc., Investment Company Data, Inc., Investor's Daily, Lipper Analytical
Services, Inc.'s Mutual Fund Performance Analysis, Money, Mutual Fund Values,
The New York Times, Personal Investing News, Personal Investor, Success, USA
Today, U.S. News and World Report, The Wall Street Journal and Wiesenberger
Investment Companies Services.
When comparing yield, total return and investment risk of shares of a Fund
with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while a Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. government.
Money market mutual funds may seek to offer a fixed price per share.
The performance of a Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of the
Fund for any period in the future. The performance of a Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest, and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
FINANCIAL STATEMENTS
The audited financial statements of Growth and Balance Sheet Opportunities
Funds as of and for the year ended December 31, 1998 and the report of the
independent accountants, PricewaterhouseCoopers LLP, with respect to such
financial statements are hereby incorporated herein by reference to the Annual
Report to Shareholders of The Northstar Funds for the year ended December 31,
1998.
26
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND
RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P") CORPORATE DEBT RATINGS
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
A-1
<PAGE>
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-) -- The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE>
[GRAPHIC OMITTED]
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1999
*NORTHSTAR GROWTH FUND
Institutional Class Shares
300 First Stamford Place
Stamford, Connecticut 06902
(203) 602-7950
(800) 595-7827
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of the
Institutional Class Shares of the Fund dated March 1, 1999, as each may be
revised from time to time. To obtain a copy of the Fund's Prospectus, please
contact Northstar Investment Management Corporation at the address or phone
number listed above.
Northstar Investment Management Corporation ("Northstar" or the "Adviser")
serves as the Fund's investment adviser. Northstar Distributors, Inc. (the
"Underwriter") is the underwriter to the Fund. Northstar Administrators
Corporation (the "Administrator") is the Fund's administrator. The Underwriter
and the Administrator are affiliates of Northstar.
----------
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS ................................................... 2
INVESTMENT TECHNIQUES ..................................................... 3
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION ........................... 8
SERVICES OF NORTHSTAR AND THE ADMINISTRATOR ............................... 9
NET ASSET VALUE ........................................................... 10
REDEMPTIONS ............................................................... 11
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................ 11
UNDERWRITER AND DISTRIBUTION SERVICES ..................................... 14
TRUSTEES AND OFFICERS ..................................................... 14
OTHER INFORMATION ......................................................... 17
PERFORMANCE INFORMATION ................................................... 18
FINANCIAL STATEMENTS ...................................................... 20
APPENDIX .................................................................. A-1
<PAGE>
INVESTMENT RESTRICTIONS
Northstar Growth Fund. The Fund has adopted investment restrictions
numbered 1 through 12 as fundamental policies. These restrictions cannot be
changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended) of the Fund's outstanding voting
shares. Investment restrictions numbered 13 through 21 are not fundamental
policies and may be changed by vote of a majority of the Trust's Board members
at any time. The Fund may not:
1. Borrow money, except from a bank and as a temporary measure for
extraordinary or emergency purposes, provided the Fund maintains asset coverage
of 300% for all borrowings;
2. Purchase securities of any one issuer (except U.S. government
securities) if, as a result, more than 5% of the Fund's total assets would be
invested in that issuer, or the Fund would own or hold more than 10% of the
outstanding voting securities of the issuer; provided, however, that up to 25%
of the Fund's total assets may be invested without regard to these limitations;
3. Underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter;
4. Concentrate its assets in the securities of issuers all of which
conduct their principal business activities in the same industry (this
restriction does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities);
5. Make any investment in real estate, commodities or commodities
contracts, except that the Fund may: (a) purchase or sell readily marketable
securities that are secured by interest in real estate or issued by companies
that deal in real estate, including real estate investment and mortgage
investment trusts; and (b) engage in financial futures contracts and related
options, as described herein and in the Fund's Prospectus;
6. Make loans, except that the Fund may: (a) invest in repurchase
agreements, and (b) loan its portfolio securities in amounts up to one-third of
the market or other fair value of its total assets;
7. Issue senior securities, except as appropriate to evidence indebtedness
that it is permitted to incur, provided that the deposit or payment by the Fund
of initial or maintenance margin in connection with futures contracts and
related options is not considered the issuance of senior securities;
8. Borrow money in excess of 5% of its total assets (taken at market
value);
9. Pledge, mortgage or hypothecate in excess of 5% of its total assets
(the deposit or payment by the Fund of initial or maintenance margin in
connection with futures contracts and related options is not considered a pledge
or hypothecation of assets);
10. Purchase more than 10% of the voting securities of any one issuer,
except U.S. government securities;
11. Invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than 7 days, that cannot be
disposed of within the normal course of business at approximately the amount at
which the Fund has valued the securities, excluding restricted securities that
have been determined by the Trustees of the Fund (or the persons designated by
them to make such determinations) to be readily marketable;
12. Purchase securities of any issuer with a record of less than 3 years
of continuous operations, including predecessors, except U.S. Government
Securities and obligations issued or guaranteed by any foreign government or its
agencies or instrumentalities, if such purchase would cause the investments of
the Fund in all such issuers to exceed 5% of the total assets of the Fund taken
at market value;
13. Purchase securities on margin, except the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities (the deposit or payment by the Fund of initial or maintenance
margin in connection with futures contracts or related options is not considered
the purchase of a security on margin);
14. Write put and call options, unless the options are covered and the
Fund invests through premium payments no more than 5% of its total assets in
options transactions, other than options on futures contracts;
15. Purchase and sell futures contracts and options on futures contracts,
unless the sum of margin deposits on all futures contracts held by the Fund, and
premiums paid on related options held by the Fund, does not exceed more than 5%
of Fund's total assets, unless the transaction meets certain "bona fide hedging"
criteria (in the case of an option that is in-the-money at the time of purchase,
the in-the-money amount may be excluded in computing the 5%);
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16. Invest in securities of any issuer if any officer or trustee of the
Fund or any officer or director of Northstar owns more than 1/2 of 1% of the
outstanding securities of the issuer, and such officers, directors and trustees
own in the aggregate more than 5% of the securities of such issuer;
17. Invest in interests in oil, gas or other mineral exploration or
development programs (although it may invest in issuers that own or invest in
such interests);
18. Purchase securities of any investment company, except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase, or except when such purchase, though not made in the open
market, is part of a plan of merger, consolidation, reorganization or
acquisition of assets;
19. Purchase more than 3% of the outstanding voting securities of another
investment company, invest more than 5% of its total assets in another
investment company, or invest more than 10% of its total assets in other
investment companies;
20. Purchase warrants if, as a result, warrants taken at the lower of cost
or market value would represent more than 5% of the value of the Fund's net
assets or if warrants that are not listed on the New York or American Stock
Exchanges or on an exchange with comparable listing requirements, taken at the
lower of cost or market value, would represent more than 2% of the value of the
Fund's net assets (for this purpose, warrants attached to securities will be
deemed to have no value); or
21. Make short sales, unless, by virtue of its ownership of other
securities, the Fund has the right to obtain securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is made
upon the same conditions, except in connection with arbitrage transactions.
In addition to the restrictions described above, the Fund may, from time
to time, agree to additional investment restrictions for purposes of compliance
with the securities laws of those state and foreign jurisdictions where the Fund
intends to offer or sell its shares.
INVESTMENT TECHNIQUES
Derivative Instruments. The Fund may invest in Derivative Instruments (as
defined in the Fund's Prospectus) for a variety of reasons, including to hedge
certain market risks, to provide a substitute for purchasing or selling
particular securities or to increase potential income gain. Derivatives may
provide a cheaper, quicker or more specifically focused way for the Fund to
invest than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (i.e., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, Northstar will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it would
review the credit quality of a security to be purchased by the Fund. Over-the-
counter Derivatives are less liquid than exchange-traded Derivatives since the
other party to the transaction may be the only investor with sufficient
understanding of the Derivative to be interested in bidding for it.
Futures Transactions -- In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the United States, such as the London International
Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may
have greater risk potential than domestic markets. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. In
addition, any profits that the Fund might realize in trading could be eliminated
by adverse changes in the exchange rate, or the Fund could incur losses as a
result of those changes. Transactions on foreign exchanges
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may include both commodities which are traded on domestic exchanges and those
which are not. Unlike trading on domestic commodity exchanges, trading on
foreign commodity exchanges is not regulated by the Commodity Futures Trading
Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant market,
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged and
the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission ("SEC"), the Fund may be required to segregate cash or high
quality money market instruments in connection with its commodities transactions
in an amount generally equal to the value of the underlying commodity. The
segregation of such assets will have the effect of limiting the Fund's ability
otherwise to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
The Fund may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
The Fund may purchase and sell currency futures. A foreign currency future
obligates the Fund to purchase or sell an amount of a specific currency at a
future date at a specific price.
Options -- In General. The Fund may purchase and write (i.e., sell) call
or put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period.
A covered call option written by the Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by the Fund is
covered when, among other things, cash or liquid securities having a value equal
to or greater than the exercise price of the option are placed in a segregated
account with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing
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transactions in particular options. If, as a covered call option writer, the
Fund is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise or it otherwise covers its
position.
Specific Options Transactions. The Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or traded
in the over-the-counter market. An option on a stock index is similar to an
option in respect of specific securities, except that settlement does not occur
by delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
The Fund may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a price
which is expected to be lower or higher than the spot price of the currency at
the time the option is exercised or expires.
The Fund may purchase cash-settlement options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps in
pursuit of its investment objective. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating-rate payments for fixed-rate
payments) denominated in U.S. dollars or foreign currency. Equity index swaps
involve the exchange by the Fund with another party of cash flows based upon the
performance of an index or a portion of an index of securities which usually
includes dividends. A cash-settled option on a swap gives the purchaser the
right, but not the obligation, in return for the premium paid, to receive an
amount of cash equal to the value of the underlying swap as of the exercise
date. These options typically are purchased in privately negotiated transactions
from financial institutions, including securities brokerage firms.
Successful use by the Fund of options will be subject to the ability of
Northstar to predict correctly movements in the prices of individual stocks, the
stock market generally, foreign currencies or interest rates. To the extent the
Manager's predictions are incorrect, the Fund may incur losses.
Short Sales. The Fund may make short sales "against the box." A short-sale
is a transaction in which a party sells a security it does not own in
anticipation of decline in the market value of that security. A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain securities identical to those sold short. When the Fund makes a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities, and is often obligated to pay
over any accrued interest on such borrowed securities.
Repurchase Agreements. Repurchase agreements are agreements under which a
Fund buys a money market instrument and obtains a simultaneous commitment from
the seller to repurchase the instrument at a specified time and at an agreed
upon yield. Northstar will use standards set by the Fund's Trustees in reviewing
the creditworthiness of parties to repurchase agreements with the Fund. In
addition, no more than an aggregate of 15% of the Fund's net assets, at the time
of investment, will be invested in illiquid investments, including repurchase
agreements having maturities longer than seven days. In the event of failure of
the executing bank or broker-dealer, the Fund could experience some delay in
obtaining direct ownership of the underlying collateral and might incur a loss
if the value of the security should decline, as well as costs in disposing of
the security.
Pursuant to an Exemptive Order under Section 17(d) and Rule 17d-1 obtained
by the Fund on March 5, 1991, the Fund may deposit uninvested cash balances into
a single joint account to be used to enter into repurchase agreements.
As an alternative to using repurchase agreements, the Fund may, from time
to time, invest up to 5% of its assets in money market investment companies
sponsored by a third party for short-term liquidity purposes. Such investments
are subject to the non-fundamental investment limitations described herein.
Reverse Repurchase Agreements And Dollar Roll Agreements. The Fund may
enter into reverse repurchase agreements and dollar roll agreements. Under a
reverse repurchase agreement or a dollar roll agreement, a Fund sells securities
and agrees to repurchase them, or substantially similar securities in the case
of a dollar roll agreement, at a mutually agreed upon date and price. At the
time the Fund enters into a reverse repurchase or dollar roll agreement, it will
establish and maintain a segregated account with its custodian, containing cash,
U.S. government securities, or other liquid assets from its portfolio, having a
value not less than the repurchase price (including accrued interest). The Fund
does not account for dollar rolls as a borrowing.
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These agreements may involve the risk that the market value of the
securities to be repurchased by a Fund may decline below the price at which the
Fund is obligated to repurchase. Also, in the event the buyer of securities
under a reverse repurchase agreement or a dollar roll agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement or the dollar roll agreement may effectively be
restricted pending such a decision.
Lending Portfolio Securities. The Fund may lend portfolio securities to
broker-dealers and other financial institutions in an amount up to one-third of
the value of its total assets, provided that such loans are callable at any time
by the Fund and are at all times secured by collateral held by the Fund at least
equal to the market value, determined daily, of the loaned securities. The Fund
will continue to receive any income on the loaned securities, while
simultaneously earning interest on cash collateral (which will be invested in
short-term debt obligations) or a securities lending fee (in the case of
collateral in the form of U.S. government securities).
There may be risks of delay in recovery of the loaned securities and, in
some cases, loss of rights in the collateral should the borrower of the
securities fail financially. Loans of portfolio securities will only be made to
firms considered by Northstar to be creditworthy under guidelines adopted by the
Trustees.
Firm Commitments And When-Issued Securities. The Fund may enter into firm
commitment agreements to purchase securities at an agreed-upon price on a
specified future date. An amount of cash or short-term U.S. Government
Securities equal to the Fund's commitment will be deposited in a segregated
account at the Fund's custodian bank to secure the Fund's obligation. Although a
Fund will generally enter into firm commitments to purchase securities with the
intention of actually acquiring the securities for its portfolio (or for
delivery pursuant to options contracts it has entered into), the Fund may
dispose of a security prior to settlement if Northstar deems it advisable to do
so. The Fund entering into the forward commitment may realize short-term gains
or losses in connection with such sales.
The Fund may enter into To Be Announced ("TBA") sale commitments wherein
the unit price and the estimated principal amount are established upon entering
into the contract, with the actual principal amount being within a specified
range of the estimate. The Fund will enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not received
until the contractual settlement date. During the time a TBA sale commitment is
outstanding, the Fund will maintain, in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. Unsettled
TBA sale commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, the Fund realizes a gain or loss on the
commitment without regard to any unrealized gain or loss on the underlying
security. If the Fund delivers securities under the commitment, the Fund
realizes a gain or loss from the sale of the securities, based upon the unit
price established at the date the commitment was entered into.
The Fund may also purchase securities on a when-issued or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date, normally within one month. The value of the security on the
settlement date may be more or less than the price paid as a result of, among
other things, changes in the level of interest rates or other market factors.
Accordingly, there is a risk of loss, which is in addition to the risk of
decline in the value of the Fund's other assets. The Fund will establish a
segregated account with its custodian in which it will maintain cash and
marketable securities equal in value to commitments for when-issued or delayed
delivery securities. While when-issued or delayed delivery securities may be
sold prior to the settlement date, it is intended that the Fund will purchase
such securities with the purpose of actually acquiring them, unless a sale
appears desirable for investment reasons.
Floating Or Variable Rate Instruments. The Fund may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Such bonds are
frequently secured by letters of credit or other credit support arrangements
provided by banks. Floating or variable rate instruments provide for adjustments
in the interest rate at specified intervals (weekly, monthly, semiannually,
etc.). The Fund would anticipate using these bonds as cash equivalents, pending
longer term investment of its funds. Other longer term fixed-rate bonds, with a
right of the holder to request redemption at certain times (often annually,
after the lapse of an intermediate term), may also be purchased by the Fund.
These bonds are more defensive than conventional long-term bonds (protecting to
some degree against a rise in interest rates), while providing greater
opportunity than comparable intermediate term bonds since the Fund may retain
the bond if interest rates decline. By acquiring these kinds of bonds, the Fund
obtains the contractual right to require the issuer of the security, or some
other person (other than a broker or dealer), to purchase the security at an
agreed upon price, which right is contained in the obligation itself rather than
in a separate agreement with the seller or some other person.
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Zero Coupon Securities. Zero coupon securities are fixed income securities
that have been stripped of their unmatured interest coupons. Zero coupon
securities are sold at a (usually substantial) discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. The amount of this discount is accredited over the life of the
security, and the accretion constitutes the income earned on the security for
both accounting and tax purposes. Because of these features, the market prices
of zero coupon securities are generally more volatile than the market prices of
securities that have a similar maturity but that pay interest periodically. Zero
coupon securities are likely to respond to a greater degree to interest rate
changes than are non-zero coupon securities with similar maturity and credit
qualities. The Fund may invest a portion of its total assets in "zero coupon"
Treasury securities, which consist of Treasury bills or stripped interest or
principal components of U.S. Treasury bonds or notes.
Zero coupon Treasury bonds or notes consist of stripped interest or
principal components held in STRIPS form issued through the U.S. Treasury's
STRIPS program, which permits the beneficial ownership of the component to be
recorded directly in the Treasury book-entry system. The Fund may also purchase
custodial receipts evidencing beneficial ownership of direct interests in
component parts of U.S. Treasury bonds or notes held by a bank in a custodian or
trust account.
Additional Information On GNMAS. The Fund may invest in U.S. Government
Securities, which are obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities.
The Fund may also invest in obligations of the Government National
Mortgage Association (popularly called GNMAs or Ginnie Maes) from time to time.
GNMAs are mortgage backed securities representing part ownership of a pool
of mortgage loans, in which the timely payment of principal and interest is
guaranteed by the full faith and credit of the U.S. Government. GNMA may borrow
U.S. Treasury funds to the extent needed to make payments under the guarantee.
The Fund purchases "modified pass-through" type GNMA Certificates for which
principal and interest are guaranteed, rather than the "straight pass through"
Certificates for which such guarantee is not available. The Fund also purchases
"variable rate" GNMA Certificates and may purchase other types that may be used
with GNMA's guarantee.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagors or when foreclosure occurs, such principal payments are passed
through to the Certificate holders (such as a Fund). Accordingly, the life of
the GNMA Certificate is likely to be substantially shorter than the stated
maturity of the mortgages in the underlying pool, which will have maturities of
up to 30 years. Because of such variation in prepayment rights, it is not
possible to accurately predict the life of a particular GNMA Certificate.
Payments to holders of GNMA Certificates consist of the monthly
distributions of interest and principal, less the GNMA and issuer's fees. The
portion of the monthly payment that represents a return of principal may be
reinvested by a Fund holding the GNMA in then-available GNMA obligations, which
may bear interest at a rate higher or lower than the obligation from which the
payment was received, or in a differing security. The actual yield to be earned
by the holder of a GNMA Certificate is calculated by dividing such payments by
the purchase price paid for the GNMA Certificate (which may be at a premium or a
discount from the face value of the Certificate). Unpredictable prepayments of
principal, however, can greatly change realized yields. In a period of declining
interest rates it is more likely that mortgages contained in GNMA pools will be
prepaid, thus reducing the effective yield. Moreover, any premium paid on the
purchase of a GNMA Certificate will be lost if the obligation is prepaid. In
periods of falling interest rates, this potential for prepayment may reduce the
general upward price increase of GNMA Certificates that might otherwise occur.
As with other debt instruments, the price of GNMA Certificates is likely to
decrease in times of rising interest rates. Price changes of the GNMA
Certificates held by a Fund have a direct impact on the net asset value per
share of the Fund.
When interest rates rise, the value of a GNMA Certificate will generally
decline. Conversely, when rates fall, the GNMA Certificate value may rise,
although not as much as other debt issues, due to the prepayment feature. As a
result, the price per share the shareholder receives on redemption may be more
or less than the price paid for the shares.
Additional Information On Foreign Securities. The Fund may invest in
securities of foreign issuers. The Fund may invest up to 20% of its net assets
in foreign securities, of which 10% of its net assets may be invested in foreign
securities that are not listed on a U.S. securities exchange.
Loan Participations And Assignments. The Fund may invest in loan
participations and loan assignments. A Fund's investment in loan participations
typically will result in the Fund having a contractual relationship only with
the Lender and not with the borrower. The Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participations and only upon receipt by the Lender of the
payments from the borrower. In
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connection with purchasing Participations, the Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement
relating to the Loan, nor any right of set-off against the borrower, and the
Fund may not directly benefit from any collateral supporting the Loan in which
it has purchased the Participation. As a result, the Fund may be subject to the
credit risk of both the borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower.
When a Fund purchases a loan assignment from Lenders, it will acquire
direct rights against the borrowers on the Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Fund anticipates that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular assignments or participations when necessary to meet redemptions
of Fund shares, to meet the Fund's liquidity needs or when necessary in response
to a specific economic event, such as deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for assignments and
participations also may make it more difficult for a Fund to value these
securities for purposes of calculating its net asset value.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Northstar places orders for the purchase and sale of the Fund's
securities, supervises their execution and negotiates brokerage commissions on
behalf of the Fund. It is the practice of Northstar to seek the best prices and
best execution of orders and to negotiate brokerage commissions that in the
Adviser's opinion, are reasonable in relation to the value of the brokerage
services provided by the executing broker. Northstar seeks to obtain fair
commission rates from brokers. Northstar seeks to obtain fair commission rates
from brokers. If the execution is satisfactory and if the requested rate
approximates rates currently being quoted by the other brokers selected by
Northstar, the rate is deemed by Northstar to be reasonable. Brokers may ask for
higher rates of commission if all or a portion of the securities involved in the
transaction are positioned by the broker, if the broker believes it has brought
the Fund an unusually favorable trading opportunity, or if the broker regards
its research services as being of exceptional value and payment of such
commissions is authorized by Northstar after the transaction has been
consummated. If Northstar more than occasionally differs with the broker's
appraisal of opportunity or value, the broker would not be selected to execute
trades in the future. Northstar believes that the Fund benefits with a
securities industry comprised of many and diverse firms and that the long-term
interest of shareholders of the Fund is best served by its brokerage policies
that include paying a fair commission, rather than seeking to exploit its
leverage to force the lowest possible commission rate. Over-the-counter
purchases and sales are transacted directly with principal market-makers, except
in those circumstances where, in the opinion of Northstar, better prices and
execution are available elsewhere.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry groups
and individual issues. Research services will vary from firm to firm, with
broadest coverage generally from the large full-line firms. Smaller firms, in
general, tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor federal,
state, local and foreign political developments; many of the brokers also
provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff, since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, the outside research provides Northstar with a
diverse perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to Northstar and is available for
the benefit of other accounts advised by Northstar and its affiliates; and not
all of this information will be used in connection with the Fund. While this
information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value, and, in the
opinion of Northstar, it does not reduce the Adviser's expenses by a
determinable amount. The extent to which Northstar makes use of statistical,
research and other services furnished by brokers is considered by Northstar in
the allocation of brokerage business, but there is no formula by which such
business is allocated. Northstar does so in accordance with its judgment of the
best interests of the Fund and its shareholders.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Fund will also
purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed income securities transactions consists primarily of dealer
spreads and underwriting commissions.
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In purchasing and selling fixed income securities, it is the policy of the
Fund to obtain the best results, while taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors, such as the dealer's risk in positioning the securities involved. While
Northstar generally seeks reasonably competitive spreads or commissions, the
Fund will not necessarily pay the lowest spread or commission available.
The Fund may, under circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Fund. By allocating
transactions in this manner, Northstar is able to supplement its research and
analysis with the views and information of other securities firms. During the
fiscal years ended December 31, 1998, 1997 and 1996, respectively, the Fund paid
the total brokerage commissions indicated below, including commissions to
Advest, Inc. ("Advest"), an affiliate of the Fund's former investment adviser.
BROKERAGE COMMISSIONS PAID DURING MOST RECENT FISCAL YEARS
December 31,
-----------------------------------
1998 1997 1996
-------- --------- ---------
Growth Fund .......... $ $169,066 $124,024
A change in securities held in the portfolio of a Fund is known as
"Portfolio Turnover" and may involve the payment by a Fund of dealer markups or
brokerage or underwriting commissions and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
Portfolio turnover rate for a fiscal year is the percentage determined by
dividing the lesser of the cost of purchases or proceeds from sales of portfolio
securities by the average of the value of portfolio securities during such year,
all excluding securities whose maturities at acquisition were one year or less.
Each Fund's historical portfolio turnover rates are included in the Financial
Highlights tables in the prospectus. In evaluating a Fund's portfolio turnover
rate, you should keep in mind that a 100% annual turnover rate would occur, for
example, if all the securities in the portfolio were replaced once in a period
of one year. A Fund's portfolio turnover rate may be higher than that described
above if a Fund finds it necessary to significantly change its portfolio to
adopt a temporary defensive position or respond to economic or market events. A
high turnover rate would increase commission expenses and may involve
realization of gains that would be taxable to shareholders.
SERVICES OF NORTHSTAR AND THE ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with the Fund, Northstar
Investment Management Corporation acts as the investment adviser to the Fund. In
this capacity, Northstar, subject to the authority of the Trustees of the Fund,
is responsible for furnishing continuous investment supervision to the Funds and
is responsible for the management of each Fund's portfolio.
Northstar is an indirect, wholly-owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar"). ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the life insurance business. Through ReliaStar Life
Insurance Company ("ReliaStar Life") and other subsidiaries, ReliaStar issues
and distributes individual life insurance and annuities, group life and health
insurance and life and health reinsurance, and provides related investment
management services. The address of Northstar is 300 First Stamford Place,
Stamford, Connecticut 06902. The address of ReliaStar is 20 Washington Avenue
South, Minneapolis, Minnesota 55401.
Northstar charges a fee under the advisory agreement to the Fund at an
annual rate, after voluntary waivers or expense reimbursements, of 0.75% of the
Fund's average daily net assets. This fee is accrued daily and payable monthly.
The Investment Advisory Agreement for the Northstar Growth Fund was
approved by the Trustees of the Fund March 1, 1995 and by the shareholders of
the Fund on June 2, 1995. The Investment Advisory Agreement will continue in
effect from year to year if specifically approved annually by (a) the Trustees,
including a majority of the Disinterested Trustees, or (b) a majority of the
outstanding voting securities of each class of the Fund as defined in the 1940
Act. The Investment Advisory Agreement was last approved on April 30, 1998.
The Fund's Investment Advisory Agreement may be terminated as to any
class, without penalty and at any time, by a similar vote upon not more than 60
days nor less than 30 days written notice by Northstar, the Trustees, or a
majority of the outstanding voting securities of such class of the Fund as
defined in the 1940 Act. Such agreement will automatically terminate in the
event of its assignment, as defined in Section 2(a)(4) of the 1940 Act.
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Northstar Administrators Corporation serves as administrator for the Fund,
pursuant to an Administrative Services Agreement with the Fund. Subject to the
supervision of the Board of Trustees, the Administrator provides the overall
business management and administrative services necessary to the proper conduct
of the Fund's business, except for those services performed by Northstar under
the Investment Advisory Agreements, the custodian for the Fund under the
Custodian Agreements, the transfer agent for the Fund under the Transfer Agency
Agreements, and such other service providers as may be retained by the Fund from
time to time. The Administrator acts as liaison among these service providers to
the Fund. The Administrator is also responsible for ensuring that the Fund
operates in compliance with applicable legal requirements and for monitoring
Northstar for compliance with requirements under applicable law and with the
investment policies and restrictions of the Fund. The Administrator is an
affiliate of Northstar. The address of the Administrator is: 300 First Stamford
Place, Stamford, Connecticut 06902.
The Administrative Services Agreement for the Fund was approved by the
Trustees of the Fund on March 1, 1995 and continued in effect until June 2,
1997. The Administrative Agreement was last renewed by the Trustees for one year
on April 30, 1998. The Agreement will continue in effect from year to year if
specifically approved annually by a majority of the Disinterested Trustees of
the Fund
TOTAL ADVISORY FEES PAID DURING FISCAL YEAR ENDED DECEMBER 31,
1998 1997 1996
---------- ---------- ----------
Growth Fund(1) ............... $1,412,949 $ 575,383
- ----------
(1) Does not reflect expense reimbursement of $10,635 and $34,126 for the year
ended December 31, 1997 and 1996, respectively
TOTAL ADMINISTRATIVE FEES PAID DURING FISCAL YEAR ENDED DECEMBER 31,
1998 1997 1996
---------- ---------- ----------
Growth Fund(1) $136,648 N/A
- ----------
(1) The Fund did not pay administrative fees for the years ended December 31,
1996 or 1995. The Administrative Services Agreement for the Fund, which
was approved by the Trustees of the Fund on March 1, 1995, provided that
until June 2, 1997, the Administrator would not receive any compensation
under such agreement and thereafter would receive such compensation as the
Board of Trustees of the Fund may determine. Prior to June 5, 1995 the
Fund was managed by Boston Securities Counselors, Inc. and did not utilize
the services of an administrator.
NET ASSET VALUE
For the Northstar Growth Fund, portfolio securities, options and futures
contracts and options thereon that are traded on national exchanges or in the
NASDAQ System are valued at the last sale or settlement price on the exchange or
market where primarily traded or, if none that day, at the mean of the last
reported bid and asked prices, using prices as of the close of trading on the
applicable exchange or market. Securities and options that are traded in the OTC
market (other than on the NASDAQ System) are valued at the mean of the last
available bid and asked prices. Such valuations are based on quotations of one
or more dealers that make markets in the securities as obtained from such
dealers or from a pricing service. Securities (including OTC options) for which
market quotations are not readily available and other assets are valued at their
fair value as determined by or under the direction of the Trustees. Such fair
value may be determined by various methods, including utilizing information
furnished by pricing services that determine calculations for such securities
using methods based, among other things, upon market transactions for comparable
securities and various relationships between securities that are generally
recognized as relevant.
The net asset value of the Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern time), on each business day that the
Exchange is open. Net asset value per share is computed by determining the value
of a Fund's assets (securities held plus cash and other assets, including
dividend and interest accrued but not received) less all liabilities of the Fund
(including accrued expenses other than class specific expenses), and dividing
the result by the total number of shares outstanding at such time. The specific
expenses borne by each class of shares will be deducted from that class and will
result in different net asset values and dividends. The net asset value per
share of the Class B, Class C and Class T shares of the Fund will generally be
lower than that of the Class A or Class I shares because of the higher class
specific expenses borne by each of the Class B, Class C and Class T shares.
Under normal market conditions, daily prices for securities are obtained from
independent pricing services, determined by them in accordance with the
registration statement for the Fund. Securities are valued at market value or,
if a market quotation is not
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readily available, at their fair value, determined in good faith under
procedures established by and under the supervision of the Trustees. Money
market instruments maturing within 60 days are valued using the amortized cost
method of valuation. This involves valuing a security at cost on the date of
acquisition and thereafter assuming a constant accretion of a discount or
amortization of a premium to maturity, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. See "How Net Asset Value is Determined" in
the Prospectus.
REDEMPTIONS
The right to redeem shares may be suspended and payment therefor postponed
during periods when the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or, if permitted by rules of the SEC, during
periods when trading on the Exchange is restricted, or during any emergency that
makes it impracticable for the Fund to dispose of its securities or to determine
fairly the value of its net assets or during any other period permitted by order
of the SEC for the protection of investors. Furthermore, the Transfer Agent will
not mail redemption proceeds until checks received for shares purchased have
cleared, but payment will be forwarded immediately upon the funds becoming
available.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"). In order to so
qualify, the Fund must, among other things, (i) derive each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies; (ii) derive less than 30% of its gross
income each taxable year from the sale or other disposition of certain assets,
including securities, held for less than three months (the "30% Limitation");
and (iii) at the end of each quarter of the taxable year maintain at least 50%
of the value of its total assets in cash, government securities, securities of
other regulated investment companies, and other securities of issuers that
represent, with respect to each issuer, no more than 5% the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
with no more than 25% of its assets invested in the securities (other than those
of the U.S. Government or other regulated investment companies) of any one
issuer or of two or more issuers that the Fund controls and that are engaged in
the same, similar or related trades and businesses. As a regulated investment
company, the Fund generally will not be subject to federal income tax on its
income and gains that it distributes to shareholders, if at least 90% of its
investment company taxable income (which includes dividends, interest and the
excess of any short-term capital gains over long-term capital losses) for the
taxable year is distributed.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of a Fund's ordinary income
for the calendar year plus 98% of its capital gain net income recognized during
the one-year period ending on October 31 plus undistributed amounts from prior
years. Each Fund intends to make distributions sufficient to avoid imposition of
the excise tax. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund during October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable as if
received on December 31 in the year they are declared by the Fund, rather than
the year in which they are received.
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is a short-term
capital gain to the Fund. If the Fund enters into a closing transaction, the
difference between the amount paid to close out its position and the premium
received is a short-term capital gain or loss. If a call option written by the
Fund is exercised, thereby requiring the Fund to sell the underlying security,
the premium will increase the amount realized upon the sale of such security and
any resulting gain or loss will be a capital gain or loss, and will be long-term
or short-term depending upon the holding period of the security. With respect to
a put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining the gain or loss.
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<PAGE>
Certain options, futures contracts and forward contracts in which the Fund
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses ("60/40 gains or losses"); however, foreign currency gains or
losses (as discussed below) arising from certain section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by the
Fund at the end of each taxable year (and, generally, for purposes of the 4%
excise tax, on October 31 of each year) are treated as sold on such date at fair
market value, resulting in unrealized gains or losses being treated as though
they were realized.
Hedging transactions undertaken by the Fund may result in straddles for
U.S. federal income tax purposes. The straddle rules may accelerate income to
the Fund, defer losses to the Fund, and affect the character of gains (or
losses) realized by the Fund. Hedging transactions may increase the amount of
short-term capital gains realized by the Fund that is taxed as ordinary income
when distributed to shareholders. The Fund may make one or more of the various
elections available under the Code with respect to hedging transactions. If the
Fund makes any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected positions will be determined
under rules that vary according to the elections made. The 30% limitation may
limit the extent to which the Fund will be able to engage in transactions in
options, futures contracts and forward contracts.
Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time the Fund accrues interest or other
receivables, or accrues expenses or other liabilities, denominated in a foreign
currency and the time the Fund actually collects such receivables, or pays such
liabilities, generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and certain options, futures and forward contracts, gains or losses attributable
to fluctuations in the value of foreign currency between the date of acquisition
of the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of the Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
The Fund will not realize gain or loss on a short sale of a security until
it closes the transaction by delivering the borrowed security to the lender. All
or a portion of any gain arising from a short sale may be treated as short-term
capital gain, regardless of the period for which the Fund held the security used
to close the short sale. In addition, the Fund's holding period for any security
that is substantially identical to that which is sold short may be reduced or
eliminated as a result of the short sale.
Investments by the Fund in zero coupon securities will result in income to
the Fund equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Fund receives no cash interest payments.
This income is included in determining the amount of income that the Fund must
distribute to maintain its status as a regulated investment company and to avoid
the payment of federal income tax and the 4% excise tax. If the Fund invests in
certain high yield original issue discount obligations issued by corporations, a
portion of the original issue discount accruing on the obligations may be
eligible for the deduction for dividends received by corporations. In such
event, a portion of the dividends of investment company taxable income received
from the Fund by its corporate shareholders may be eligible for this deduction.
Gains derived by the Fund from the disposition of any market discount
bonds (i.e., bonds purchased other than at original issue, where the face value
of the bonds exceeds their purchase price) held by the Fund will be taxed as
ordinary income to the extent of the accrued market discount on the bonds,
unless the Fund elects to include the market discount in income as it accrues.
If the Fund invests in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), these investments would be subject to special tax rules
designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's
earnings. In the absence of certain elections to report these earnings on a
current basis, regardless of whether the Fund actually receives any
distributions from the PFIC, investors in the Fund would be required to report
certain "excess distributions" from, and any gains from the disposition of stock
of, the PFIC as ordinary income. This ordinary income would be allocated ratably
to the Fund's holding period for the stock. Any amounts allocated to prior years
would be taxable at the highest rate of tax applicable in that year, increased
by an interest charge determined as though the amounts were under payments of
tax.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. If more than
50% of the value of a Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible and
may elect to "pass through" to the Fund's shareholders the
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<PAGE>
amount of foreign taxes paid by the Fund. Pursuant to this election, a
shareholder will be required to include in gross income (in addition to
dividends actually received) its pro rata share of the foreign taxes paid by the
Fund, and may be entitled either to deduct its pro rata share of the foreign
taxes in computing its taxable income or to use the amount as a foreign tax
credit against its U.S. Federal income tax liability, subject to limitations.
Each shareholder will be notified within 60 days after the close of the Fund's
taxable year whether the foreign taxes paid by the Fund will "pass through" for
that year. If the Fund is not eligible to make the election to "pass through" to
its shareholders its foreign taxes, the foreign taxes it pays will reduce its
investment company taxable income and distributions by the Fund will be treated
as U.S. source income.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to its foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Fund's income flows through to its shareholders. With respect to
the Funds, gains from the sale of securities will be treated as derived from
U.S. sources and certain currency fluctuation gains, including fluctuation gains
from foreign currency denominated debt securities, receivables and payables, and
options, futures and forward transactions, will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income (as defined for purposes of the
foreign tax credit), including the foreign source passive income passed through
by the Funds.
The current position of the Internal Revenue Service (the "IRS") generally
is to treat a regulated investment company as owning its proportionate share of
the income and assets of any partnership in which it is a partner, in applying
the 90% qualifying income requirement, the 30% Limitation and the asset
diversification requirements that, as described above, the Fund must satisfy to
qualify as a regulated investment company under the Code. These requirements may
limit the extent to which the Fund may invest in limited partnerships,
especially in the case of limited partnerships that do not primarily invest in a
diversified portfolio of stocks and securities.
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of the Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated as capital
gain dividends are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the Fund on the
reinvestment date. A distribution of an amount in excess of the Fund's current
and accumulated earnings and profits will be treated by a shareholder as a
return of capital that is applied against and reduces the shareholder's basis in
his or her shares. To the extent that the amount of any such distribution
exceeds the shareholder's basis in his or her shares, the excess will be treated
by the shareholder as a gain from a sale or exchange of the shares. Shareholders
will be notified annually as to the U.S. federal tax status of distributions,
and shareholders receiving distributions in the form of additional shares will
receive a report as to the net asset value of those shares.
Upon the sale or other disposition of shares of the Fund, a shareholder
may realize a capital gain or loss that will be long-term or short-term,
generally depending upon the shareholder's holding period for the shares. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
Under certain circumstances, the sales charge incurred in acquiring shares
of the Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of the Fund
originally acquired with a sales charge are disposed of within 90 days after the
date on which they were acquired and new shares of a regulated investment
company are acquired without a sales charge or at a reduced sales charge. In
that case, the gain or loss realized on the disposition will be determined by
excluding from the tax basis of the shares all or a portion of the sales charge
incurred in acquiring those shares. This exclusion applies to the extent that
the otherwise applicable sales charge with respect to the newly acquired shares
is reduced as a result of the shareholder having incurred a sales charge paid
for the new shares. This rule may be applied to successive acquisitions of
shares of stock.
Distributions by the Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value of a share below a
shareholder's cost for the share, such a distribution nevertheless generally
would be taxable to the shareholder as ordinary income or long-term capital
gains, even though, from an investment standpoint, it may constitute a
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<PAGE>
partial return of capital. In particular, investors should be careful to
consider the tax implications of buying shares just prior to a distribution by
the Fund. The price of shares purchased at that time may include the amount of
the forthcoming distribution, but the distribution generally would be taxable to
them.
Some shareholders may be subject to withholding of Federal income tax on
dividends and redemption payments from a Fund ("backup withholding") at the rate
of 31%. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. Generally, shareholders
subject to backup withholding will be (i) those for whom a certified taxpayer
identification number is not on file with the Fund, (ii) those about whom
notification has been received (either by the shareholder or by the Fund) from
the IRS that they are subject to backup withholding or (iii) those who, to the
Fund's knowledge, have furnished an incorrect taxpayer identification number.
Generally, to avoid backup withholding, an investor must, at the time an account
is opened, certify under penalties of perjury that the taxpayer identification
number furnished is correct and that he or she is not subject to backup
withholding.
The foregoing discussion relates solely to U.S. Federal income tax law.
Dividends and distributions also may be subject to state, local and foreign
taxes. Dividends paid by the Fund from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers regarding the possible exclusion
of this portion of their dividends for state and local tax purposes. Non-U.S.
investors also should consult their tax advisers concerning the tax consequences
of ownership of shares of the Fund, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
Shareholders may direct that income dividends and capital gain
distributions be paid to them through various options listed in the "Dividends
and Distributions Reinvestment Options" section of the Fund's current
Prospectus. If a shareholder selects either of two such options (that: (a)
income dividends be paid in cash and capital gain distributions be paid in
additional shares of the same class of the Fund at net asset value; or (b)
income dividends and capital gain distributions both be paid in cash), and the
dividend/distribution checks cannot be delivered, or, if such checks remain
uncashed for six months, the Fund reserves the right to reinvest the dividend or
distribution in the shareholder's account at the then-current net asset value
and to convert the shareholder's election to automatic reinvestment in shares of
the Fund from which the distributions were made. The Fund has received from the
IRS, rulings to the effect that (i) the implementation of the multiple class
purchase arrangement will not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Code, and (ii) that any
conversion feature associated with a class of shares does not constitute a
taxable event under federal income tax law.
UNDERWRITER AND DISTRIBUTION SERVICES
Pursuant to Underwriting Agreements, Northstar Distributors, Inc. is the
Underwriter for the Fund and as such conducts a continuous offering pursuant to
a "best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. The Underwriter is an affiliate of the
Adviser and the Administrator.
The Underwriting Agreements may be terminated at any time on not more than
60 days written notice, without payment of a penalty, by the Underwriter, by
vote of a majority of the outstanding class of voting securities of the Fund, or
by vote of a majority of the Trustees of the Fund, who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements. The Underwriting Agreements will
terminate automatically in the event of their assignment.
TRUSTEES AND OFFICERS
The Trustees and principal Officers of the Fund and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and Officers is Two Pickwick Plaza,
Greenwich, Connecticut 06830.
Robert B. Goode, Jr., Trustee. Age: 68.
Currently retired. From 1990 to 1991, Chairman of The First Reinsurance
Company of Hartford. From 1987 to 1989, President and Director of American
Skandia Life Assurance Company. Since October 1993, Trustee of the Northstar
affiliated investment companies.
Paul S. Doherty, Trustee. Age: 64.
President, Doherty, Wallace, Pillsbury and Murphy, P.C., Attorneys.
Director, Tambrands, Inc. Since October 1993, Trustee of the Northstar
affiliated investment companies.
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David W. Wallace, Trustee. Age: 74.
Chairman of Putnam Trust Company, Lone Star Industries and FECO Engineered
Systems, Inc. He is also President and Trustee of Robert R. Young Foundation and
Governor of the New York Hospital. Director of UMC Electronics and Zurn
Industries, Inc. Former Chairman and Chief Executive Officer, Todd Shipyards and
Bangor Punta Corporation, and former Chairman and Chief Executive Officer of
National Securities & Research Corporation. Since October 1993, Trustee of the
Northstar affiliated investment companies.
*Mark L. Lipson, Trustee and President. Age: 49.
Director, Chairman and Chief Executive Officer of Northstar and Northstar
Holding, Inc. Director and President of Northstar Administrators Corporation and
Northstar Funding Inc. and Director and Chairman of Northstar Distributors,
Inc., President and Trustee of the Northstar affiliated investment companies
since October 1993. Prior to August, 1993, Director, President and Chief
Executive Officer of National Securities & Research Corporation and President
and Director/Trustee of the National Affiliated Investment Companies and certain
of National's subsidiaries.
*John G. Turner, Trustee. Age: 59.
Since May 1993, Chairman and CEO of ReliaStar Financial Corporation and
Northwestern NationalLife Insurance Co. and Chairman of other ReliaStar
Affiliated Insurance Companies since 1995. Since October 1993, Director of
Northstar and affiliates. Prior to May 1993, President and CEO of ReliaStar and
Northwestern National.
Alan L. Gosule, Trustee. Age: 58.
Partner, Rogers & Wells. Director, F.L. Putnam Investment Management Co.,
Inc.
David W.C. Putnam, Trustee. Age: 59.
President, Clerk and Director of F.L. Putnam Securities Company,
Incorporated, F.L. Putnam Investment Management Company, Incorporated,
Interstate Power Company, Inc., Trust Realty Corp. and Bow Ridge Mining Co.;
Director of Anchor Investment Management Corporation; President and Trustee of
Anchor Capital Accumulation Trust, Anchor International Bond Trust, Anchor Gold
and Currency Trust, Anchor Resources and Commodities Trust and Anchor Strategic
Assets Trust.
John R. Smith, Trustee. Age: 75.
From 1970-1991, Financial Vice President of Boston College; President of
New England Fiduciary Company (financial planning) since 1991; Chairman of
Massachusetts Educational Financing Authority since 1987; Vice Chairman of
Massachusetts Health and Education Authority.
Walter H. May, Trustee. Age: 62.
Retired. Former Senior Executive for Piper Jaffrey, Inc.
Stephanie L. Beckner, Vice President and Secretary. Age: 30.
Vice President, Secretary and Counsel of Northstar, Northstar affiliated
companies and Northstar affiliated investment companies.
Thomas Ole Dial, Vice President. Age: 42.
Executive Vice President and Chief Investment Officer-Fixed Income of
Northstar and Principal, T.D. & Associates, Inc. From 1989 to August 1993,
Executive Vice President and Chief Investment Officer-Fixed Income of National
Securities and Research Corporation, Vice President of National Affiliated
Investment Companies, and Vice President of NSR Asset Management Corporation.
From 1988 to 1989, President of Dial Capital Management.
Mary Lisanti, Vice President. Age: 42.
Executive Vice President and Chief Investment Officer-Equities of
Northstar. From September 1996 to May 1998, Portfolio Manager with Strong
Capital Management. From March 1993 to August 1996, Managing Director and
Portfolio Manager with Bankers Trust Corporation.
Agnes Mullady, Vice President and Treasurer. Age: 40.
Senior Vice President and Chief Financial Officer of Northstar, Senior
Vice President and Treasurer of Northstar Administrators Corporation, and Vice
President and Treasurer of Northstar Distributors, Inc. From 1987 to 1993, Vice
President and Treasurer of National Securities & Research Corporation.
- ----------
* Deemed to be an "interested person" of the Trust, as defined by the 1940
Act.
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Northstar and Northstar Administrators Corporation make their personnel
available to serve as Officers and "Interested Trustees" of the Funds. All
Officers and Interested Trustees of the Funds are compensated by Northstar or
Northstar Administrators Corporation. Trustees who are not "interested persons"
of the Adviser are paid an annual retainer fee of $8,000 for their combined
services as Trustees to the Funds and to retail funds sponsored or advised by
the Adviser, and a per meeting fee of $2,000 for attendance at each joint
meeting of the Funds and the other Northstar retail funds. The Funds also
reimburse the Trustees for expenses incurred by them in connection with such
meetings.
As of December 31, 1998, all Trustees and executive officers of each Fund
as a group owned beneficially or of record less than 1% of the outstanding
securities of such Fund. To the knowledge of the Fund, as of December 31, 1998,
no shareholder owned beneficially (b) or of record (r) more than 5% of the
Fund's outstanding shares, except as set forth below:
Growth Fund
I
Northstar Investment %(b)
Management Corporation
Stamford, Connecticut
ReliaStar Pension Account %(r)
Minneapolis, Minnesota
Compensation Table
Period Ended December 31, 1998
<TABLE>
<CAPTION>
Pension Benefits Estimated Annual Total Compensation
Compensation Accrued as Part of Benefits Upon from All Funds (18) in
from Funds(a) Fund Expenses Retirement Northstar Complex(b)
------------- ------------- ---------- --------------------
<S> <C> <C> <C> <C>
Robert B. Goode, Jr. ...... 0 0
Paul S. Doherty ........... 0 0
David W. Wallace .......... 0 0
Mark L. Lipson ............ 0 0 0
John G. Turner ............ 0 0 0 --
Alan L. Gosule ............ 0 0
David W.C. Putnam ......... 0 0
John R. Smith ............. 0 0
Walter H. May ............. 0 0
</TABLE>
- ----------
(a) See table below for Fund specific compensation.
(b) Compensation paid by the Northstar Trust Funds, the Northstar Galaxy Trust
Funds, the Northstar Equity Trust Fund and the remaining five funds,
Northstar Special, Government Securities, High Yield Growth and Balance
Sheet Opportunities Funds, formerly advised by BSC.
16
<PAGE>
Individual Fund(1)
Fiscal Year Compensation Tables
<TABLE>
<CAPTION>
Mid-Cap Growth + International Emerging Income and Government
Special Growth Value Value Markets Growth Securities
------- --------- ---------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert B. Goode, Jr. ......
Paul S. Doherty ...........
David W. Wallace ..........
Mark L. Lipson ............
John G. Turner ............
Alan L. Gosule ............
David W.C. Putnam .........
John R. Smith .............
Walter H. May .............
</TABLE>
High High Balance
High Total Total Sheet
Yield Return II Return Growth Opportunities
----- --------- ------ ------ -------------
Paul S. Doherty ...........
David W. Wallace ..........
Mark L. Lipson ............
John G. Turner ............
Alan L. Gosule ............
David W.C. Putnam .........
John R. Smith .............
Walter H. May .............
- ----------
(1) The Northstar Research Enhanced Index Fund commenced operations on
December 30, 1998.
OTHER INFORMATION
Independent Accountants. PricewaterhouseCoopers LLP has been selected as
the independent accountants of the Fund. PricewaterhouseCoopers LLP audits the
Fund's annual financial statements and expresses an opinion thereon.
Custodian. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, acts as custodian, and fund accounting agent for
the Fund.
Transfer Agent. First Data Investor Services Group, Inc., 4400 Computer
Drive, Westborough, Massachusetts 01581-5120,acts as the transfer agent for the
Fund.
Reports To Shareholders. The fiscal year of the Fund ends on December 31.
The Fund will send financial statements to its shareholders at least
semiannually. An annual report containing financial statements audited by the
independent accountants will be sent to shareholders each year.
Organizational And Related Information. The Northstar Growth Fund
(formerly The Advantage Growth Fund) was organized in 1986.
The shares of the Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders will be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares of the Fund or class having voting rights. Except as set
forth above and subject to the 1940 Act, the Trustees will continue to hold
office and appoint successor Trustees.
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Amended and Restated
Declaration of Trust for the Fund contains provisions intended to limit such
liability and to provide indemnification out of Fund property of any shareholder
charged or held personally liable for obligations or liabilities of the Fund
solely by reason of being or
17
<PAGE>
having been a shareholder of the Fund and not because of such shareholder's acts
or omissions or for some other reason. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations.
Year 2000 Compliance. The services provided to the Fund by the Adviser,
the Sub-Advisers, the Administrator and the Fund's other service providers are
dependent on those service providers' computer systems. Many computer software
and hardware systems in use today cannot distinguish between the year 2000 and
the year 1900 because of the way dates are encoded and calculated (the "Year
2000 Issue"). The failure to make this distinction could have a negative
implication on handling securities trades, printing and account services. The
Adviser, the Sub-Advisers, the Administrator and the Fund's other service
providers are taking steps that each believes are reasonably designed to address
the Year 2000 Issue with respect to the computer systems that they use. Although
there can be no assurances, the Fund believes these steps will be sufficient to
avoid any material adverse impact on the Fund. The costs or consequences of
incomplete or untimely resolution of the Year 2000 Issue are unknown to the
Adviser, Sub-Advisers, Administrator and the Fund's other service providers at
this time but could have a material adverse impact on the operations of the Fund
and the Adviser, Sub-Advisers, Administrator and the Fund's other service
providers. Further, there can be no assurances, that the systems of the
companies in which the Fund invests will be timely converted or that the value
of such investments will not be adversely affected by the Year 2000 Issue.
PERFORMANCE INFORMATION
Performance information for the Fund may be compared in reports and
promotional literature to (i) the S&P 500, Dow Jones Industrial Average
("DJIA"), or other unmanaged indices, so that investors may compare the Fund's
results to those of a group of unmanaged securities that are widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm that ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; (iii) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in a Fund; and (iv) well known monitoring
sources of certificates of deposit performance rates, such as Solomon Brothers,
Federal Reserve Bulletin, American Bankers and Tower Data/The Wall Street
Journal. Unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for administrative and management costs and
expenses. Performance rankings are based on historical information and are not
intended to indicate future performance.
In addition, the Fund may, from time to time, include various measures of
the Fund's performance, including the current yield, the tax equivalent yield
and the average annual total return of shares of the Fund in advertisements,
promotional literature or reports to shareholders or prospective investors. Such
materials may occasionally cite statistics to reflect the Fund's volatility
risk.
Average Annual Total Return. Standardized quotations of average annual
total return ("Standardized Return") for each class of shares will be expressed
in terms of the average annual compounded rate of return for a hypothetical
investment in such class of shares over periods of 1, 5 and 10 years or up to
the life of the class of shares, calculated for each class separately pursuant
to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures reflect the deduction of a proportional share of
each class's expenses (on an annual basis), the deduction of the maximum initial
sales load (in the case of Class A shares) and the maximum contingent deferred
sales charge applicable to a complete redemption of the investment (in the case
of Class B, Class C and Class T shares), and assume that all dividends and
distributions are reinvested when paid.
Non-Standardized Return. In addition to the performance information
described above, the Fund may provide total return information that is not
calculated according to the formula set forth above ("Non-Standardized Return").
Neither initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return. Excluding a Fund's sales charge from a
total return calculation produces a higher total return figure.
18
<PAGE>
The following table summarizes the calculation of Total Return for Class I
shares of the Fund for the period from commencement of operations (March 31,
1998) through December 31, 1998 assuming the maximum sales charge HAS been
assessed:
Class One Since
of Shares Year Inception
-------- ------- ---------
Growth Fund ................. Class I % %
The following table summarizes the calculation of Total Return for Class I
shares of the Fund for the period from commencement of operations of such
classes (March 31, 1998) through December 31, 1998 assuming the maximum sales
charge HAS NOT been assessed:
Class One Since
of Shares Year Inception
-------- ------- ---------
Growth Fund ................. Class I % %
A Fund may quote its performance in various ways, using various types of
comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied by
the Funds in advertising is historical and is not intended to indicate future
returns. The Fund's share prices and total returns fluctuate in response to
market conditions and other factors, and the value of the Fund's shares when
redeemed may be more or less than their original cost.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or selections
from, editorials or articles about the Fund. These editorials or articles may
include quotations of performance from other sources, such as Lipper or
Morningstar. Sources for Fund performance information and articles about the
Fund may include the following: Banxquote, Barron's, Business Week, Cda
Investment Technologies, Inc., Changing Times, Consumer Digest, Financial World,
Forbes, Fortune, IBC/Donoghues's Money Fund Report, Ibbotson Associates, Inc.,
Investment Company Data, Inc., Investor's Daily, Lipper Analytical Services,
Inc.'S Mutual Fund Performance Analysis, Money, Mutual Fund Values, The New York
Times, Personal Investing News, Personal Investor, Success, Usa Today, U.S. News
And World Report, The Wall Street Journal and Wiesenberger Investment Companies
Services.
When comparing yield, total return and investment risk of shares of the
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while a Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. government.
Money market mutual funds may seek to offer a fixed price per share.
19
<PAGE>
The performance of a Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of the
Fund for any period in the future. The performance of a Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest, and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
FINANCIAL STATEMENTS
The audited financial statements of the Growth Fund as of and for the year
ended December 31, 1998 and the report of the independent accountants,
PricewaterhouseCoopers LLP, with respect to such financial statements are hereby
incorporated by reference to the Annual Report to Shareholders of The Northstar
Funds for the year ended December 31, 1998.
20
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND
RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P") CORPORATE DEBT RATINGS
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
A-1
<PAGE>
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-) -- The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation.(1) and (5)
(b) By-laws.(1)
(c) N/A
(d) Investment Advisory Contracts.(1)
(e) Underwriting Contracts.(1), (5) and (6)
(f) N/A
(g) Custodian Agreements.(1)
(h) Other Material Contracts.(3)
(i) Legal Opinion.*
(j) N/A
(k) N/A
(l) N/A
(m) Rule 12b-1 Plan.(1) and (6)
(n) Financial Data Schedules.*
(o) Rule 18f-3 Plan.
- ----------------------------------
NOTES TO EXHIBIT LISTING
* To be filed by amendment
(1). Previously filed as an Exhibit to the Registrant's Post-Effecitve
Amendment as follows and incorporated herein by reference: Government
Securities Fund - PEA No. 16; Income Fund - PEA No. 15; Growth Fund -
PEA No. 15; Special Fund - PEA No. 15; High Yield Fund - PEA No. 11;
Strategic Income Fund - PEA No. 7.
(2). The Power of Attorney executed by Walter May was filed as an Exhibit to
the Registrant's Post-Effective Amendment as follows and is
incorporated herein by reference: Government Securities Fund - PEA No.
18; Balance Sheet Opportunities Fund - PEA No. 17; Growth Fund - PEA
No. 17; Special Fund - PEA No. 17; High Yield Fund - PEA No. 13; and
Strategic Income Fund - PEA No. 9. All other powers of attorney
were filed as an Exhibit to the Registrant's Post-Effective Amendment
as follows and are incorporated herein by reference: Government
Securities Fund - PEA No. 15; Balance Sheet Opportunities Fund - PEA
No. 14; Growth Fund - PEA No. 14; Special Fund - PEA No. 14; High Yield
Fund - PEA No. 10; and Strategic Income Fund - PEA No. 6.
(3). Previously filed as an Exhibit to the Registrant's Post-Effective
Amendment as follows and incorporated herein by reference: Government
Securities Fund - PEA No. 17; Balance Sheet Opportunities Fund - PEA
No. 16; Growth Fund - PEA No. 16; Special Fund - PEA No. 16; High Yield
Fund - PEA No. 12; and Strategic Income Fund - PEA 8.
(4). Previously filed as an Exhibit to the Special Fund's Post- Effective
Amendment No. 16 and incorporated herein by reference.
(5). Previously filed as an exhibit to the Registrant's Post-Effective
Amendment No. 21 and incorporated herein by reference.
(6). Previously filed as an Exhibit to Registrant's Post-Effective Amendment
No. 24 filed on February 27, 1998 and incorporated herein.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons controlled by or under common control with Registrant.
ITEM 25. INDEMNIFICATION
Section 5.4 of Registrant's Declaration of Trust provides the following:
(a) Subject to Paragraph (c) hereof every person who is, or has been, a Trustee,
Officer, employee or agent of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee, Officer, employee or agent and against amounts
paid or incurred by him in the settlement thereof in such manner, provided, that
to the extent any claim, action, suit or proceeding involves any particular
Series or Classes of Shares of the Trust or the assets or operations of one or
more Series or Classes of Shares, such indemnification shall be provided only
from the assets (or proceeds thereof or income therefrom of such one or more
Series or Classes of Shares and not from the assets (or proceeds thereof or
income therefrom) of any other Series or Class of Shares of the Trust.
(b) The words "claim", "action", "suit" or "proceeding" shall apply to all
claims, actions, suits or proceedings ( civil, criminal, or other including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include without limitation, attorneys fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(c) No indemnification shall be provided hereunder to a Trustee or Officer:
(i) against any liability to the Trust, a series thereof, or the
Shareholders by reason of a final adjudication by a court or other body before
which a proceeding was brought or that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in reasonable belief that his action
was in the best interest of the Trust; and
(iii) in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraph (b)(i) or (b)(ii) resulting in a
payment by a Trustee or Officer, unless there has been a determination that such
Trustee or Officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office:
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon the review of readily available facts ( as
opposed to full trial-type inquiry) by (x) vote of a majority
of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office
act on the matter) or (y) written opinion of independent legal
counsel.
<PAGE>
(d) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Trustee or Officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or Officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and Officers may be entitled by
contract or otherwise under law.
(e) Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in paragraph (a) of this Section
may be advanced by the Trust prior to final disposition thereof upon receipt of
an undertaking by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification under this
Section, provided that either;
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section, a "Disinterested Trustee" is one who is not (i) an
Interested Person of the Trust (including anyone who has been exempted from
being an Interested Person by any rule, regulation or order of the Commission),
or (ii) involved in the claim, action, suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other that the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy, as expressed in the Act and be governed by final
adjudication of such issue.
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "MEET THE PORTFOLIO MANAGER" in the Prospectus and "Services of the
Adviser and Administrator" and "Trustees and Officers" in the Statement of
Additional Information, each of which is included in the Registration Statement.
Set forth is a list of each officer and director of the Adviser indicating each
business, profession, vocation or employment of a substantial nature in which
each such person has been engaged since January 31, 1994.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL
INVESTMENT BUSINESS, PROFESSION
NAME ADVISER VOCATION OR EMPLOYMENT
- --------- --------------------------- --------------------------------------------
<S> <C> <C>
John Turner Director Chairman and CEO, ReliaStar
Financial Corp. and affiliates;
Director of Northstar Affiliates;
Trustee and Chairman, Northstar
Affiliated Investment Companies.
John Flittie Director President, ReliaStar Financial Corp.
and affiliates; Director, Northstar
Affilates.
Mark L. Lipson Chairman/CEO Director and Officer of Northstar
Director Distributors, Inc., Northstar
Administrators Corp. and Northstar,
Inc. Trustee and President, Northstar
Affiliated Investment Companies.
Robert J. Adler Executive President Northstar Distributors, Inc.
Vice
President,
Sales &
Marketing
Jeffrey Aurigemma Vice Vice President - Northstar Affiliated
President - Investment Companies
Investments and Portfolio Manager
Stephanie L. Vice President, Vice President & Secretary of
Secretary and Counsel Northstar Affiliates and the Northstar
Affiliated Investment Companies
Jeffrey Bernstein Vice President - Vice President, Northstar
Investments Affiliated Investment Companies
and Portfolio Manager, Former
Portfolio Manager with Strong Capital
Management, Former Portfolio Manager with
Berkeley Capital. Former Assistant
Portfolio Manager with Bankers Trust
Corporation
Thomas Ole Dial Executive Vice President, Northstar Affiliated
Vice Investment Companies, and
President - Principal, TD Associates Inc.
Chief Investment Officer
Fixed Income
<PAGE>
Mary Lisanti Executive Vice President, Northstar Affiliated
Vice President Investment Companies, Former
Chief Investment Officer - Portfolio Manager with Strong Capital
Equities Management, Former Managing Director and
Portfolio Manager with Bankers Trust Corporation
Agnes Mullady Sr. Vice Vice President & Treasurer of
President Northstar Affiliates and the Northstar
and CFO Affiliated Investment Companies
Mark Sfarra Vice Vice President - Northstar
President - Distributors, Inc.
Marketing
Stephen Vondrak Vice Vice President - Northstar
President - Distributors, Inc., Former Regional
Sales & Marketing Marketing Manager with Roger
Engemann and Associates from
1991-1994.
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITER
(a) See "THE BUSINESS OF MUTUAL FUNDS - HOW THE FUNDS ARE ORGANIZED AND
MANAGED","MEET THE PORTFOLIO MANAGERS" and "YOUR GUIDE TO BUYING, SELLING AND
EXCHANGING SHARES OF NORTHSTAR FUNDS" in the Prospectus and "Underwriter and
Distribution Services" in the Statement of Additional Information, both of which
are included in this Post-Effective Amendment to the Registration Statement.
Unless
<PAGE>
otherwise indicated, the principal business address for each person is c/o
Northstar, 300 First Stamford Place, Stamford, CT 06902.
<TABLE>
<CAPTION>
(b) (1) (2) (3)
Name and Principal Position and Offices Position and Offices
Address with Underwriter with Registrant
- ------------------ -------------------- --------------------
<S> <C> <C>
John Turner Director Trustee, Chairman
20 Washington Ave. South
Minneapolis, MN
John Flittie Director None
20 Washington Ave. South
Minneapolis, MN
Mark L. Lipson Chairman & Director Trustee and President
Robert J. Adler President None
Mark Blinder Reg. Vice President None
Michael Brescia Reg. Vice President None
Jennifer Byrne Reg. Vice President None
Eugene Carlin Reg. Vice President None
Charles Dolce Reg. Vice President None
Chris Erbeck Reg. Vice President None
Neil Gargiulo Reg. Vice President None
Edward Ittner Reg. Vice President None
Nancy Lavin Reg. Vice President None
David Linton Reg. Vice President None
Stephen O'Brien Reg. Vice President None
Gregg Smyth Reg. Vice President None
Mark Sfarra Vice President None
Stephen Vondrak Vice President None
Stephanie L. Beckner Vice President, Vice President &
Secretary & Counsel Secretary
Agnes Mullady Vice President Vice President
& Treasurer & Treasurer
</TABLE>
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
State Street Bank and Trust Co. maintains such records as Custodian and Fund
Accounting Agent for the Special, Growth, Balance Sheet Opportunities,
Government Securities and High Yield Funds, the Northstar Trust and the
Northstar Equity Trust:
(1) Receipts and delivery of securities including certificate numbers;
(2) Receipts and disbursement of cash;
(3) Records of securities in transfer, securities in physical possession;
securities owned and securities loaned;
(4) Fund Accounting Records.
First Data Investor Services Group, ("First Data") maintains the following
records at One Exchange Place, 11th Floor, Boston, Massachusetts, 02109, as
Transfer Agent and Blue Sky Administrator for the Funds, the Northstar Trust
and the Northstar Equity Trust.
(1) Shareholder Records;
(2) Share accumulation accounts: Details as to dates and number of
shares; of each accumulation, price of each accumulation;
(3) Fund Accounting Records;
(4) State Securities Registration Records.
All other records required by item 30(a) are maintained at the office of the
Administrator, 300 First Stamford Place, Stamford, CT 06902.
ITEM 29. Management Services
Not Applicable.
ITEM 30. Undertakings
(a) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees when
requested in writing to do so by the holders of at least 10% of the Trusts'
outstanding shares of beneficial interest and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
(b) Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest Annual Report to Shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stamford
and the State of Connecticut on the 24th day of December, 1998.
REGISTRANT
By: MARK L. LIPSON
------------------------------
Mark L. Lipson, President
SIGNATURES TITLE DATE
JOHN G. TURNER Chairman and December 24, 1998
John G. Turner* Trustee
MARK L. LIPSON Trustee December 24, 1998
Mark L. Lipson*
JOHN R. SMITH Trustee December 24, 1998
John R. Smith*
PAUL S. DOHERTY Trustee December 24, 1998
Paul S. Doherty*
DAVID W. WALLACE Trustee December 24, 1998
David W. Wallace*
ROBERT B. GOODE, JR. Trustee December 24, 1998
Robert B. Goode, Jr.*
ALAN L. GOSULE Trustee December 24, 1998
Alan L. Gosule*
DAVID W.C. PUTNAM Trustee December 24, 1998
David W.C. Putnam*
WALTER H. MAY, JR. Trustee December 24, 1998
Walter H. May, Jr.**
AGNES MULLADY Principal Financial December 24, 1998
Agnes Mullady and Accounting Officer
By: AGNES MULLADY*
Agnes Mullady
Attorney-in-fact
* Executed pursuant to powers of attorney filed with Northstar Trust and
Strategic Income Fund - PEA No. 6; Northstar Government Securities Fund - PEA
No. 15; Northstar Balance Sheet Opportunities Fund - PEA No. 14; Northstar
Growth Fund - PEA No. 14; Northstar Special Fund - PEA No. 14; and Northstar
High Yield Fund - PEA No.10.
** Executed pursuant to power of attorney filed with Northstar Trust and
Strategic Income Fund - PEA No. 8; Northstar Government Securities Fund - PEA
No. 17; Northstar Balance Sheet Opportunities Fund - PEA No. 16; Northstar
Growth Fund - PEA No. 16; Northstar Special Fund - PEA No. 16; and Northstar
High Yield Fund - PEA No. 12 .
