[NORTHSTAR LOGO APPEARS HERE]
ANNUAL REPORT TO SHAREHOLDERS
December 31, 1998
[GRAPHIC APPEARS HERE]
<PAGE>
[PHOTOGRAPH OF MARK L. LIPSON APPEARS HERE]
NORTHSTAR FUNDS
ANNUAL REPORT
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
MARK L. LIPSON
Dear Shareholders:
We are pleased to provide you with the annual report of the Northstar Funds for
the year ended December 31, 1998. We are gratified with your decision to
entrust your assets to the Northstar Funds and are confident that we can assist
you in reaching your financial objectives. Our goal is to provide you with long
term consistent and superior results through fundamental research, analysis,
and traditional investment disciplines. Following this letter is a summary of
the results of each Fund by their respective portfolio managers. We hope you
will find this informative.
The past year saw significant turmoil in the financial markets. While the U.S.
equity market started off the year strongly, it experienced its most
significant correction since 1990 in the late summer/early fall as the default
of Russia, worries about the passage of a Japanese banking reform bill, and
concern over the possible impeachment of the U.S. President weighed heavily on
investor psychology. The bond market also experienced significant
disclocations, as the global uncertainty caused a flight to quality and
Treasury bonds rallied strongly while high yield debt dropped sharply. A
continued drop in commodity prices combined with continued decline in the Asian
economies and excess productive capacity there gave rise to fears of the worst
of economic scenarios -- a global economic slowdown combined with a downward
deflationary spiral. The overleverage at Long Term Capital and other hedge
funds led to a severe liquidity crunch and shook confidence in the stability of
our banks. The aggressive Fed easing in the wake of the Long Term Capital
bailout reversed investor psychology early in the fourth quarter and stocks
staged a strong rally. The S&P 500 returned 28.6% for the year, its fourth year
of over 20% gains -- a phenomenon last experienced in the 1950s -- while the
NASDAQ returned 39.7% for the year.
Fears of the worst of all economic scenarios proved to be unfounded in 1998.
The turmoil in Asia had minimal impact on our exports and was of great benefit
to the consumer, as we are a big importer of Asian goods. As a result, U.S. GDP
continued to grow strongly in 1998, advancing at about a 3% rate, while
inflation continues at a low level -- about 1.5% -- and employment continues to
be strong. However, the impact of the continuing slowdown in Asia began to be
seen on global economic growth and corporate profits in the second half of the
year. While the S&P 500 experienced a double digit correction, many other asset
classes, such as smaller and mid-capitalization equity issues and high yield
issues, experienced corrections much more severe in size and scope as investors
sought safe havens. While we saw a rebound in the equity classes in the fourth
quarter, many smaller and mid-capitalization issues still stand at significant
valuation discounts to the larger S&P 500 equities, and the same holds true for
corporate and high-yield bond spreads relative to Treasury bonds.
We believe the investment environment may continue to be volatile in 1999.
While concerns remain that the U.S. economy may slow as we move through 1999,
since the default of Russia at the end of August we have seen 68 interest rate
cuts globally as central banks' policies have shifted from containing inflation
to fostering economic growth. It appears that while Asian economies are
stabilizing, South America appears to be at some risk of economic turmoil as
Brazil devalues. Since South America is one of our biggest trading partners,
accounting for approximately 21% of our trade, a sharp slowdown in that part of
the world might have a negative impact on our economic growth in 1999. The
advent of the Euro and the accelerating deregulation in Europe, while it
creates great opportunity, also creates some uncertainty as it is the first
time that Europe has attempted a unified currency. Domestically, we began the
first impeachment trial of a sitting President in over 130 years. While
concerns over profit growth remain, the global slowdown we have experienced
over the past year has led to declining operating profits from the S&P 500
companies and a new round of layoffs and cost-cutting -- indeed, in 1998
layoffs were at record levels. This implies that we will see a bottom in profit
growth for the S&P 500 sometime in the next several quarters. Certain sectors
of the economy, such as technology, appear to have already seen the trough in
profits.
Although volatility may continue to be higher than average, we believe the
worst of the liquidity crisis may be behind us. The longer-term investment
environment continues to be favorable. Although valuations remain at high
levels, they are supported by very strong fundamentals. All throughout this
decade, U.S. corporations have improved their efficiency and profitability by
strategic investments in productivity-improving technology, and that trend has
continued as we look to 1999. The replacement of human labor with technology
appears to be mildly deflationary, which implies we can have strong economic
growth coexist with low inflation, low unemployment and low interest rates.
These trends appear to be secular, not cyclical, and imply a positive
investment environment for financial markets. We expect to see broader
participation among the higher-risk asset classes as we move through 1999;
historically, those asset classes have responded well to Fed easing and to a
reacceleration in corporate profits.
We note with great conviction that attempts to "time" the market often prove
counterproductive. Investors are strongly urged to focus on the long term.
Consistent disciplined investing is the proven method of achieving attractive
returns and meeting your financial objectives. We continue to support this
philosophy and look forward to serving your investment needs in the future.
Sincerely,
/s/ Mark L. Lipson
Mark L. Lipson
President
January 30, 1999
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[PHOTOGRAPH OF MARY LISANTI APPEARS HERE]
NORTHSTAR GROWTH FUND
- --------------------------------------------------------------------------------
MARY LISANTI
The Markets
o The markets experienced severe volatility during the year. While the
first half of the year was strong, in the second half of the year
investors experienced the most severe correction since 1990, as Russia's
default and the overleverage at hedge funds -- most notably Long Term
Capital -- led to a liquidity crunch in the Fall. The Federal Reserve
eased aggressively in the wake of the Long Term Capital bailout, and the
market responded by rallying strongly in the fourth quarter.
o The market continued to be dominated by large liquid issues. Although in
the wake of the correction, the market broadened out and smaller stocks
participated, they lagged badly for the year. For the year, the Dow Jones
Industrial average rose 18.1%, the S&P 500 rose 28.6%, and the NASDAQ
composite rose 29.7%, while the Russell 2000 returned (2.5)% for the year.
This marks the second year of severe underperformance for smaller
capitalization issues. At the end of the year, the valuation disparity
between large companies and small companies was the widest it had been in
over twenty years.
The Fund
o For the year ended December 31, 1998 the Northstar Growth Fund returned
23.61% for Class A, 22.69% for Class B, 22.90% for Class C, 22.79% for
Class T, and 24.06% for Class I; placing it in the second quartile of all
growth funds ranked by Lipper Analytical Services. The Northstar Growth
Fund was repositioned during 1998. This repositioning significantly
increased the number of holdings; substantialy scaled back more cyclical
areas such as Consumer Cyclicals and Financials and a greater emphasis was
placed on secular growth areas such as Health Care, Telecommunications and
Technology. Less emphasis was placed on relative valuations and more focus
was placed on the company's fundamental outlook and earnings power. As a
result, the overall quality of the companies in the Fund was improved.
o Our strategy is to use the markets' volatility to our investors'
advantage by using periods of weakness to initiate or add to positions. We
used the market correction in the late Summer/early Fall of 1998 as an
opportunity to upgrade the quality of the companies in the Fund and to
broaden out the holdings to smaller and midcapitalization companies. The
Fund participated strongly in the market rally in the fourth quarter,
partly as a result of investments made during the market correction.
Current Strategy
o Since the Federal Reserve's first rate cut in the Fall of 1998, we have
had 68 interest rate cuts worldwide as the central banks' focus has
shifted from containing inflation to fostering economic growth. The
broader market participation that we saw in the fourth quarter should
continue as we move through 1999, as a result of this shift in policy.
However, economic growth may be slow, particularly on a global scale, as
an overhang of debt may mute consumption in many parts of the world. In
such an environment, it is critical to be focused on companies with strong
secular prospects in leading-edge areas.
o We believe the Fund is well positioned in the current environment. The
Fund remains focused on high quality companies with solid business models
that will enable them to generate consistent earnings growth, even in a
challenging global economic environment, and that sell at reasonable
valuations to their growth prospects over the next several years.
Currently, smaller and mid-sized companies appear to have more attractive
growth prospects and more reasonable valuations than large capitalization
companies; for that reason, we will focus more attention on companies in
those asset classes.
- --------------------------------------------------------------------------------
Fund Information (All data are as of 12/31/98)Total Net Assets $181,719,215
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Top 10 Holdings
Name % Fund
<S> <C> <C>
o 1 Compaq Computer Corp. 4.9%
o 2 MCI WorldCom, Inc. 4.5
o 3 Cisco Systems, Inc. 3.9
o 4 Genzyme Corp. -- General
3.6
Division
o 5 Ceridan Corp. 3.2
o 6 Yahoo!, Inc. 2.2
o 7 CSG Systems International, Inc. 1.9
o 8 Mellon Bank Corp. 1.9
o 9 Concord Communications, Inc. 1.8
o 10 MedImmune, Inc. 1.8
----
29.7%
====
</TABLE>
<TABLE>
<CAPTION>
Top 5 Industries
(by percentage of net assets)
<S> <C>
Computer Software 12.0%
Biotechnology 11.7%
Consumer Cyclicals 8.3%
EDP Services 8.0%
Semiconductor 6.7%
</TABLE>
<TABLE>
<CAPTION>
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
<S> <C> <C> <C>
Inception 5 years 1 year
Class A 20.61% N/A 17.74%
Class B 21.16% N/A 17.69%
Class C 21.50% N/A 21.90%
Class T 13.50% 15.76% 18.79%
Class I 28.08% N/A 24.06%
Cumulative Total Return
(do not reflect sales charge)
Inception 5 years 1 year
Class A 105.40% N/A 23.61%
Class B 100.80% N/A 22.69%
Class C 100.80% N/A 22.90%
Class T 412.94% 107.89% 22.79%
Class I 54.19% N/A 24.06%
</TABLE>
3
<PAGE>
NORTHSTAR GROWTH FUND
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
GROWTH FUND AND COMPARATIVE INDICES FROM INCEPTION OF EACH CLASS OF
SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is
supplied for the fiscal year ended December 31, 1998, with all distributions
reinvested in shares. The average annualized
total return for Class A shares of 20.61% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of
4.75%. Average annualized total returns of 21.16% and 21.50% since inception on
June 5, 1995 for Class B and Class C shares, respectively, and total return
since inception on February 3, 1986 for Class T shares of 13.50%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). Average annualized total return
since inception on March 31, 1997 of 28.08% for Class I shares. All performance
data shown represents past performance, and should not be considered indicative
of future performance.
[LINE GRAPHS APPEAR BELOW WITH THE FOLLOWING PLOT POINTS:]
NORTHSTAR GROWTH FUND - CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 17.74%
SINCE INCEPTION 20.61%
6/95 12/95 12/96 12/97 12/98
Class A 10.353 11.117 13.312 16.338 20.080
S&P 500 10.280 11.761 14.144 18.528 23.469
CPI 10.010 10.111 10.460 10.649 10.826
NORTHSTAR GROWTH FUND - CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 17.69%
SINCE INCEPTION 21.16%
6/95 12/95 12/96 12/97 12/98
Class B 10.350 11.127 13.323 16.367 20.081
S&P 500 10.280 11.761 14.144 18.528 23.469
CPI 10.010 10.111 10.460 10.649 10.826
NORTHSTAR GROWTH FUND - CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 21.90%
SINCE INCEPTION 21.50%
6/95 12/95 12/96 12/97 12/98
Class C 10.353 11.117 13.312 16.338 20.080
S&P 500 10.280 11.761 14.144 18.528 23.469
CPI 10.010 10.111 10.460 10.649 10.826
NORTHSTAR GROWTH FUND - CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 18.79%
5-YEAR 15.76%
SINCE INCEPTION 13.50%
12/95 12/96 12/97 12/98
Class T 28.343 33.981 41.775 51.293
S&P 500 39.338 47.309 61.978 78.503
CPI 14.012 14.495 14.758 15.004
NORTHSTAR GROWTH FUND - CLASS I
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 24.06%
SINCE INCEPTION 28.08%
3/97 12/97 12/98
Class I 10.000 12.428 15.419
S&P 500 10.000 12.817
CPI 10.000 10.131
4
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- ---------------------------------------- -------------- -------------
<S> <C> <C>
Common Stocks -- 99.39%
Biotechnology -- 11.66%
Agouron Pharmaceuticals, Inc. @ 29,100 $1,709,625
Alkermes, Inc. @ 48,200 1,069,438
Biogen, Inc. @ 24,100 2,000,300
Chiron Corp. @ 84,900 2,223,319
COR Therapeutics, Inc. @ 77,500 1,026,875
Genzyme Corp.- General Division @ 130,000 6,467,500
Gilead Sciences, Inc. @ 38,100 1,564,481
Idexx Laboratories, Inc. @ 20,700 556,959
MedImmune, Inc. @ 33,700 3,351,044
PathoGenesis Corp. @ 21,000 1,218,000
----------
21,187,541
----------
Capital Goods -- 2.34%
Jabil Circuit, Inc. @ 36,700 2,738,738
Mettler-Toledo International, Inc. @ 54,100 1,518,181
----------
4,256,919
----------
Communication Service -- 4.46%
MCI Worldcom, Inc. @ 113,000 8,107,750
----------
Computer Communications -- 5.93%
3Com Corp. @ 25,800 1,156,162
Applied Micro Circuits Corp. @ 38,100 1,294,209
Ascend Communications, Inc. @ 19,400 1,275,550
Cisco Systems, Inc. @ 75,850 7,039,828
----------
10,765,749
----------
Computer Software -- 11.96%
Business Objects SA @** 60,200 1,956,500
GeoTel Communications Corp. @ 39,000 1,452,750
Macromedia, Inc. @ 60,600 2,041,462
Mastech Corp. @ 71,700 2,052,412
Microsoft Corp. @ 20,000 2,773,750
New Era of Networks, Inc. @ 63,800 2,807,200
Novell, Inc. @ 110,900 2,010,063
Parametric Technology Corp. 77,700 1,272,338
Sapient Corp. @ 47,900 2,682,400
Segue Software, Inc. @ 85,000 1,721,250
Wind River Systems, Inc. @ 20,300 954,100
----------
21,724,225
----------
Consumer Cyclicals -- 8.29%
AnnTaylor Stores Corp. @ 33,100 1,305,381
CMGI, Inc. @ 16,400 1,746,600
Concur Technologies, Inc. @ 19,000 579,500
Gemstar International Group Ltd. @ @@ 23,100 1,322,475
Home Depot, Inc. 53,000 3,242,937
MIPS Technologies, Inc. @ 65,800 2,105,600
ProBusiness Services, Inc. @ 24,200 1,101,100
Restoration Hardware, Inc. @ 50,600 1,359,875
Sunrise Assisted Living, Inc. @ 44,500 2,308,438
----------
15,071,906
----------
</TABLE>
5
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- ----------------------------------------- -------------- ------------
<S> <C> <C>
Consumer Staples -- 1.63%
Infinity Broadcasting Corp. @ 7,800 $213,525
P.F. Changs China Bistro, Inc. @ 47,300 1,076,075
PSS World Medical, Inc. @ 31,000 713,000
Ticketmaster Online-CitySearch, Inc. @ 17,200 963,200
----------
2,965,800
----------
Diversified Electronic Products -- 0.89%
Uniphase Corp. @ 23,300 1,616,438
----------
EDP Peripherals -- 0.86%
QLogic Corp. @ 12,000 1,570,500
----------
EDP Services -- 8.00%
Ceridian Corp. 82,100 5,731,606
Concord Communications, Inc. @ 58,600 3,325,550
CSG Systems International, Inc. @ 42,700 3,373,300
National Data Corp. 43,400 2,113,038
----------
14,543,494
----------
Electronic Data Processing -- 4.89%
Compaq Computer Corp. 212,000 8,890,750
----------
Electronic Production/Equipment -- 6.61%
Applied Materials, Inc. @ 25,200 1,075,725
Asyst Technologies, Inc. @ 41,500 845,563
KLA-Tencor Corp. @ 36,800 1,596,200
Novellus Systems, Inc. @ 41,500 2,054,250
Synopsys, Inc. @ 25,000 1,356,250
Teradyne, Inc. @ 68,700 2,911,162
Veeco Instruments, Inc. @ 40,800 2,167,500
----------
12,006,650
----------
Financial -- 6.50%
First Union Corp. 30,100 1,830,456
Mellon Bank Corp. 50,500 3,471,875
Merrill Lynch & Co., Inc. 10,400 694,200
Nationwide Financial Services, Inc. 39,200 2,026,150
SunTrust Banks, Inc. 24,400 1,866,600
The Charles Schwab Corp. 34,350 1,930,041
----------
11,819,322
----------
Hospital/Nursing Management -- 0.53%
Province Healthcare Co. @ 26,600 954,275
----------
Internet Services -- 5.92%
Inktomi Corp. @ 19,500 2,522,812
USWeb Corp. @ 71,500 1,885,813
VeriSign, Inc. @ 38,900 2,299,963
Yahoo!, Inc. @ 17,100 4,051,631
----------
10,760,219
----------
Managed Health Care -- 2.32%
Oxford Health Plans, Inc. @ 150,500 2,238,687
Wellpoint Health Networks, Inc. @ 22,800 1,983,600
----------
4,222,287
----------
Medical Electronics -- 1.83%
VISX, Inc. @ 38,000 3,322,625
----------
</TABLE>
6
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- --------------------------------------------------------------------------- ------------------------- ---------------
<S> <C> <C>
Medical Specialties -- 0.73%
ResMed, Inc. @ 29,200 $ 1,324,950
------------
Medical/Nursing Services -- 0.72%
Pediatrix Medical Group, Inc. @ 21,900 1,312,631
-------------
Office Equipment/Supplies -- 0.27%
Xerox Corp. 4,100 483,800
-------------
Pharmaceuticals -- 2.22%
King Pharmaceuticals, Inc. @ 34,700 915,213
Sepracor, Inc. @ 35,300 3,110,812
-------------
4,026,025
-------------
Recreational Products/Toys -- 1.00%
THQ, Inc. @ 64,600 1,808,800
-------------
Semiconductor -- 6.65%
Altera Corp. @ 25,300 1,540,137
Analog Devices, Inc. @ 19,800 621,225
Broadcom Corp. @ 11,300 1,364,475
Intel Corp. 13,200 1,565,025
Microchip Technology, Inc. @ 15,000 555,000
PMC-Sierra, Inc. @ 33,500 2,114,687
SDL, Inc. @ 28,200 1,117,425
Semtech Corp. @ 42,800 1,535,450
Texas Instruments, Inc. 10,200 872,738
Vitesse Semiconductor Corp. @ 17,500 798,438
-------------
12,084,600
-------------
Telecommunications Equipment -- 3.18%
Carrier Access Corp. @ 66,800 2,300,425
Motorola, Inc. 34,600 2,112,762
Visual Networks, Inc. @ 36,600 1,372,500
-------------
5,785,687
-------------
Total Common Stocks
(cost $109,987,395) 180,612,943
-------------
Total Investment Securities -- 99.39%
(cost $109,987,395) 180,612,943
Repurchase Agreement -- 1.34%
Agreement with State Street Bank and Trust bearing interest at 4.70% dated
12/31/98, to be repurchased 1/04/99 in the amount of $2,432,270 and
collateralized by $2,120,000 U.S. Treasury Notes, 7.875% due 11/15/04,
value $2,480,188
(cost $2,431,000) $2,431,000 2,431,000
Liabilities in excess of other assets -- (0.73%) (1,324,728)
-------------
Net Assets -- 100.00% $181,719,215
=============
</TABLE>
@ Non-income producing security.
@@ Foreign security.
** American Depositary Receipts.
See accompanying notes to financial statements.
7
<PAGE>
[PHOTOGRAPH OF MARY LISANTI APPEARS HERE]
NORTHSTAR SPECIAL FUND
- ---------------------------------------------------------------------------
MARY LISANTI
The Markets
o The markets experienced severe volatility during the year. While the
first half of the year was strong, in the second half of the year
investors experienced the most severe correction since 1990, as Russia's
default and the overleverage at hedge funds -- most notably Long Term
Capital -- led to a liquidity crunch in the fall. The Federal Reserve
eased aggressively in the wake of the Long Term Capital bailout, and the
market responded by rallying strongly in the fourth quarter.
o The market continued to be dominated by large liquid issues. Although in
the wake of the correction the market broadened out and smaller stocks
participated, they lagged badly for the year. For the year, the Dow Jones
Industrial Average rose 18.1%, the S&P 500 rose 28.6%, and the NASDAQ
composite rose 29.7%, while the Russell 2000 returned (2.5)% for the year.
This marks the second year of severe underperformance for smaller
capitalization issues. At the end of the year, the valuation disparity
between large companies and small companies was the widest it had been in
over twenty years.
The Fund
o For the year ended December 31, 1998 the Northstar Special Fund returned
for Class A shares was 7.59%, 6.84% for Class B, 6.81% for Class C, and
6.94% for Class T, placing it in the top quartile of all small cap funds
as ranked by Lipper Analytical Services. The Fund was restructured in the
Summer and Fall to refocus on small, fast growing companies. Although the
Fund suffered during the late August correction, we viewed that correction
as a buying opportunity. We saw no fundamental negative structural change
in the American economy and believed the Fed would provide liquidity to
the financial system, as it had in similar circumstances in 1990.
Valuations of fast growing companies with dominant positions in secular
growth industries were at levels we had last seen in the 1990 timeframe,
and we took advantage of the correction to initiate or add to positions at
what we believed would be bargain prices. The Fund participated strongly
in the fourth quarter rally due to the positioning undertaken in the
Summer and many of the purchases made during the market correction.
o The Fund is focused on companies with secular growth prospects and high
earnings visibility and is structured according to secular themes. Given
the Fund's focus, it has overweight positions relative to its benchmark,
the Russell 2000, in Telecommunications, Biotechnology, and
Software/Business Services Companies, while being relatively underweight
in more cyclical sectors such as Energy and Financials. Among the more
significant themes in the Fund are: The Telecommunications Expansion. The
Ubiquitous Semiconductor, and The Life Sciences Revolution.
Current Strategy
o While not all smaller companies will flourish in the current environment,
a significant number possess unique products and services which improve
productivity and provide growth opportunities that are somewhat
indifferent to the economic cycle. We believe that we will look back on
the Fall of 1998 as one of the greatest buying opportunities for smaller
companies in this decade. We base this belief on the likelihood that the
larger multinational corporations, which have enjoyed double digit
earnings growth for much of the 1990's, will see earnings growth revert to
the low-to-mid single digits as sales slow and margins come under pressure
in a slowing global economy. While investors may initially turn to smaller
companies because of lower relative valuations, we believe that small cap
stocks, and small cap growth stocks in particular, may begin to represent
better capital appreciation vehicles due to faster earnings growth over
the next several years.
o Since the Fall of 1998 we have had 68 interest rate cuts world wide. The
focus of the central banks globally has shifted from containing inflation
to fostering economic growth. Historically, when this occurs, the equity
markets broaden out as the focus shifts towards earnings growth. While the
macroeconomic backdrop may be more favorable, the recovery from a
liquidity crisis is usually subdued, and economic growth can slow or
remain slow for some time. The Fund remains focused on high quality
companies that have high earnings visibility and solid business models
that will enable them to generate stable earnings growth despite a
possibly challenging economic environment, and whose valuations remain at
reasonable levels given their growth prospects over the next several
years.
- --------------------------------------------------------------------------------
Fund Information (All data are as of 12/31/98)Total Net Assets $217,477,043
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Top 10 Holdings
Name % Fund
<S> <C> <C>
o 1 Terayon Communication System, Inc. 2.1%
o 2 RF Micro Devices, Inc. 2.0
o 3 GeoTel Communications Corp. 1.9
o 4 International Network Services 1.7
o 5 The Metzler Group, Inc. 1.7
o 6 Visual Networks, Inc. 1.6
o 7 VISX, Inc. 1.6
o 8 Carrier Access Corp. 1.5
o 9 Oxford Health Plans, Inc. 1.5
o 10 Perclose, Inc. 1.5
----
17.1%
====
</TABLE>
<TABLE>
<CAPTION>
Top 5 Industries
(by percentage of net assets)
<S> <C>
Computer Software 15.6%
Consumer Cyclicals 12.8%
Biotechnology 7.7%
Electronic
Production/Equipment 6.8%
Telecommunications
Equipment 6.5%
</TABLE>
<TABLE>
<CAPTION>
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
<S> <C> <C> <C>
Inception 5 years 1 year
Class A 13.25% N/A 2.50%
Class B 13.62% N/A 1.84%
Class C 14.00% N/A 5.81%
Class T 10.20% 8.75% 2.94%
Cumulative Total Return
(do not reflect sales charge)
Inception 5 years 1 year
Class A 63.93% N/A 7.59%
Class B 59.96% N/A 6.84%
Class C 59.86% N/A 6.81%
Class T 250.24% 52.08% 6.94%
</TABLE>
8
<PAGE>
NORTHSTAR SPECIAL FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
SPECIAL FUND AND COMPARATIVE INDICES FROM INCEPTION OF EACH CLASS OF
SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1998, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 13.25% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of
4.75%. Average annualized total returns of 13.62% and 14.00% since inception on
June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on February 3, 1986 for Class T shares of 10.20%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown
represents past performance, and should not be considered indicative of future
performance.
[LINE GRAPHS APPEAR BELOW WITH THE FOLLOWING PLOT POINTS:]
NORTHSTAR SPECIAL FUND - CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 2.50%
SINCE INCEPTION 13.25%
6/95 12/95 12/96 12/97 12/98
Class A
Russell 2000 PLEASE SUPPLY PLOT POINTS
CPI
NORTHSTAR SPECIAL FUND - CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 1.84%
SINCE INCEPTION 13.626%
6/95 12/95 12/96 12/97 12/98
Class B
Russell 2000 PLEASE SUPPLY PLOT POINTS
CPI
NORTHSTAR SPECIAL FUND - CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5.81%
SINCE INCEPTION 14.00%
6/95 12/95 12/96 12/97 12/98
Class C
Russell 2000 PLEASE SUPPLY PLOT POINTS
CPI
NORTHSTAR SPECIAL FUND - CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 2.94%
5-YEAR 8.75%
SINCE INCEPTION 10.20%
2/86 12/89 12/92 12/95 12/98
Class T
Russell 2000 PLEASE SUPPLY PLOT POINTS
CPI
9
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- -------------------------------------- ---------- --------------
<S> <C> <C>
Common Stocks -- 99.25%
Biotechnology -- 7.67%
Agouron Pharmaceuticals, Inc. @ 49,500 $ 2,908,125
Alkermes, Inc. @ 88,500 1,963,594
COR Therapeutics, Inc. @ 81,500 1,079,875
Coulter Pharmaceutical, Inc. @ 82,800 2,484,000
Gilead Sciences, Inc. @ 65,400 2,685,487
Incyte Pharmacuticals, Inc. @ 28,600 1,068,925
MedImmune, Inc. @ 26,400 2,625,150
PathoGenesis Corp. @ 32,100 1,861,800
-----------
16,676,956
-----------
Capital Goods -- 4.40%
Advanced Energy Industries, Inc. @ 52,900 1,322,500
Casella Waste Systems, Inc. @ 66,200 2,457,675
Electro Scientific Indusries, Inc. @ 28,000 1,268,750
Jabil Circuit, Inc. @ 39,000 2,910,375
Mettler-Toledo International, Inc. @ 57,100 1,602,369
-----------
9,561,669
-----------
Communications -- 0.05%
World Access, Inc. @ 5,000 106,875
-----------
Communication Equipment -- 0.71%
DSET Corp. @ 149,700 1,553,138
-----------
Computer Communications -- 2.38%
Adaptec, Inc. @ 110,800 1,945,925
Apex PC Solutions, Inc. @ 33,300 961,537
Applied Micro Circuits Corp. @ 66,600 2,262,319
-----------
5,169,781
-----------
Computer Software -- 15.61%
Aspect Development, Inc. @ 58,100 2,574,556
Best Software, Inc. @ 80,000 1,900,000
Business Objects SA @** 76,700 2,492,750
Clarify, Inc. @ 34,000 830,875
Digital River, Inc. @ 39,100 1,388,050
GeoTel Communications Corp. @ 108,800 4,052,800
Legato Systems, Inc. @ 44,900 2,960,594
Macromedia, Inc. @ 71,000 2,391,812
Mercury Interactive Corp. @ 45,200 2,858,900
New Era of Networks, Inc. @ 69,400 3,053,600
Rational Software Corp. @ 98,200 2,602,300
Sapient Corp. @ 43,400 2,430,400
Saville Systems PLC @** 79,000 1,501,000
Segue Software, Inc.@ 89,300 1,808,325
Wind River Systems, Inc. @ 23,600 1,109,200
-----------
33,955,162
-----------
Consumer Cyclicals -- 12.82%
American Eagle Outfitters, Inc. @ 47,900 3,191,337
AnnTaylor Stores Corp. @ 58,000 2,287,375
Concur Technologies, Inc. @ 46,200 1,409,100
Cutter & Buck, Inc. @ 3,200 119,200
Exchange Applications , Inc. @ 69,100 1,356,088
Linens 'n Things, Inc. @ 59,200 2,345,800
</TABLE>
10
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------- ---------- -------------
<S> <C> <C>
Consumer Cyclicals -- continued
MIPS Technologies, Inc. @ 77,200 $ 2,470,400
NCO Group, Inc. @ 28,900 1,300,500
Party City Corp. @ 49,500 714,656
ProBusiness Services, Inc. @ 25,000 1,137,500
Profit Recovery Group International, Inc. @ 26,700 999,581
Restoration Hardware, Inc. @ 67,300 1,808,688
Select Comfort Corp. @ 23,300 615,994
Sunrise Assisted Living, Inc. @ 53,400 2,770,125
The Men's Wearhouse, Inc. @ 53,300 1,692,275
The Metzler Group, Inc. @ 75,000 3,651,562
-----------
27,870,181
-----------
Consumer Services -- 1.09%
Advantage Learning Systems, Inc. @ 36,200 2,380,150
-----------
Consumer Staples -- 2.97%
Hollywood Entertainment Corp. @ 54,800 1,493,300
P.F. Changs China Bistro, Inc. @ 69,500 1,581,125
PSS World Medical, Inc. @ 102,900 2,366,700
Ticketmaster Online-CitySearch, Inc. @ 18,000 1,008,000
-----------
6,449,125
-----------
Diversified Commerical Services -- 0.85%
Abacus Direct Corp. @ 40,700 1,851,850
-----------
Diversified Electronic Products -- 0.78%
Uniphase Corp. @ 24,500 1,699,688
-----------
EDP Peripherals -- 2.21%
National Computer Systems, Inc. 40,900 1,513,300
QLogic Corp. @ 12,700 1,662,112
SCM Microsystems, Inc. @ 23,100 1,641,544
-----------
4,816,956
-----------
EDP Services -- 5.26%
BindView Development Corp. @ 89,891 2,472,002
Concord Communications, Inc. @ 46,300 2,627,525
CSG Systems International, Inc. @ 33,000 2,607,000
International Network Services @ 56,200 3,737,300
-----------
11,443,827
-----------
Electronic Components -- 0.74%
E-Tek Dynamics, Inc. @ 38,300 1,024,525
Powerwave Technologies, Inc. @ 31,700 590,413
-----------
1,614,938
-----------
Electronic Production/Equipment -- 6.79%
Asyst Technologies, Inc. @ 87,000 1,772,625
KLA-Tencor Corp. @ 43,600 1,891,150
Lam Research Corp. @ 62,300 1,109,719
Novellus Systems, Inc. @ 45,100 2,232,450
PRI Automation, Inc. @ 72,600 1,887,600
SpeedFam International, Inc. @ 64,500 1,104,563
Teradyne, Inc. @ 51,900 2,199,262
Veeco Instruments, Inc. @ 48,200 2,560,625
-----------
14,757,994
-----------
</TABLE>
11
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- -------------------------------------- ---------- -------------
<S> <C> <C>
Generic Drugs -- 0.41%
Schein Pharmaceutical, Inc. @ 61,000 $ 888,313
-----------
Healthcare -- 1.47%
Perclose, Inc. @ 96,500 3,196,563
-----------
Healthcare/Pharmaceutical -- 0.54%
Superior Consultant Holdings Corp. @ 26,800 1,165,800
-----------
Health Industry Services -- 0.69%
Medical Manager Corp. @ 47,900 1,502,863
-----------
Hospital/Nursing Management -- 1.15%
Province Healthcare Co. @ 70,000 2,511,250
-----------
Internet Services -- 4.64%
Excite, Inc. @ 19,500 820,219
InfoSpace.com, Inc. @ 25,300 964,562
Inktomi Corp. @ 13,000 1,681,875
Lycos, Inc. @ 47,100 2,616,994
Network Solutions, Inc. @ 7,800 1,020,825
uBid, Inc. @ 100 10,663
USWeb Corp. @ 70,200 1,851,525
VeriSign, Inc. @ 12,300 727,237
Xoom.com, Inc. @ 12,000 396,000
-----------
10,089,900
-----------
Managed Health Care -- 3.33%
Coventry Health Care, Inc. @ 204,700 1,803,919
Oxford Health Plans, Inc. @ 223,000 3,317,125
Wellpoint Health Networks, Inc. @ 24,300 2,114,100
-----------
7,235,144
-----------
Medical Electronics -- 1.60%
VISX, Inc. @ 39,700 3,471,269
-----------
Medical Specialties -- 4.56%
Anesta Corp. @ 31,500 838,687
Hanger Orthopedic Group, Inc. @ 42,900 965,250
MiniMed, Inc. @ 28,300 2,964,425
ResMed, Inc. @ 64,800 2,940,300
Xomed Surgical Products, Inc. @ 68,850 2,203,200
-----------
9,911,862
-----------
Medical/Nursing Services -- 0.72%
Pediatrix Medical Group, Inc. @ 26,100 1,564,369
-----------
Miscellaneous -- 0.33%
Duane Reade Inc. @ 18,700 719,950
-----------
Pharmaceuticals -- 1.51%
King Pharmaceuticals, Inc. @ 38,600 1,018,075
Sepracor, Inc. @ 25,600 2,256,000
-----------
3,274,075
-----------
Recreational Products/Toys -- 0.87%
THQ, Inc. @ 67,800 1,898,400
-----------
</TABLE>
12
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- ---------------------------------------- ---------- ---------------
<S> <C> <C>
Semiconductor -- 4.00%
Level One Communications, Inc. @ 22,500 $ 798,750
Micrel, Inc. @ 50,900 2,799,500
PMC-Sierra, Inc. @ 36,700 2,316,687
SDL, Inc. @ 29,300 1,161,013
Semtech Corp. @ 45,300 1,625,137
------------
8,701,087
------------
Telecommunications -- 2.03%
Global Crossing Ltd. @ 5,000 225,625
RF Micro Devices, Inc. @ 90,500 4,196,937
------------
4,422,562
------------
Telecommunications Equipment -- 6.47%
Carrier Access Corp. @ 97,500 3,357,656
Comverse Technology, Inc. @ 36,800 2,612,800
Terayon Communication Systems, Inc. @ 123,900 4,584,300
Visual Networks, Inc. @ 94,000 3,525,000
------------
14,079,756
------------
Transportation -- 0.60%
Travel Services International, Inc. @ 43,000 1,311,500
------------
Total Common Stocks
(cost $152,883,377) 215,852,953
------------
Total Investment Securities -- 99.25%
(cost $152,883,377) 215,852,953
Other assets less liabilities -- 0.75% 1,624,090
------------
Net Assets -- 100.00% $217,477,043
============
</TABLE>
@ Non-income producing.
** American Depositary Receipts.
See accompanying notes to financial statements.
13
<PAGE>
[PHOTOGRAPH OF THOMAS OLE DIAL APPEARS HERE]
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
- ---------------------------------------------------------------------------
The Markets
o The fourth quarter ended with equity markets back at historical highs as
well as GDP growth rates near the 4% level. Despite strong growth,
consumer prices rose only 1.6% in 1998, the smallest increase in
approximately 12 years. Consumer confidence, economic growth, low
inflation and interest rate relief from the Federal Reserve helped to keep
the U.S. economy in check. Commodity deflation and cheap imports as well
as the financial crisis around the world, pushed U.S Treasury bond yields
down to levels not seen since the 1960's. During the 1998 calendar year,
yields of 10- and 30-year Treasury bonds dropped steadily. Their yields
ended the fourth quarter at 4.66% and 5.10%, down 109 bps and 83 bps,
respectively, from the beginning of the year.
o Falling economies around the world, especially those throughout Russia,
Asia and Latin America, created liquidity concerns in the corporate bond
market. This liquidity crunch was at its worst point during August, which
proved to be the single-worst month for corporate spread widening this
decade. The high yield market was impacted by the increased volume of
which emerging markets funds sold domestic high yield bonds, hedge funds
experienced margin calls, market timers left the market, and market makers
were unwilling to purchase bonds. Consequently, the corporate bond market
went into a liquidity crisis where investors flocked to the highest
quality bonds. The liquidity crisis was mitigated by the Federal Reserve's
series of rate cuts levied in September and October.
o The Russell 2000 fell 2.5%, compared to a 18.1% rise in the Dow Jones
Industrials and a 28.6% rise in the S&P 500. High yield bond returns for
the year ended December 31, 1998 were 1.87% compared to 8.69% for all
domestic bonds. As economic and financial concerns abated in the fourth
quarter , high yield bonds began rebounding from their lows in October.
However, high yield spreads only tightened roughly 100 basis points to
Treasuries. At the end of the year, high yield spreads still remained
historically wide to Treasuries at 650 basis points. In general, bonds
with lower credit ratings continued to underperform the upper tier of the
high yield market.
o Emerging market bonds fell 11.6% for the year ended December 31, 1998.
However, in the fourth quarter there was a bounce back in emerging markets
as investors searched for opportunities from the third quarter collapse.
The Fund
o For the year ended December 31, 1998, the total return of the Fund's
Class A shares was 5.19%; 4.38% for Class B, 4.53% for Class C, and 4.64%
for Class T; the Lipper average for income funds was 8.06% and for
balanced funds was 13.52%. Due to redemptions, net assets declined 19%,
from $60.2MM to $48.5MM, during the year.
o The Fund's lagging performance during 1998 was related to the Fund
holding more aggressive high yield names, which underperformed during the
year. Additionally, high yield equities also underperformed as companies
with lower tier ratings held down these securities. The Fund's holdings in
Cable, Broadcasting and Telecom helped outperform the averages during the
fourth quarter, as these sectors' fundamentals remained strong.
Current Strategy
o Our current strategy is focused on investing in the securities of strong
small and mid-cap companies that can provide income and capital
appreciation. In order to compensate for increased trading volatility and
credit risk from global economic fallout we continue to purchase more
mid-cap stocks and higher-rated bonds while we implement our target
allocation of 50% common stock and convertible securities and 50% bonds
and cash. We continue to emphasize "bottoms-up" security analysis rather
than macroeconomic analysis in selecting securities. Our analysis remains
focused on reviewing the entire capital structure of companies for
opportunities that provide the best risk-adjusted returns.
- --------------------------------------------------------------------------------
Fund Information (All data are as of 12/31/98)Total Net Assets $48,464,129
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Top 10 Holdings
Name % Fund
<S> <C> <C>
1 Flextronics International Ltd. 4.4%
2 Time Warner, Inc. 3.9
3 CBS Radio, Inc. 3.6
4 Chancellor Media Corp. 3.6
5 Intracel Corp. 3.5
6 Safeway, Inc. 3.1
7 Star Choice Communications,
3.1
Inc.
8 EchoStar Communications Corp. 3.0
9 Paxson Communications Corp. 3.0
10 Unisite, Inc. 3.0
----
34.2%
====
</TABLE>
<TABLE>
<CAPTION>
Top 5 Industries
(by percentage of net assets)
<S> <C>
Broadcasting 14.6%
Telecommunications 11.5%
Cable Television 11.4%
Entertainment/Film 7.8%
Capital Goods
Manufacturing 6.0%
</TABLE>
<TABLE>
<CAPTION>
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
<S> <C> <C> <C>
Inception 5 years 1 year
Class A 12.86% N/A 0.18%
Class B 13.23% N/A (0.36%)
Class C 13.61% N/A 3.58%
Class T 10.34% 11.09% 0.83%
Cumulative Total Return
(do not reflect sales charge)
Inception 5 years 1 year
Class A 61.95% N/A 5.19%
Class B 57.94% N/A 4.38%
Class C 57.92% N/A 4.53%
Class T 256.36% 69.21% 4.64%
</TABLE>
14
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
BALANCE SHEET OPPORTUNITIES FUND AND COMPARATIVE INDICES FROM INCEPTION
OF EACH CLASS OF SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1998, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 12.86% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of
4.75%. Average annualized total returns of 13.23% and 13.61% since inception on
June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on February 3, 1986 for Class T shares of 10.34%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown
represents past performance, and should not be considered indicative of future
performance.
[LINE GRAPHS APPEAR BELOW WITH THE FOLLOWING PLOT POINTS:]
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND - CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 0.18%
SINCE INCEPTION 12.86%
6/95 12/95 12/96 12/97 12/98
Class A 9.472 10.669 11.793 14.660 15.421
S&P 500 10.280 11.761 14.454 18.528 23.469
CPI 10.010 10.111 10.460 10.649 10.826
Lehman Govt./Corp 10.067 10.592 11.022 11.873 12.891
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND - CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (0.36%)
SINCE INCEPTION 13.23%
6/95 12/95 12/96 12/97 12/98
Class B 9.946 11.165 12.255 15.132 15.794
S&P 500 10.280 11.761 14.454 18.528 23.469
CPI 10.010 10.111 10.460 10.649 10.826
Lehman Govt./Corp 10.067 10.592 11.022 11.873 12.891
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND - CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 3.58%
SINCE INCEPTION 13.61%
6/95 12/95 12/96 12/97 12/98
Class C 9.943 11.158 12.242 15.108 15.792
S&P 500 10.280 11.761 14.454 18.528 23.469
CPI 10.010 10.111 10.460 10.649 10.826
Lehman Govt./Corp 10.067 10.592 11.022 11.873 12.891
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND - CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 0.83%
5-YEAR 11.09%
SINCE INCEPTION 10.34%
12/95 12/96 12/97 12/98
Class T 24.948 27.485 34.057 35.638
S&P 500 39.338 48.347 61.976 78.503
CPI 14.012 14.495 14.758 15.004
Lehman Govt./Corp 23.124 24.062 25.921 28.143
15
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- ------------------------------------- ------------- ------------
<S> <C> <C>
Common Stocks -- 49.85%
Aerospace & Defense -- 0.87%
BE Aerospace, Inc. @ 20,000 $ 420,000
----------
Broadcasting -- 3.59%
Chancellor Media Corp. @ 36,364 1,740,926
----------
Cable Television -- 5.17%
EchoStar Communications Corp. @ 30,000 1,451,250
Tele-Communications, Inc. @ 19,086 1,055,694
----------
2,506,944
----------
Capital Goods Manufacturing -- 5.98%
Bell & Howell Co. @ 20,000 756,250
Flextronics International Ltd. @ 25,000 2,140,625
----------
2,896,875
----------
Chemicals -- 0.01%
PharMerica, Inc. @ 445 2,670
----------
Consumer Staples -- 2.52%
Comcast Corp. 20,816 1,221,639
----------
Energy -- 3.83%
CalEnergy Co., Inc. @ 30,000 1,040,625
Calpine Corp. @ 25,000 631,250
Global Marine, Inc. 20,000 183,750
----------
1,855,625
----------
Entertainment/Film -- 7.77%
News Corp. Ltd. ** 30,000 793,125
Time Warner, Inc. 30,000 1,861,875
Viacom, Inc. @ 15,000 1,110,000
----------
3,765,000
----------
Food & Beverage -- 1.79%
Canandaigua Brands, Inc. @ 15,000 867,188
----------
Healthcare -- 4.45%
HEALTHSOUTH Corp. @ 30,000 463,125
Intracel Corp. @ ++ 111,111 1,694,443
----------
2,157,568
----------
Leisure -- 0.40%
Silverleaf Resorts, Inc. @ 21,000 195,563
----------
Oil & Gas -- 0.91%
Parker Drilling Co. 30,000 95,625
Vintage Petroleum, Inc. 40,000 345,000
----------
440,625
----------
Services -- 2.63%
Allied Waste Industries, Inc. @ 50,000 1,181,250
Coinstar, Inc. @ 8,750 94,063
----------
1,275,313
----------
Steel -- 1.45%
AK Steel Holding Corp. 30,000 705,000
----------
Supermarkets -- 3.14%
Safeway, Inc. @ 25,000 1,523,437
----------
</TABLE>
16
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- --------------------------------------------------- ------------------------- -------------
<S> <C> <C>
Telecommunications -- 3.83%
Intermedia Communications, Inc. @ 3,028 $ 52,233
Jacor Communications, Inc. @ 20,000 1,287,500
Telecom-TCI Ventures Group @ 21,828 514,322
-----------
1,854,055
-----------
Transportation -- 1.51%
Westinghouse Air Brake Co. 30,000 733,125
-----------
Total Common Stocks
(cost $13,420,487) 24,161,553
-----------
Preferred Stocks -- 4.53%
Broadcasting -- 3.01%
Paxson Communications Corp., 12.50% & 16,044 1,460,004
-----------
Cable Television -- 0.72%
21st Century Telecom Group, Inc., 13.75 & 5,350 350,425
-----------
Oil & Gas -- 0.05%
TCR Holding Corp., $.053 ++ 14,500 769
TCR Holding Corp., $.056 ++ 5,500 308
TCR Holding Corp., $.060 ++ 10,000 600
TCR Holding Corp., $.063 ++ 30,000 1,890
TransContinental Refining Corp., $.0683 ++ 20,000 18,660
-----------
22,227
-----------
Telecommunications -- 0.75%
Telecomunicacoes Brasileiras SA, @ ** 5,000 363,437
-----------
Total Preferred Stocks
(cost $2,647,519) 2,196,093
-----------
Convertible Preferred Stocks -- 5.68%
Broadcasting -- 2.91%
Unisite, Inc., 8.50% ++ 21,600 1,411,257
-----------
Telecommunications -- 2.77%
Intermedia Communication, Inc., 7.00%, Series E # 10,000 268,750
Intermedia Communication, Inc., 7.00%, Series D # 40,000 1,075,000
-----------
1,343,750
-----------
Total Convertible Preferred Stocks
(cost $2,250,354) 2,755,007
-----------
Domestic Corporate Bonds -- 23.69%
Broadcasting -- 5.15%
CBS Radio, Inc. #
7.00%, Subordinated Debentures, 6/30/11 $1,000,000 1,726,250
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes, 7/15/07 750,000 766,875
-----------
2,493,125
-----------
Cable Television -- 2.07%
EchoStar Communications Corp. $
0/13.125%, Sr. Discount Notes, 3/15/04 1,000,000 1,002,500
-----------
Computer/Electronics -- 0.75%
Electronic Retailing Systems International, Inc. $
0/13.25%, Sr. Discount Notes, 2/01/04 1,000,000 365,000
-----------
Consumer Products -- 2.12%
Packaged Ice, Inc.
9.75%, Sr. Notes, 2/01/05 1,000,000 1,025,000
-----------
</TABLE>
17
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------ ------------------ -------------
<S> <C> <C>
Healthcare -- 1.41%
Mediq, Inc.
13.00%, Sr. Discount Debentures, 6/01/09 $1,500,000 $ 682,500
-----------
Hotel & Gaming -- 1.22%
Aladdin Gaming Holdings Corp. $
0/13.50%, Sr. Discount Notes, 3/01/10 2,000,000 590,000
-----------
Oil & Gas -- 2.04%
Forman Petroleum Corp.
13.50%, Sr. Secured Notes, 6/01/04 1,000,000 505,000
TransAmerican Refining Corp. # &
15.00%, Sr. Notes, 12/01/03 500,000 485,275
-----------
990,275
-----------
Services -- 2.21%
Coinstar, Inc. $
0/13.00%, Sr. Discount Notes, 10/01/06 750,000 575,625
ICF Kaiser International, Inc.
13.00%, Sr. Notes, 12/31/03 500,000 497,500
-----------
1,073,125
-----------
Specialty Retailing -- 1.07%
Pamida, Inc.
11.75%, Sr. Subordinated Notes, 3/15/03 550,000 519,750
-----------
Telecommunications -- 3.91%
Iridium LLC Capital Corp.
13.00%, Sr. Secured Notes, 7/15/05 1,500,000 1,380,000
Winstar Equipment II Corp.
12.50%, Sr. Secured Notes, 3/15/04 500,000 512,500
-----------
1,892,500
-----------
Textile/Apparel -- 1.74%
Norton McNaughton, Inc.
12.50%, Sr. Notes, 6/01/05 1,000,000 845,000
-----------
Total Domestic Corporate Bonds
(cost $12,687,020) 11,478,775
-----------
Foreign Corporate Bonds -- 12.11%
Aerospace & Defense -- 1.66%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 1,000,000 805,000
-----------
Cable Television -- 3.13%
Star Choice Communications, Inc.
13.00%, Sr. Secured Notes, 12/15/05 1,500,000 1,515,000
-----------
Food/Beverage/Tobacco -- 0.90%
Fage Dairy Industries SA
9.00%, Sr. Notes, 2/01/07 500,000 437,500
-----------
Oil & Gas -- 1.70%
Conproca SA #
12.00%, Secured Notes, 6/16/10 500,000 467,500
Hurricane Hydrocarbons #
11.75%, Sr. Notes, 11/01/04 750,000 356,250
-----------
823,750
-----------
</TABLE>
18
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount/Units/Shares Value
- --------------------------------------------------------------------- ------------------------------- -------------
<S> <C> <C>
Services -- 0.74%
Guangzhou Shenzhen Superhighway Holdings
10.25%, Sr. Notes, 8/15/07 $ 750,000 $ 360,000
-----------
Shipping -- 3.04%
Equimar Shipholdings Ltd.
9.875%, Subordinated Notes, 7/01/07 1,000,000 795,000
Navigator Gas Transport PLC # (1)
12.00%, Units, 6/30/07 750 678,750
-----------
1,473,750
-----------
Utilities -- 0.94%
Panda Global Energy Co.
12.50%, Sr. Secured Notes, 4/15/04 1,000,000 455,000
-----------
Total Foreign Corporate Bonds
(cost $7,629,004) 5,870,000
-----------
Convertible Bonds -- 2.21%
Food/Beverage/Tobacco -- 2.21%
International Fast Food Corp. &
11.00%, Subordinated Notes, 10/31/07 1,500,000 1,068,750
-----------
Telecommunications -- 0.00%
SA Telecommunications, Inc. # *
10.00%, Notes, 8/15/06 2,000,000 0
-----------
Total Convertible Bonds
(cost $3,232,885) 1,068,750
-----------
Warrants -- 0.62% @
Cable Television -- 0.31%
21st Century Telecom Group, Inc. #, (expires 2/15/10) 5,000 151,250
Star Choice Communications, Inc. @@, (expires 12/15/05) 34,740 0
-----------
151,250
-----------
Computer/Electronics -- 0.01%
Electronic Retailing Systems International, Inc., (expires 2/01/04) 1,000 5,000
-----------
Consumer Products -- 0.11%
Packaged Ice, Inc. #, (expires 4/15/04) 500 50,000
-----------
Healthcare -- 0.00%
Mediq, Inc. #, (expires 6/01/09) 1,500 15
-----------
Hotel & Gaming -- 0.00%
Aladdin Gaming Enterprises, Inc. #, (expires 3/01/10) 20,000 200
-----------
Oil & Gas -- 0.00%
Forman Petroleum Corp. #, (expires 6/01/04) 1,000 1
-----------
Services -- 0.00%
ICF Kaiser International, Inc., (expires 12/31/99) 3,500 35
-----------
Telecommunications -- 0.19%
Globalstar Telecommunications Ltd. #, (expires 2/15/04) 500 30,125
Iridium World Communications, Inc. #, (expires 7/15/05) 500 62,500
UNIFI Communications, Inc. #, (expires 5/01/07) 1,000 10
-----------
92,635
-----------
Total Warrants
(cost $50,517) 299,136
-----------
Total Investment Securities -- 98.69%
(cost $41,917,786) 47,829,314
</TABLE>
19
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------------------------- ----------------------- --------------
<S> <C> <C>
Repurchase Agreement -- 0.81%
Agreement with State Street Bank and Trust bearing interest at
4.70% dated 12/31/98, to be repurchased 1/04/99 in the amount of
$394,206 and collateralized by $380,000 U.S. Treasury Notes,
7.750% due 1/31/00, value $404,609
(cost $394,000) $394,000 $ 394,000
Other assets less liabilities -- 0.50% 240,815
-----------
Net Assets -- 100.00% $48,464,129
===========
</TABLE>
@ Non-income producing.
& Payment-in-kind security.
** American Depositary Receipts.
++ Private placement.
# Sale restricted to qualify institutional investors.
$ Step Bond.
* Defaulted Security.
@@ Foreign security.
(1) A unit consists of $1,000 par value Mortgage Notes, 12.00% due 6/30/07
and 7.66 warrants.
See accompanying notes to financial statements.
20
<PAGE>
[PHOTOGRAPH OF JEFFREY AURIGEMMA APPEARS HERE]
NORTHSTAR HIGH YIELD FUND
- --------------------------------------------------------------------------------
JEFFREY AURIGEMMA
The Markets
o The fourth quarter ended with equity markets back at historical highs as
well as GDP growth rates near the 4% level. Despite strong growth,
consumer prices rose only 1.6% in 1998, the smallest increase in
approximately 12 years. Consumer confidence, economic growth, low
inflation and interest rate relief from the Federal Reserve helped to keep
the U.S. economy in check. Commodity deflation and cheap imports as well
as the financial crisis around the world, pushed U.S Treasury bond yields
down to levels not seen since the 1960's. During the 1998 calendar year,
yields of 10- and 30-year Treasury bonds dropped steadily. Their yields
ended the fourth quarter at 4.66% and 5.10%, down 109 bps and 83 bps,
respectively, from the beginning of the year.
o Falling economies around the world, especially those throughout Russia,
Asia and Latin America, created liquidity concerns in the corporate bond
market. This liquidity crunch was at its worst point during August, which
proved to be the single-worst month for corporate spread widening this
decade. The high yield market was impacted by the increased volume of
which emerging markets funds sold domestic high yield bonds, hedge funds
experienced margin calls, market timers left the market, and market makers
were unwilling to purchase bonds. Consequently, the corporate bond market
went into a liquidity crisis where investors flocked to the highest
quality bonds. The liquidity crisis was mitigated by the Federal Reserve's
series of rate cuts levied in September and October.
o High yield bonds returns for the year ended December 31, 1998 were 1.87%
compared to 8.69% for all domestic bonds. As economic and financial
concerns abated in the fourth quarter, high yield bonds began rebounding
from their lows in October. However, high yield spreads only tightened
roughly 100 basis points to Treasuries. At the end of the year, high yield
spreads still remained historically wide to Treasuries at 650 basis
points. In general, bonds with lower credit ratings continued to
underperform the upper tier of the high yield market.
o Emerging market bonds fell 11.6% for the year ended December 31, 1998.
However, in the fourth quarter there was a bounce back in emerging markets
as investors searched for opportunities from the third quarter collapse.
The Fund
o For year ended December 31, 1998, the total return of the Fund's Class A
shares was 2.25%, 1.28% for Class B, 1.39% for Class C, and 1.79% for
Class T; the Lipper average for high yield funds was (0.44)%. The
Strategic Income Fund was merged into the Fund on November 20, 1998. Based
upon the total net assets of the Fund on December 31, 1998, the Fund's
assets remained relatively unchanged from the beginning of the year.
o Since the Fund invests primarily in higher-rated bonds, it experienced
much of the rally seen in the upper tier of high yield and outperformed
the Lipper average.
o The Fund was adversely impacted during the year by holdings in both the
Shipping and the Oil and Gas sector. We believe these credits at their
current levels represent undervalued situations. Combined, these
industries represent roughly 7.7% of the Fund.
Current Strategy
o We will continue to manage the Fund as a low-risk, conservative
"all-weather" high yield fund that owns high quality high yield bonds. The
Fund seeks to outperform when the high-yield market is declining or
volatile, while remaining competitive when the market is on the rise or
stable.
o Going forward, the Fund will continue with its conservative positioning
in order to provide continued stability to the NAV of the Fund. The Fund
will focus on upper tier credits while avoiding non-rated, zeros and
equity-like securities.
- --------------------------------------------------------------------------------
Fund Information (All data are as of 12/31/98)Total Net Assets $283,521,068
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Top 10 Holdings
Name % Fund
<S> <C> <C>
o 1 Americo Life, Inc. 2.0%
o 2 Packaged Ice, Inc. 1.8
o 3 Fage Dairy Industries SA 1.7
o 4 Protection One Alarm Montana, Inc. 1.7
o 5 Tenet Healthcare Corp. 1.7
o 6 Allied Waste Industries, Inc. 1.6
o 7 Intracel Corp. 1.6
o 8 JCAC, Inc. 1.6
o 9 Standard Commercial Corp. 1.6
o 10 Hydrochem Industrial Services, Inc. 1.5
----
16.8%
====
</TABLE>
<TABLE>
<CAPTION>
Top 5 Industries
(by percentage of net assets)
<S> <C>
Telecommunications 11.3%
Broadcasting 7.6%
Food/Beverage/
Tobacco 6.8%
Publishing/Printing 6.8%
Oil & Gas 6.4%
</TABLE>
<TABLE>
<CAPTION>
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
<S> <C> <C> <C>
Inception 5 years 1 year
Class A 7.47% N/A (2.65%)
Class B 7.67% N/A (3.37%)
Class C 8.15% N/A 0.46%
Class T 9.97% 7.52% (1.94%)
Cumulative Total Return
(do not reflect sales charge)
Inception 5 years 1 year
Class A 35.79% N/A 2.25%
Class B 32.23% N/A 1.28%
Class C 32.36% N/A 1.39%
Class T 148.74% 43.72% 1.79%
</TABLE>
21
<PAGE>
NORTHSTAR HIGH YIELD FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
HIGH YIELD FUND AND COMPARATIVE INDICES FROM INCEPTION OF EACH CLASS OF
SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1998, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 7.47% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of
4.75%. Average annualized total returns of 7.67% and 8.15% since inception on
June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on May 30, 1989 for Class T shares of 9.97% reflect applicable
contingent deferred sales charges (maximum contingent deferred sales charge for
Class B shares of 5.00% declines to 0% and Class T shares of 4.00% declines to
0% after five years; and maximum charge for Class C shares is 1.00% during the
first year of investment only). All performance data shown represents past
performance, and should not be considered indicative of future performance.
[LINE GRAPHS APPEAR BELOW WITH THE FOLLOWING PLOT POINTS:]
NORTHSTAR HIGH YIELD FUND - CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (2.65)%
SINCE INCEPTION 7.47%
6/95 12/95 12/96 12/97 12/98
Class A
Lehman HY Bond PLEASE SUPPLY PLOT POINTS
CPI
NORTHSTAR HIGH YIELD FUND - CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (3.37%)
SINCE INCEPTION 7.67%
6/95 12/95 12/96 12/97 12/98
Class B
Lehman HY Bond PLEASE SUPPLY PLOT POINTS
CPI
NORTHSTAR HIGH YIELD FUND - CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 0.46%
SINCE INCEPTION 8.15%
6/95 12/95 12/96 12/97 12/98
Class C
Lehman HT Bond PLEASE SUPPLY PLOT POINTS
CPI
NORTHSTAR HIGH YIELD FUND - CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (1.94)%
5-YEAR 7.52%
SINCE INCEPTION 9.97%
6/89 12/89 12/92 12/95 12/98
Class T
Lehman HY Bond PLEASE SUPPLY PLOT POINTS
CPI
22
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------ --------------------- -------------
<S> <C> <C>
Domestic Bonds & Notes -- 76.83%
Aerospace & Defense -- 3.04%
Aviation Sales Co.
8.125%, Sr. Subordinated Notes, 2/15/08 $2,000,000 $ 1,990,000
BE Aerospace, Inc.
8.00%, Sr. Subordinated Notes, 3/01/08 2,000,000 1,970,000
Compass Aerospace Corp. #
10.125%, Sr. Subordinated Notes, 4/15/05 2,500,000 2,437,500
L 3 Communications Corp.
10.375%, Sr. Subordinated Notes, 5/01/07 2,000,000 2,210,000
-----------
8,607,500
-----------
Airlines -- 1.29%
Atlantic Coast Airlines, Inc. #
7.97%, Pass-Thru Certificates, 1/01/00 440,063 437,924
Atlantic Coast Airlines, Inc. #
8.75%, Pass-Thru Certificates, 1/01/07 3,279,326 3,228,136
-----------
3,666,060
-----------
Auto Parts & Equipment -- 1.17%
Titan Wheel International, Inc.
8.75%, Sr. Subordinated Notes, 4/01/07 3,400,000 3,315,000
-----------
Broadcasting -- 6.60%
American Radio Systems Corp.
9.00%, Company Guarantee, 2/01/06 1,500,000 1,631,250
Capstar Broadcasting Partners, Inc.
9.25%, Sr. Subordinated Notes, 7/01/07 2,900,000 3,030,500
Chancellor Media Corp.
8.125%, Sr. Subordinated Notes, 12/15/07 1,000,000 997,500
JCAC, Inc.
10.125%, Sr. Subordinated Notes, 6/15/06 4,000,000 4,440,000
SFX Broadcasting, Inc.
10.75%, Sr. Subordinated Notes, 5/15/06 2,631,000 2,907,255
Sinclair Broadcast Group, Inc.
8.75%, Sr. Subordinated Notes, 12/15/07 2,800,000 2,849,000
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes, 7/15/07 1,500,000 1,533,750
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Subordinated Notes, 9/30/05 1,250,000 1,318,750
-----------
18,708,005
-----------
Building Materials -- 0.45%
Nortek, Inc. #
8.875%, Sr. Notes, 8/01/08 1,250,000 1,290,625
-----------
Cable Television -- 3.44%
Century Communications Corp.
0%, Sr. Discount Notes, 1/15/08 4,000,000 2,080,000
EchoStar Communications Corp. $
0/12.875%, Sr. Discount Notes, 6/01/04 3,500,000 3,596,250
EchoStar Communications Corp. $
0/13.125%, Sr. Discount Notes, 3/15/04 1,500,000 1,503,750
Medicom LLC
8.50%, Sr. Notes, 4/15/08 2,500,000 2,568,750
-----------
9,748,750
-----------
</TABLE>
23
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------- --------------------- -------------
<S> <C> <C>
Capital Goods Manufacturing -- 2.03%
Indesco International, Inc.
9.75%, Sr. Subordinated Notes, 4/15/08 $3,000,000 $ 2,805,000
Moll Industries, Inc. #
10.50%, Sr. Subordinated Notes, 7/01/08 3,000,000 2,940,000
-----------
5,745,000
-----------
Chemicals -- 2.62%
American Pacific Corp.
9.25%, Sr. Notes, 3/01/05 3,000,000 3,090,000
Hydrochem Industrial Services, Inc.
10.375%, Sr. Secured Notes, 8/01/07 4,500,000 4,342,500
-----------
7,432,500
-----------
Consumer Products -- 2.25%
Packaged Ice, Inc.
9.75%, Sr. Notes, 2/01/05 4,900,000 5,022,500
Shop-Vac Corp.
10.625%, Sr. Secured Notes, 9/01/03 1,250,000 1,368,750
-----------
6,391,250
-----------
Diversified Financial Services -- 0.32%
Natwest Asset Trust Securities ++
9.585%, Asset Trust, 1/31/03 1,000,000 895,625
-----------
Energy -- 4.87%
Abraxas Petroleum Corp.
11.50%, Sr. Notes, 11/01/04 2,000,000 1,530,000
AES Corp.
8.50%, Sr. Subordinated Notes, 11/01/07 750,000 761,250
AES Corp.
10.25%, Sr. Subordinated Notes, 7/15/06 4,000,000 4,330,000
CalEnergy Co., Inc.
9.50%, Sr. Notes, 9/15/06 1,000,000 1,115,000
CalEnergy Co., Inc.
10.25%, Discount Notes, 1/15/04 2,650,000 2,798,930
California Energy, Inc.
9.875%, Sr. Notes, 6/30/03 1,000,000 1,087,500
Calpine Corp.
10.50%, Sr. Notes, 5/15/06 2,000,000 2,200,000
-----------
13,822,680
-----------
Food/Beverage/Tobacco -- 5.08%
Ameriserve Food Distribution, Inc.
8.875%, Sr. Notes, 10/15/06 2,750,000 2,557,500
Eagle Family Foods, Inc.
8.75%, Company Gurantee, 1/15/08 1,250,000 1,184,375
North Atlantic Trading, Inc.
11.00%, Sr. Notes, 6/15/04 3,000,000 3,030,000
Richmont Marketing Specialists, Inc. #
10.125%, Sr. Subordinated Notes, 12/15/07 4,250,000 3,208,750
Standard Commercial Corp.
8.875%, Company Guarantee, 8/01/05 4,500,000 4,432,500
-----------
14,413,125
-----------
</TABLE>
24
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------ --------------------- -------------
<S> <C> <C>
Healthcare -- 5.83%
Fisher Scientific International, Inc.
9.00%, Sr. Subordinated Notes, 2/01/08 $2,400,000 $ 2,400,000
Health Insurance Plan of Greater New York
11.25%, Notes, 7/01/10 3,000,000 3,150,000
Intracel Corp. ++
12.00%, Notes, 8/25/03 5,121,951 4,622,561
Intracel Corp. ++
12.00%, Escrow Notes, 8/25/03 878,049 792,439
Tenet Healthcare Corp. #
8.125%, Sr. Subordinated Notes, 12/01/08 4,500,000 4,668,750
Universal Hospital Services, Inc.
10.25%, Sr. Notes, 3/01/08 1,000,000 895,000
-----------
16,528,750
-----------
Homebuilders/Home Construction -- 0.53%
Engle Homes, Inc.
9.25%, Sr. Notes, 2/01/08 1,500,000 1,507,500
-----------
Hotel & Gaming -- 5.14%
Circus Circus Enterprises, Inc.
9.25%, Sr. Subordinated Notes, 12/01/05 1,750,000 1,815,188
Courtyard By Marriott Ltd.
10.75%, Sr. Secured Notes, 2/01/08 2,000,000 2,070,000
Hard Rock Hotel, Inc.
9.25%, Sr. Subordinated Notes, 4/01/05 3,500,000 3,517,500
Harrahs Operating, Inc.
7.875%, Sr. Subordinated Notes, 12/15/05 3,250,000 3,258,125
HMH Properties, Inc.
7.875%, Sr. Secured Notes, 8/01/08 4,000,000 3,900,000
-----------
14,560,813
-----------
Insurance -- 2.99%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 5,550,000 5,716,500
Superior National Insurance Group, Inc.
10.75%, Company Guarantee, 12/01/17 27,500 2,750,000
-----------
8,466,500
-----------
Metals & Mining -- 1.24%
Great Central Mines Ltd.
8.875%, Sr. Notes, 4/01/08 3,500,000 3,508,750
-----------
Oil & Gas -- 3.44%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 2,900,000 1,899,500
Forcenergy, Inc.
9.50%, Sr. Subordinated Notes, 11/01/06 3,000,000 2,325,000
HS Resources, Inc.
9.875%, Sr. Subordinated Notes, 12/01/03 1,550,000 1,542,250
Lomak Petroleum, Inc.
8.75%, Sr. Subordinated Notes, 1/15/07 800,000 740,000
Windsor Petroleum Transport Corp. #
7.84%, Notes, 1/15/21 4,500,000 3,240,000
-----------
9,746,750
-----------
</TABLE>
25
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------ --------------------- -------------
<S> <C> <C>
Paper -- 1.97%
Buckeye Cellulose Corp.
8.50%, Sr. Subordinated Notes, 12/15/05 $2,725,000 $ 2,847,625
SD Warren Co.
12.00%, Sr. Subordinated Notes, 12/15/04 2,500,000 2,737,500
-----------
5,585,125
-----------
Publishing/Printing -- 3.32%
Hollinger International Publishing, Inc.
9.25%, Sr. Subordinated Notes, 3/15/07 3,000,000 3,180,000
Liberty Group Operating, Inc.
9.375%, Sr. Subordinated Notes, 2/01/08 3,000,000 2,955,000
Mail-Well Corp. #
8.75%, Sr. Subordinated Notes, 12/15/08 3,250,000 3,266,250
-----------
9,401,250
-----------
Restaurants -- 1.22%
Romacorp, Inc. #
12.00%, Sr. Notes, 7/01/06 3,500,000 3,473,750
-----------
Services -- 5.68%
Allied Waste Industries, Inc. #
7.875%, Sr. Notes, 1/01/09 4,500,000 4,567,500
National Equipment Services, Inc. #
10.00%, Sr. Subordinated Notes, 11/30/04 2,875,000 2,860,625
Nebraska Book Company, Inc.
8.75%, Sr. Subordinated Notes, 2/15/08 2,000,000 1,915,000
Pierce Leahy Command Co.
8.125%, Sr. Notes, 5/15/08 2,000,000 2,010,000
Protection One Alarm Montana, Inc. #
8.125%, Sr. Subordinated Notes, 1/15/09 4,750,000 4,761,067
-----------
16,114,192
-----------
Shipping -- 0.50%
Simcala, Inc.
9.625%, Sr. Notes, 4/15/06 2,000,000 1,420,000
-----------
Steel -- 0.11%
Geneva Steel Co.
9.50%, Sr. Notes, 1/15/04 2,000,000 310,000
-----------
Telecommunications -- 9.46%
Intermedia Communications, Inc.
8.60%, Sr. Notes, 6/01/08 3,000,000 2,865,000
IXC Communications, Inc.
9.00%, Sr. Subordinated Notes, 4/15/08 3,000,000 3,018,750
Level 3 Communications, Inc.
9.125%, Sr. Notes, 5/01/08 3,500,000 3,491,250
Metromedia Fiber Network, Inc. #
10.00%, Sr. Notes, 11/15/08 2,000,000 2,065,000
NEXTLINK Communications, Inc.
9.00%, Sr. Notes, 3/15/08 1,500,000 1,398,750
NEXTLINK Communications, Inc. $
0/9.45%, Sr. Discount Notes, 4/15/08 3,500,000 2,030,000
Qwest Communications International, Inc.
8.29%, Sr. Discount Notes, 2/01/08 3,500,000 2,660,000
</TABLE>
26
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------- --------------------- --------------
<S> <C> <C>
Telecommunications -- continued
RCN Corp.
10.00%, Sr. Notes, 10/15/07 $3,500,000 $ 3,281,250
RCN Corp. $
0/9.80%, Sr. Notes, 2/15/08 2,000,000 1,060,000
Viatel, Inc.
11.25%, Sr. Notes, 4/15/08 3,300,000 3,316,500
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04 1,600,000 1,640,000
------------
26,826,500
------------
Textile/Apparel -- 0.42%
Fruit of the Loom, Inc.
6.50%, Notes, 11/15/03 1,250,000 1,187,700
------------
Transportation -- 1.82%
Sea Containers Ltd.
7.875%, Sr. Notes, 2/15/08 2,100,000 2,058,000
Westinghouse Air Brake Co.
9.375%, Sr. Notes, 6/15/05 3,000,000 3,090,000
------------
5,148,000
------------
Total Domestic Bonds & Notes
(cost $225,231,606) 217,821,700
------------
Foreign Bonds & Notes -- 13.64%
Aerospace & Defense -- 0.85%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 3,000,000 2,415,000
------------
Broadcasting -- 0.97%
Antenna TV SA
9.00%, Sr. Notes, 8/01/07 3,000,000 2,745,000
------------
Cable Television -- 1.14%
Rogers Cablesystems Ltd.
9.625%, Notes, 8/01/02 3,000,000 3,240,000
------------
Diversified Financial Services -- 0.13%
Westways Funding II Ltd. #
22.125%, Mortgage Backed Notes, 1/29/03 500,000 350,313
------------
Food/Beverage/Tobacco -- 1.71%
Fage Dairy Industries SA
9.00%, Sr. Notes, 2/01/07 5,550,000 4,856,250
------------
Oil & Gas -- 2.94%
Conproca SA #
12.00%, Secured Notes, 6/16/10 3,000,000 2,805,000
Husky Oil Ltd. #
8.90%, Notes, 8/15/28 (1) 4,000,000 3,960,000
Northern Offshore ASA #
10.00%, Company Guarantee, 5/15/05 3,000,000 1,575,000
------------
8,340,000
------------
Publishing/Printing -- 0.94%
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 2,400,000 2,652,000
------------
</TABLE>
27
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount/Shares Value
- ----------------------------------------------- ------------------------- -------------
<S> <C> <C>
Services -- 1.13%
Autopistas Del Sol SA #
10.25%, Sr. Notes, 8/01/09 $3,000,000 $2,257,500
Guangzhou Shenzhen Superhighway Holdings
10.25%, Sr. Notes, 8/15/07 1,950,000 936,000
----------
3,193,500
----------
Shipping -- 1.31%
Alpha Shipping PLC
9.50%, Sr. Notes, 2/15/08 2,500,000 737,500
Equimar Shipholdings Ltd.
9.875%, Subordinated Notes, 7/01/07 3,750,000 2,981,250
----------
3,718,750
----------
Telecommunication -- 1.74%
Colt Telecom Group PLC $
0/12.00%, Sr. Discount Notes, 12/15/06 500,000 417,500
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 2,100,000 1,685,250
Rogers Cantel, Inc.
8.80%, Sr. Subordinated Notes, 10/01/07 2,800,000 2,838,500
----------
4,941,250
----------
Transportation -- 0.78%
Sea Containers Ltd.
12.50%, Sr. Subordinated Debentures, 12/01/04 2,000,000 2,210,000
----------
Total Foreign Bonds & Notes
(cost $44,922,206) 38,662,063
----------
Preferred Stocks -- 0.92%
Publishing/Printing -- 0.35%
Primedia, Inc., 9.20% 10,000 985,000
----------
Supermarkets -- 0.49%
Nebco Evans Holding Co., 11.25% & 27,547 1,391,136
----------
Telecommunications -- 0.08%
Viatel, Inc., 10.00% & 2,183 241,227
----------
Total Preferred Stocks
(cost $3,646,165) 2,617,363
----------
Rights -- 0.04%
Capital Goods Manufacturing -- 0.04%
Terex Corp., (expires 2000) 8,000 116,000
----------
Foreign Government Securities -- 0.00%
United Mexican States 1,500,000 0
----------
Total Rights
(cost $0) 116,000
----------
Warrants -- 0.44% @
Consumer Products -- 0.04%
Chattem, Inc., (expires 6/17/99) 500 112,950
----------
Healthcare -- 0.33%
Intracel Corp. ++, (expires 8/25/03) 47,722 0
Intracel Corp. ++, (expires 8/25/03) 49,066 159,465
Intracel Corp. ++, (expires 8/25/03) 237,805 772,866
----------
932,331
----------
</TABLE>
28
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- --------------------------------------------------------------------------- ------------------------- ----------------
<S> <C> <C>
Supermarkets -- 0.00%
Dairy Mart Convenience Stores, Inc., (expires 12/01/01) 4,999 $ 2,639
-------------
Telecommunications -- 0.07%
Colt Telecom Group PLC #, (expires 12/31/06) 500 213,700
Occidente Y Caribe Celular SA # @@, (expires 3/15/04) 9,400 0
UNIFI Communications, Inc. #, (expires 5/01/07) 1,000 10
-------------
213,710
Total Warrants
(cost $809,321) 1,261,630
-------------
Asset Backed Securities -- 0.69%
Cityscape Home Loan Owner Trust, Asset Backed, 8.17%, due 7/25/18 $ 800,000 808,272
Mego Mortgage Home Loan Trust, Mortgaged Backed, 8.01%, due 8/25/23 1,200,000 1,155,612
-------------
Total Asset Backed Securities
(cost $1,930,375) 1,963,884
-------------
U.S. Government and Agencies -- 0.41%
Federal Home Loan Mortgage Corp., 7.00%, due 1/30/13 100,000 100,158
U.S. Treasury Strips, 0%, due 2/15/23 4,000,000 1,064,360
-------------
Total U.S. Government and Agencies
(cost $1,038,954) 1,164,518
-------------
Total Investment Securities -- 92.97%
(cost $277,578,627) 263,607,158
-------------
Repurchase Agreement -- 5.10%
Agreement with State Street Bank and Trust bearing interest at 4.70% dated
12/31/98, to be repurchased 1/04/99 in the amount of $14,460,548 and
collateralized by $14,280,000 U.S. Treasury Notes, 6.00% due 8/15/99,
value $14,744,100
(cost $14,453,000) 14,453,000 14,453,000
Other assets less liabilities -- 1.93% 5,460,910
-------------
Net Assets -- 100.00% $ 283,521,068
=============
</TABLE>
# Sale restricted to qualified institutional investors.
$ Step Bond.
++ Private placement.
& Payment-in-kind security.
@ Non-income producing.
(1) Variable rate security. Rate as of December 31, 1998.
See accompanying notes to financial statements.
29
<PAGE>
[PHOTOGRAPH OF JAMES L. MAHNKE APPEARS HERE]
NORTHSTAR GOVERNMENT SECURITIES FUND
- ---------------------------------------------------------------------------
The Markets
o Economic Perspective: We expect the U.S. economy to slow over the next
three quarters to approximately a growth rate of 1.5 -- 2.5%. This slower
growth should help offset the tight labor market and keep inflation low.
Whether, the Fed lowers Fed Funds another 25 to 50 b.p. depends on the
lagged impact of the global financial crisis on the U.S. economy.
o Market Perspective: If the emerging market, Asian and Russian economies
continue to worsen, the "flight-to-quality" rally in bonds will continue
with the 30-year yield heading towards 4.50%. The surprise would be a
complete reversal of the "flight-to-quality" rally as new economic
policies and IMF support begin to stabilize global markets. We believe
that market stabilization will not begin until late in 1999.
The Fund
o For the year ended December 31, 1998 the total return of the Fund's Class
A shares was 5.27%, 4.49% for Class B, 4.35% for Class C, and 4.84% for
Class T. The goal of the Fund continues to be high current income and
conservation of principal.
o The Fund continues to hold mortgage-backed securities, with about 58% of
the Fund invested in GNMA, FMNA, and FHLMC collateral. The Fund's
remaining assets are invested in support bonds of U.S. agency CMO's and
U.S. Treasury options. Given current prepayment speeds, the average life
of the portfolio is around 4 to 5 years.
Current Strategy
o Given the potential of volatility and a continued "flight-to-quality"
from the unstable international economies, we have increased the Fund's
convexity and exposure to 5-year U.S. Treasury securities.
o Yet, we continue to overweight the mortgage sector to build a yield
advantage versus U.S. Treasury security yields.
o The combination of convexity and yield advantages should provide
competitive performance and high current income for our investors.
- --------------------------------------------------------------------------------
Fund Information (All data are as of 12/31/98)Total Net Assets $110,798,154
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Top 10 Holdings
Name % Fund
<S> <C> <C>
1 GNMA 7.00%, due 10/20/28 14.9%
2 GNMA 7.00%, due 9/20/28 9.0
3 Federal Home Loan Mortgage 7.0
6.50%, due 12/20/22
4 Federal Home Loan Mortgage 5.5
6.50%, due 9/15/24
5 GNMA 9.00%, due 12/16/26 5.5
6 Fannie Mae 6.00%, due 5/01/13 5.2
7 Fannie Mae 9.00%, due 6/01/07 5.2
8 Fannie Mae 5.50%, due 7/01/11 4.9
9 Fannie Mae 8.50%, due 1/01/09 4.7
10 Fannie Mae 7.00%, due 8/18/25 4.7
-----
66.6%
=====
</TABLE>
<TABLE>
<CAPTION>
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
<S> <C> <C> <C>
Inception 5 years 1 year
Class A 5.11% N/A 0.22%
Class B 5.36% N/A (0.44%)
Class C 5.78% N/A 3.37%
Class T 7.06% 4.59 0.90%
Cumulative Total Return
(do not reflect sales charge)
Inception 5 years 1 year
Class A 25.46% N/A 5.27%
Class B 22.52% N/A 4.49%
Class C 22.30% N/A 4.35%
Class T 141.19% 25.18 4.84%
</TABLE>
30
<PAGE>
NORTHSTAR GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
GOVERNMENT SECURITIES FUND AND COMPARATIVE INDICES FROM INCEPTION OF
EACH CLASS OF SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1998, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 5.11% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of
4.75%. Average annualized total returns of 5.36% and 5.78% since inception on
June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on February 3, 1986 for Class T shares of 7.06% reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown
represents past performance, and should not be considered indicative of future
performance.
[LINE GRAPHS APPEAR BELOW WITH THE FOLLOWING PLOT POINTS:]
NORTHSTAR GOVERNMENT SECURITIES FUND - CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 0.22%
SINCE INCEPTION 5.11%
6/95 12/95 12/96 12/97 12/98
Class A
Lehman Int'l Gov't PLEASE SUPPLY PLOT POINTS
CPI
NORTHSTAR GOVERNMENT SECURITIES FUND - CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (0.44%)
SINCE INCEPTION 5.36%
6/95 12/95 12/96 12/97 12/98
Class B
Lehman Int'l Gov't PLEASE SUPPLY PLOT POINTS
CPI
NORTHSTAR GOVERNMENT SECURITIES FUND - CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 3.37%
SINCE INCEPTION 5.78%
6/95 12/95 12/96 12/97 12/98
Class C
Lehman Int'l Gov't PLEASE SUPPLY PLOT POINTS
CPI
NORTHSTAR GOVERNMENT SECURITIES FUND - CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 0.90%
5-YEAR 4.59%
SINCE INCEPTION 7.06%
2/86 12/89 12/92 12/95 12/98
Class T
Lehman Int'l Gov't PLEASE SUPPLY PLOT POINTS
CPI
31
<PAGE>
NORTHSTAR GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------------------- ------------------ ---------------
<S> <C> <C>
Domestic Bonds & Notes -- 2.43%
U.S. Government Agency -- 2.43%
Countrywide Home Loans, Inc.
6.75%, 4/25/28 $ 2,750,000 $ 2,700,156
------------
Total Domestic Bonds & Notes
(cost $2,677,813) 2,700,156
------------
U.S. Government and Agencies -- 91.50%
Federal Home Loan Mortgage Corp., 6.00%, due 5/01/13 4,135,724 4,149,950
Federal Home Loan Mortgage Corp., 6.50%, due 12/20/22 7,500,000 7,727,475
Federal Home Loan Mortgage Corp., 6.50%, due 9/15/24 5,700,000 6,136,905
Federal Home Loan Mortgage Corp., 8.00%, due 12/15/21 8,264,112 1,824,964
FNMA, 5.50%, due 7/01/11 5,410,604 5,358,175
FNMA, 6.00%, due 5/01/13 5,694,005 5,706,475
FNMA, 7.00%, due 8/18/25 5,000,000 5,227,900
FNMA, 8.50%, due 11/01/09 5,030,246 5,201,576
FNMA, 8.50%, due 8/01/11 3,484,168 3,611,549
FNMA, 9.00%, due 6/01/07 5,514,844 5,707,864
GNMA, 7.00%, due 9/15/23 3,757,670 3,845,749
GNMA, 7.00%, due 1/15/24 2,759,164 2,823,839
GNMA, 7.00%, due 2/16/24 1,870,000 1,922,865
GNMA, 7.00%, due 1/15/26 3,834,621 3,922,089
GNMA, 7.00%, due 2/15/26 4,312,586 4,410,956
GNMA, 7.00%, due 9/20/28 9,757,879 9,962,209
GNMA, 7.00%, due 10/20/28 16,142,815 16,480,845
GNMA, 7.50%, due 12/20/20 1,000,000 1,002,210
GNMA, 7.50%, due 1/16/23 5,548,066 578,774
GNMA, 9.00%, due 12/16/26 5,500,000 5,779,290
------------
Total U.S. Government and Agencies
(cost $101,697,391) 101,381,659
------------
Futures Options
Purchased -- 0.55%
U.S. Treasury Notes 5 Year Futures, February 112 Call 400,000 606,250
------------
Total Futures Options Purchased
(cost $502,600) 606,250
------------
Total Investment Securities -- 94.48%
(cost $104,877,804) 104,688,065
Other assets less liabilities -- 5.52% 6,110,089
------------
Net Assets -- 100.00% $110,798,154
============
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
(This Page Left Blank Intentionally)
33
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Northstar Northstar
Growth Special
Fund Fund
----------------- -----------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $109,987,395, $152,883,377
$41,917,786, $277,578,627, and $104,877,804, respectively) $ 180,612,943 $ 215,852,953
Repurchase agreements 2,431,000 0
Cash 119 636,182
Receivable for investments sold 1,458,879 5,472,662
Receivable for shares of beneficial interest sold 282,761 88,594
Dividends and interest receivable 81,157 6,568
Collateral on options written or purchased 0 0
Prepaid expenses 7,829 8,282
------------- -------------
Total Assets 184,874,688 222,065,241
------------- -------------
LIABILITIES:
Payable for investments purchased 2,722,062 3,184,747
Investment advisory fee payable 123,121 127,821
Payable for shares of beneficial interest reacquired 119,660 932,178
Distribution fee payable 60,057 144,835
Administrative service fees payable 33,763 73,650
Transfer agent fee payable 22,388 36,096
Accrued expenses 74,422 88,871
------------- -------------
Total Liabilities 3,155,473 4,588,198
------------- -------------
NET ASSETS $ 181,719,215 $ 217,477,043
============= =============
NET ASSETS ARE COMPOSED OF:
Capital paid in for shares of beneficial interest, $0.01 par value outstanding
(unlimited shares authorized) $ 96,767,716 $ 154,317,266
Accumulated net realized gain (loss) on investments, foreign currency,
options, and futures 14,325,951 190,201
Net unrealized appreciation(depreciation) of investments 70,625,548 62,969,576
------------- -------------
Net Assets $ 181,719,215 $ 217,477,043
============= =============
Class A:
Net Assets $ 29,357,642 $ 45,461,586
------------- -------------
Shares outstanding 1,126,536 1,567,647
------------- -------------
Net asset value and redemption value per share (net assets / shares
outstanding) $ 26.06 $ 29.00
============= =============
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $ 27.36 $ 30.45
============= =============
Class B:
Net Assets $ 15,480,133 $ 124,065,403
------------- -------------
Shares outstanding 607,921 4,390,676
------------- -------------
Net asset value and offering price per share (net assets / shares
outstanding) $ 25.46 $ 28.26
============= =============
Class C:
Net Assets $ 1,624,952 $ 29,746,924
------------- -------------
Shares outstanding 63,768 1,053,376
------------- -------------
Net asset value and offering price per share (net assets / shares
outstanding) $ 25.48 $ 28.24
============= =============
Class T:
Net Assets $ 52,023,354 $ 18,203,130
------------- -------------
Shares outstanding 2,033,308 641,834
------------- -------------
Net asset value and offering price per share (net assets / shares
outstanding) $ 25.59 $ 28.36
============= =============
Class I:
Net Assets $ 83,233,134
-------------
Shares outstanding 3,167,738
-------------
Net asset value, offering and redemption price per share
(net assets / shares outstanding) $ 26.28
=============
<CAPTION>
Northstar Northstar
Balance Sheet Northstar Government
Opportunities High Yield Securities
Fund Fund Fund
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value (cost $109,987,395, $152,883,377
$41,917,786, $277,578,627, and $104,877,804, respectively) $ 47,829,314 $ 263,607,158 $ 104,688,065
Repurchase agreements 394,000 14,453,000 0
Cash 32,875 50,768 5,502,730
Receivable for investments sold 0 0 329,950
Receivable for shares of beneficial interest sold 75 758,341 424,961
Dividends and interest receivable 573,170 6,107,051 677,572
Collateral on options written or purchased 0 0 517,407
Prepaid expenses 6,190 2,778 7,299
------------ ------------- -------------
Total Assets 48,835,624 284,979,096 112,147,984
------------ ------------- -------------
LIABILITIES:
Payable for investments purchased 0 0 936,101
Investment advisory fee payable 26,374 144,396 47,105
Payable for shares of beneficial interest reacquired 259,899 922,226 217,965
Distribution fee payable 24,650 195,441 60,376
Administrative service fees payable 13,945 63,720 23,278
Transfer agent fee payable 9,656 36,505 10,032
Accrued expenses 36,971 95,740 54,973
------------ ------------- -------------
Total Liabilities 371,495 1,458,028 1,349,830
------------ ------------- -------------
NET ASSETS $ 48,464,129 $ 283,521,068 $ 110,798,154
============ ============= =============
NET ASSETS ARE COMPOSED OF:
Capital paid in for shares of beneficial interest, $0.01 par value outstanding
(unlimited shares authorized) $ 41,198,519 $ 305,190,559 $ 130,359,070
Accumulated net realized gain (loss) on investments, foreign currency,
options, and futures 1,354,082 (7,698,022) (19,371,177)
Net unrealized appreciation(depreciation) of investments 5,911,528 (13,971,469) (189,739)
------------ ------------- -------------
Net Assets $ 48,464,129 $ 283,521,068 $ 110,798,154
============ ============= =============
Class A:
Net Assets $ 18,537,377 $ 31,134,542 $ 31,181,357
------------ ------------- -------------
Shares outstanding 1,502,632 3,651,466 3,324,543
------------ ------------- -------------
Net asset value and redemption value per share (net assets / shares
outstanding) $ 12.34 $ 8.53 $ 9.38
============ ============= =============
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $ 12.96 $ 8.96 $ 9.85
============ ============= =============
Class B:
Net Assets $ 5,107,116 $ 139,711,044 $ 27,250,882
------------ ------------- -------------
Shares outstanding 415,895 16,390,539 2,898,793
------------ ------------- -------------
Net asset value and offering price per share (net assets / shares
outstanding) $ 12.28 $ 8.52 $ 9.40
============ ============= =============
Class C:
Net Assets $ 753,759 $ 23,559,491 $ 2,652,198
------------ ------------- -------------
Shares outstanding 61,226 2,763,374 282,730
------------ ------------- -------------
Net asset value and offering price per share (net assets / shares
outstanding) $ 12.31 $ 8.53 $ 9.38
============ ============= =============
Class T:
Net Assets $ 24,065,877 $ 89,115,991 $ 49,713,717
------------ ------------- -------------
Shares outstanding 1,943,501 10,459,301 5,291,622
------------ ------------- -------------
Net asset value and offering price per share (net assets / shares
outstanding) $ 12.38 $ 8.52 $ 9.39
============ ============= =============
Class I:
Net Assets
Shares outstanding
Net asset value, offering and redemption price per share
(net assets / shares outstanding)
</TABLE>
Redemption price per share varies with length of time Class B, C, and T, shares
are held.
See accompanying notes to financial statements.
34
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Northstar Northstar
Growth Special
Fund Fund
--------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $6,861, $21,551, $1,827, $0,
and $0, respectively) $ 1,372,127 $ 1,201,656
Interest 417,938 865,403
------------ ------------
Total investment income 1,790,065 2,067,059
------------ ------------
EXPENSES:
Investment advisory fees 1,541,921 2,033,840
Distribution fees:
Class A 58,586 178,376
Class B 113,076 1,471,915
Class C 14,030 400,906
Class T 577,185 232,160
Transfer agent fees and expenses
Class A 21,429 101,867
Class B 18,129 271,264
Class C 2,300 89,852
Class T 80,046 36,370
Class I 41,388 0
Administrative service fees 239,970 392,303
Accounting and custodian fees 69,448 104,096
Printing and postage 41,919 56,382
Registration fees 38,087 44,042
Audit fees 21,104 26,684
Trustee fees 10,033 16,331
Miscellaneous 21,547 35,332
------------ ------------
2,910,198 5,491,720
Less expenses waived by management company 0 0
------------ ------------
Total expenses 2,910,198 5,491,720
------------ ------------
Net investment income (loss) (1,120,133) (3,424,661)
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments and options 18,594,642 188,400
Net change in unrealized appreciation (depreciation) of
investments 21,162,015 15,766,212
------------ ------------
Net realized and unrealized gain (loss) on investments 39,756,657 15,954,612
------------ ------------
Increase in net assets resulting from operations $ 38,636,524 $ 12,529,951
============ ============
<CAPTION>
Northstar Northstar
Balance Sheet Northstar Government
Opportunities High Yield Securities
Fund Fund Fund
--------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $6,861, $21,551, $1,827, $0,
and $0, respectively) $ 469,555 $ 513,989 $ 0
Interest 2,611,710 23,733,723 8,015,017
------------- -------------- -------------
Total investment income 3,081,265 24,247,712 8,015,017
------------- -------------- -------------
EXPENSES:
Investment advisory fees 365,125 1,537,716 697,032
Distribution fees:
Class A 35,436 62,761 57,075
Class B 51,908 1,180,532 191,942
Class C 8,024 219,323 20,581
Class T 287,758 619,972 435,230
Transfer agent fees and expenses
Class A 15,623 27,973 20,720
Class B 7,800 177,148 23,637
Class C 1,017 34,262 2,639
Class T 45,492 119,406 80,088
Class I 0 0 0
Administrative service fees 75,818 322,406 133,321
Accounting and custodian fees 31,207 83,669 45,355
Printing and postage 19,911 46,843 29,888
Registration fees 41,627 45,216 40,730
Audit fees 20,070 27,237 18,554
Trustee fees 7,955 8,450 9,682
Miscellaneous 12,590 47,355 16,346
------------- -------------- -------------
1,027,361 4,560,269 1,822,820
Less expenses waived by management company 0 0 160,854
------------- -------------- -------------
Total expenses 1,027,361 4,560,269 1,661,966
------------- -------------- -------------
Net investment income (loss) 2,053,904 19,687,443 6,353,051
------------- -------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments and options 2,843,547 7,778,253 1,148,452
Net change in unrealized appreciation (depreciation) of
investments (2,694,660) (24,573,436) (2,577,076)
------------- -------------- -------------
Net realized and unrealized gain (loss) on investments 148,887 (16,795,183) (1,428,624)
------------- -------------- -------------
Increase in net assets resulting from operations $ 2,202,791 $ 2,892,260 $ 4,924,427
============= ============== =============
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Northstar
Growth
Fund
----------------------------------
<S> <C> <C>
1998 1997
------------- ------------
FROM OPERATIONS:
Net investment income (loss) $ (1,120,133) $ (608,762)
Net realized gain on investments 18,594,642 5,123,066
Net realized loss on foreign currency 0 (189)
Net change in unrealized appreciation
(depreciation) of investments 21,162,015 32,606,026
Net change in unrealized appreciation of foreign
currency 0 110
-------------- ----------------
Increase in net assets resulting from operations 38,636,524 37,120,251
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A 0 0
Class B 0 0
Class C 0 0
Class T 0 0
Net realized gain from investments (1,668,413) (7,933,911)
Tax return of capital 0 (37,894)
-------------- ----------------
Total distributions (1,668,413) (7,971,805)
-------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 31,785,017 196,893,147
Net asset value of shares issued to shareholders
in reinvestment of dividends 1,580,911 7,655,103
-------------- ----------------
33,365,928 204,548,250
Cost of shares redeemed (95,119,227) (107,156,780)
-------------- ----------------
Net increase (decrease) in net assets derived from
capital share transactions (61,753,299) 97,391,470
-------------- ----------------
Net increase (decrease) in net assets (24,785,188) 126,539,916
NET ASSETS:
Beginning of year 206,504,403 79,964,487
-------------- ----------------
End of year $ 181,719,215 $ 206,504,403
============== ================
Undistributed net investment income $ 0 $ 0
============== ================
<CAPTION>
Northstar Northstar
Special Balance Sheet Opportunities
Fund Fund
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
------------ ------------- ----------- -----------
FROM OPERATIONS:
Net investment income (loss) $ (3,424,661) $ (1,848,388) $ 2,053,904 $ 2,250,256
Net realized gain on investments 188,400 19,011,083 2,843,547 4,221,598
Net realized loss on foreign currency 0 0 0 0
Net change in unrealized appreciation
(depreciation) of investments 15,766,212 24,201,023 (2,694,660) 6,464,152
Net change in unrealized appreciation of foreign
currency 0 0 0 0
---------------- -------------- --------------- ---------------
Increase in net assets resulting from operations 12,529,951 41,363,718 2,202,791 12,936,006
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A 0 0 (674,731) (47,893)
Class B 0 0 (183,411) (159,749)
Class C 0 0 (27,464) (23,637)
Class T 0 0 (1,171,109) (2,022,072)
Net realized gain from investments (5,802,323) (7,264,148) (2,745,313) (4,444,574)
Tax return of capital 0 0 0 0
---------------- -------------- --------------- ---------------
Total distributions (5,802,323) (7,264,148) (4,802,028) (6,697,925)
---------------- -------------- --------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 33,890,066 112,190,424 22,406,109 1,854,297
Net asset value of shares issued to shareholders
in reinvestment of dividends 3,873,664 4,759,317 4,039,411 5,716,874
---------------- -------------- --------------- ---------------
37,763,730 116,949,741 26,445,520 7,571,171
Cost of shares redeemed (158,949,921) (84,645,169) (35,588,954) (18,329,438)
---------------- -------------- --------------- ---------------
Net increase (decrease) in net assets derived from
capital share transactions (121,186,191) 32,304,572 (9,143,434) (10,758,267)
---------------- -------------- --------------- ---------------
Net increase (decrease) in net assets (114,458,563) 66,404,142 (11,742,671) (4,520,186)
NET ASSETS:
Beginning of year 331,935,606 265,531,464 60,206,800 64,726,986
---------------- -------------- --------------- ---------------
End of year $ 217,477,043 $ 331,935,606 $ 48,464,129 $ 60,206,800
================ ============== =============== ===============
Undistributed net investment income $ 0 $ 0 $ 0 $ 1,165
================ ============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Northstar
High Yield
Fund
---------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 19,687,443 $ 18,548,793
Net realized gain (loss) on investments and options 7,778,253 7,107,354
Net change in unrealized appreciation (depreciation) of investments (24,573,436) (977,429)
------------- -------------
Increase in net assets resulting from operations 2,892,260 24,678,718
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (1,748,299) (1,210,886)
Class B (9,088,608) (7,343,871)
Class C (1,685,745) (1,360,819)
Class T (7,606,019) (9,450,916)
Net realized gain from investments (1,942,329) 0
------------- -------------
Total distributions (22,071,000) (19,366,492)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 99,001,856 56,719,815
Net asset value of shares issued to shareholders in reinvestment of dividends 8,899,172 7,905,559
------------- -------------
107,901,028 64,625,374
Cost of shares redeemed (60,595,779) (45,594,760)
------------- -------------
Net increase (decrease) in net assets derived from capital share transactions 47,305,249 19,030,614
------------- -------------
Net increase (decrease) in net assets 28,126,509 24,342,840
NET ASSETS:
Beginning of year 255,394,559 231,051,719
------------- -------------
End of year $ 283,521,068 $ 255,394,559
============= =============
Undistributed net investment income $ 0 $ 0
============= =============
<CAPTION>
Northstar
Goverment Securities
Fund
-------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 6,353,051 $ 7,013,941
Net realized gain (loss) on investments and options 1,148,452 (1,786,143)
Net change in unrealized appreciation (depreciation) of investments (2,577,076) 2,710,567
------------- -------------
Increase in net assets resulting from operations 4,924,427 7,938,365
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (1,282,796) (485,879)
Class B (1,167,904) (636,837)
Class C (120,375) (46,684)
Class T (4,184,993) (6,221,820)
Net realized gain from investments 0 0
------------- -------------
Total distributions (6,756,068) (7,391,220)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 68,439,668 7,045,182
Net asset value of shares issued to shareholders in reinvestment of dividends 4,385,212 4,869,989
------------- -------------
72,824,880 11,915,171
Cost of shares redeemed (65,922,911) (43,326,996)
------------- -------------
Net increase (decrease) in net assets derived from capital share transactions 6,901,969 (31,411,825)
------------- -------------
Net increase (decrease) in net assets 5,070,328 (30,864,680)
NET ASSETS:
Beginning of year 105,727,826 136,592,506
------------- -------------
End of year $ 110,798,154 $ 105,727,826
============= =============
Undistributed net investment income $ 0 $ 390,455
============= =============
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
NORTHSTAR FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT
EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
realized & Dividends Distributions
Net Asset unrealized Total declared declared
Value, Net gain (loss) from from net from net Distributions
Period beginning investment on investment investment realized from
ended of period income investments operations income gain Capital
- ---------- ----------- ------------ ------------- ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Fund, Class A
12/31/98 $ 21.26 $ 0.08) $ 5.09 $ 5.01 -- $ 0.21) --
12/31/97 17.92 0.03 4.16 4.19 -- ( 0.85) --
12/31/96 15.53 0.02 3.18 3.20 -- ( 0.81) --
6/05/95-
12/31/95 17.59 0.08 1.95 2.03 $ 0.10) ( 3.99) --
Growth Fund, Class B
12/31/98 20.93 ( 0.23) 4.97 4.74 -- ( 0.21) --
12/31/97 17.76 ( 0.15) 4.17 4.02 -- ( 0.85) --
12/31/96 15.50 ( 0.06) 3.13 3.07 -- ( 0.81) --
6/05/95-
12/31/95 17.59 0.06 1.92 1.98 ( 0.08) ( 3.99) --
Growth Fund, Class C
12/31/98 20.91 ( 0.27) 5.05 4.78 -- ( 0.21) --
12/31/97 17.76 ( 0.13) 4.13 4.00 -- ( 0.85) --
12/31/96 15.50 ( 0.05) 3.12 3.07 -- ( 0.81) --
6/05/95-
12/31/95 17.59 0.04 1.92 1.96 ( 0.06) ( 3.99) --
Growth Fund, Class T
12/31/98 21.02 ( 0.36) 5.14 4.78 -- ( 0.21) --
12/31/97 17.82 ( 0.17) 4.22 4.05 -- ( 0.85) --
12/31/96 15.53 ( 0.06) 3.16 3.10 -- ( 0.81) --
12/31/95 15.75 0.07 3.77 3.84 ( 0.07) ( 3.99) --
12/31/94 17.33 0.08 (1.41) (1.33) ( 0.08) ( 0.15) $ 0.02)
12/31/93 16.36 0.02 1.67 1.69 ( 0.04) ( 0.67) ( 0.01)
12/31/92 16.37 0.02 1.30 1.32 ( 0.02) ( 1.31) --
12/31/91 12.49 0.09 4.62 4.71 ( 0.08) ( 0.75) --
12/31/90 13.85 0.10 (0.83) (0.73) ( 0.10) ( 0.51) ( 0.02)
Growth Fund, Class I
12/31/98 21.36 ( 0.05) 5.18 5.13 -- ( 0.21) --
3/31/97-
12/31/97 17.90 0.01 4.30 4.31 -- ( 0.85) --
Special Fund, Class A
12/31/98 27.77 ( 0.27) 2.23 1.96 -- ( 0.73) --
12/31/97 24.72 ( 0.02) 3.68 3.66 -- ( 0.61) --
12/31/96 20.92 ( 0.04) 3.84 3.80 -- -- --
6/05/95-
12/31/95 19.56 ( 0.09) 2.48 2.39 -- ( 1.03) --
Special Fund, Class B
12/31/98 27.27 ( 0.48) 2.20 1.72 -- ( 0.73) --
12/31/97 24.46 ( 0.19) 3.61 3.42 -- ( 0.61) --
12/31/96 20.84 ( 0.12) 3.74 3.62 -- -- --
6/05/95-
12/31/95 19.56 ( 0.12) 2.43 2.31 -- ( 1.03) --
Special Fund, Class C
12/31/98 27.26 ( 0.55) 2.26 1.71 -- ( 0.73) --
12/31/97 24.46 ( 0.20) 3.61 3.41 -- ( 0.61) --
12/31/96 20.84 ( 0.13) 3.75 3.62 -- -- --
6/05/95-
12/31/95 19.56 ( 0.15) 2.46 2.31 -- ( 1.03) --
Special Fund, Class T
12/31/98 27.34 ( 0.51) 2.26 1.75 -- ( 0.73) --
12/31/97 24.48 ( 0.18) 3.65 3.47 -- ( 0.61) --
12/31/96 20.84 ( 0.21) 3.85 3.64 -- -- --
12/31/95 19.64 ( 0.34) 2.57 2.23 -- ( 1.03) --
12/31/94 20.79 ( 0.25) (0.76) (1.01) -- ( 0.14) --
12/31/93 17.40 ( 0.32) 3.83 3.51 -- ( 0.12) --
12/31/92 15.74 ( 0.33) 2.61 2.28 -- ( 0.62) --
12/31/91 10.64 ( 0.21) 6.24 6.03 -- ( 0.93) --
12/31/90 11.67 ( 0.20) (0.83) (1.03) -- -- --
Balance Sheet Opportunities Fund, Class A
12/31/98 13.00 0.50 0.14 0.64 ( 0.56) ( 0.74) --
12/31/97 11.78 0.52 2.27 2.79 ( 0.54) ( 1.03) --
12/31/96 12.53 0.56 0.74 1.30 ( 0.57) ( 1.48) --
6/05/95-
12/31/95 12.77 0.43 1.06 1.49 ( 0.48) ( 1.25) --
Balance Sheet Opportunities Fund, Class B
12/31/98 12.94 0.44 0.10 0.54 ( 0.46) ( 0.74) --
12/31/97 11.74 0.44 2.25 2.69 ( 0.46) ( 1.03) --
12/31/96 12.51 0.50 0.71 1.21 ( 0.50) ( 1.48) --
6/05/95-
12/31/95 12.77 0.35 1.09 1.44 ( 0.45) ( 1.25) --
Balance Sheet Opportunities Fund, Class C
12/31/98 12.95 0.45 0.11 0.56 ( 0.46) ( 0.74) --
12/31/97 11.75 0.43 2.25 2.68 ( 0.45) ( 1.03) --
12/31/96 12.52 0.49 0.70 1.19 ( 0.48) ( 1.48) --
6/05/95-
12/31/95 12.77 0.38 1.07 1.45 ( 0.45) ( 1.25) --
Balance Sheet Opportunities Fund, Class T
12/31/98 13.01 0.59 (0.01) 0.58 ( 0.47) ( 0.74) --
12/31/97 11.79 0.50 2.24 2.74 ( 0.49) ( 1.03) --
12/31/96 12.54 0.53 0.73 1.26 ( 0.53) ( 1.48) --
12/31/95 11.54 0.57 2.27 2.84 ( 0.59) ( 1.25) --
12/31/94 12.94 0.57 (1.25) (0.68) ( 0.54) ( 0.16) ( 0.02)
12/31/93 12.05 0.49 1.20 1.69 ( 0.49) ( 0.31) --
12/31/92 11.66 0.55 0.36 0.91 ( 0.52) -- --
12/31/91 10.13 0.57 1.53 2.10 ( 0.57) -- --
12/31/90 10.71 0.61 (0.54) 0.07 ( 0.63) -- ( 0.02)
<CAPTION>
Net Ratio of Ratio of net
Net Asset Assets, Ratio of expense investment
Value, end of expenses reimbursement income
Period Total end Total period to average to average to average Portfolio
ended Distributions of period Return (000's) net assets (1) net assets (1) net assets (1) turnover
- ---------- --------------- ----------- ----------- ---------- ---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/98 $ 0.21) $ 26.06 23.61% $ 29,358 1.37% -- (0.47)% 98%
12/31/97 ( 0.85) 21.26 23.59 9,334 1.37 0.03% 0.04 32
12/31/96 ( 0.81) 17.92 20.54 4,750 1.50 0.06 0.11 62
6/05/95-
12/31/95 ( 4.09) 15.53 11.55 1,355 1.42 -- 0.63 134
12/31/98 ( 0.21) 25.46 22.69 15,480 2.13 -- (1.26) 98
12/31/97 ( 0.85) 20.93 22.84 8,815 2.14 -- (0.95) 32
12/31/96 ( 0.81) 17.76 19.74 4,444 2.20 0.04 (0.55) 62
6/05/95-
12/31/95 ( 4.07) 15.50 11.27 1,987 2.07 -- 0.06 134
12/31/98 ( 0.21) 25.48 22.90 1,625 2.13 -- (1.24) 98
12/31/97 ( 0.85) 20.91 22.73 1,152 2.17 -- (1.00) 32
12/31/96 ( 0.81) 17.76 19.74 365 2.20 0.15 (0.57) 62
6/05/95-
12/31/95 ( 4.05) 15.50 11.17 69 2.11 -- 0.02 134
12/31/98 ( 0.21) 25.59 22.79 52,023 2.05 -- (1.19) 98
12/31/97 ( 0.85) 21.02 22.94 73,674 2.03 -- (0.81) 32
12/31/96 ( 0.81) 17.82 19.90 70,406 2.00 0.04 (3.05) 62
12/31/95 ( 4.06) 15.53 24.40 76,343 2.00 -- 0.37 134
12/31/94 ( 0.25) 15.75 (7.66) 76,391 2.00 -- 0.49 54
12/31/93 ( 0.72) 17.33 10.36 80,759 2.04 -- 0.13 42
12/31/92 ( 1.33) 16.36 8.05 56,759 2.15 -- 0.09 47
12/31/91 ( 0.83) 16.37 38.10 40,884 2.25 -- 0.66 64
12/31/90 ( 0.63) 12.49 (5.24) 24,927 2.33 -- 0.80 54
12/31/98 ( 0.21) 26.28 24.06 83,233 1.00 -- (0.13) 98
3/31/97-
12/31/97 ( 0.85) 21.36 24.29 113,529 1.02 -- 0.08 32
12/31/98 ( 0.73) 29.00 7.59 45,461 1.47 -- (0.70) 257
12/31/97 ( 0.61) 27.77 14.92 78,160 1.43 -- (0.07) 175
12/31/96 -- 24.72 18.16 65,660 1.46 0.01 (0.30) 140
6/05/95-
12/31/95 ( 1.03) 20.92 12.20 2,335 1.50 -- (0.91) 71
12/31/98 ( 0.73) 28.26 6.84 124,065 2.18 -- (1.43) 257
12/31/97 ( 0.61) 27.27 14.10 169,516 2.15 -- (0.78) 175
12/31/96 -- 24.46 17.37 126,859 2.17 0.01 (1.01) 140
6/05/95-
12/31/95 ( 1.03) 20.84 11.79 1,491 2.20 0.01 (1.64) 71
12/31/98 ( 0.73) 28.24 6.81 29,746 2.22 -- (1.45) 257
12/31/97 ( 0.61) 27.26 14.06 51,460 2.18 -- (0.82) 175
12/31/96 -- 24.46 17.37 37,342 2.20 0.01 (1.03) 140
6/05/95-
12/31/95 ( 1.03) 20.84 11.79 62 2.20 0.03 (1.60) 71
12/31/98 ( 0.73) 28.36 6.94 18,203 2.10 -- (1.33) 257
12/31/97 ( 0.61) 27.34 14.29 32,800 1.99 -- (0.62) 175
12/31/96 -- 24.48 17.47 35,670 2.07 0.04 (0.89) 140
12/31/95 ( 1.03) 20.84 11.34 33,557 2.16 -- (1.50) 71
12/31/94 ( 0.14) 19.64 (4.86) 38,848 2.16 -- (1.25) 39
12/31/93 ( 0.12) 20.79 20.16 28,838 2.34 -- (1.66) 35
12/31/92 ( 0.62) 17.40 14.54 11,336 2.84 -- (2.12) 40
12/31/91 ( 0.93) 15.74 57.27 5,480 2.95 0.74 (1.57) 85
12/31/90 -- 10.64 (8.83) 3,024 2.95 2.03 (0.97) 72
12/31/98 ( 1.30) 12.34 5.19 18,537 1.47 -- 4.02 38
12/31/97 ( 1.57) 13.00 24.31 1,281 1.50 0.02 4.01 130
12/31/96 ( 2.05) 11.78 10.54 1,100 1.40 0.09 4.30 107
6/05/95-
12/31/95 ( 1.73) 12.53 11.95 797 1.27 -- 4.99 131
12/31/98 ( 1.20) 12.28 4.38 5,107 2.17 -- 3.33 38
12/31/97 ( 1.49) 12.94 23.48 4,969 2.15 0.02 3.37 130
12/31/96 ( 1.98) 11.74 9.76 3,765 2.10 0.07 3.64 107
6/05/95-
12/31/95 ( 1.70) 12.51 11.56 1,759 1.95 -- 4.38 131
12/31/98 ( 1.20) 12.31 4.53 753 2.15 -- 3.34 38
12/31/97 ( 1.48) 12.95 23.41 756 2.25 -- 3.30 130
12/31/96 ( 1.96) 11.75 9.72 372 2.10 0.10 3.61 107
6/05/95-
12/31/95 ( 1.70) 12.52 11.49 231 1.91 -- 4.49 131
12/31/98 ( 1.21) 12.38 4.64 24,065 1.89 -- 3.59 38
12/31/97 ( 1.52) 13.01 23.91 53,201 1.83 0.04 3.70 130
12/31/96 ( 2.01) 11.79 10.18 59,490 1.69 0.06 3.99 107
12/31/95 ( 1.84) 12.54 25.11 72,472 1.68 -- 4.44 131
12/31/94 ( 0.72) 11.54 (5.33) 73,764 1.69 -- 4.36 59
12/31/93 ( 0.80) 12.94 14.08 80,841 1.77 -- 3.99 38
12/31/92 ( 0.52) 12.05 8.06 56,823 2.02 -- 4.73 59
12/31/91 ( 0.57) 11.66 21.17 49,367 2.06 -- 5.21 77
12/31/90 ( 0.65) 10.13 0.78 44,750 2.10 -- 5.73 57
</TABLE>
(1) Annualized See accompanying notes to financial statements.
38
<PAGE>
NORTHSTAR FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT
EACH PERIOD (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
realized & Dividends Distributions
Net Asset unrealized Total declared declared
Value, Net gain (loss) from from net from net Distributions
Period beginning investment on investment investment realized from
ended of period income investments operations income gain Capital
- ---------- ----------- ------------ ------------- ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund, Class A
12/31/98 $ 9.14 $ 0.75 $ 0.55) $ 0.20 $ 0.75) $ 0.06) --
12/31/97 8.94 0.73 0.23 0.96 ( 0.76) -- --
12/31/96 8.56 0.76 0.44 1.20 ( 0.75) -- $ 0.07)
6/05/95-
12/31/95 8.68 0.48 ( 0.10) 0.38 ( 0.50) -- --
High Yield Fund, Class B
12/31/98 9.15 0.68 ( 0.56) 0.12 ( 0.69) ( 0.06) --
12/31/97 8.95 0.67 0.23 0.90 ( 0.70) -- --
12/31/96 8.57 0.71 0.43 1.14 ( 0.69) -- ( 0.07)
06/05/95-
12/31/95 8.68 0.44 ( 0.09) 0.35 ( 0.46) -- --
High Yield Fund, Class C
12/31/98 9.15 0.67 ( 0.54) 0.13 ( 0.69) ( 0.06) --
12/31/97 8.95 0.67 0.23 0.90 ( 0.70) -- --
12/31/96 8.57 0.72 0.42 1.14 ( 0.69) -- ( 0.07)
06/05/95-
12/31/95 8.68 0.44 ( 0.09) 0.35 ( 0.46) -- --
High Yield Fund, Class T
12/31/98 9.14 0.71 ( 0.54) 0.17 ( 0.73) ( 0.06) --
12/31/97 8.94 0.71 0.23 0.94 ( 0.74) -- --
12/31/96 8.56 0.73 0.45 1.18 ( 0.73) -- ( 0.07)
12/31/95 8.29 0.84 0.26 1.10 ( 0.83) -- --
12/31/94 9.31 0.81 ( 0.99) (0.18) ( 0.83) ( 0.01) --
12/31/93 9.09 0.85 0.80 1.65 ( 0.83) ( 0.60) --
12/31/92 7.94 0.92 1.19 2.11 ( 0.94) ( 0.02) --
12/31/91 6.27 1.08 1.67 2.75 ( 1.08) -- --
12/31/90 8.55 1.12 ( 2.30) (1.18) ( 1.10) -- --
Government Securities Fund, Class A
12/31/98 9.53 0.49 -- 0.49 ( 0.64) -- --
12/31/97 9.48 0.68 -- 0.68 ( 0.63) -- --
12/31/96 10.07 0.63 ( 0.60) 0.03 ( 0.62) -- --
6/05/95-
12/31/95 9.51 0.34 0.59 0.93 ( 0.37) -- --
Government Securities Fund, Class B
12/31/98 9.55 0.51 ( 0.09) 0.42 ( 0.57) -- --
12/31/97 9.48 0.52 0.11 0.63 ( 0.56) -- --
12/31/96 10.07 0.57 ( 0.60) (0.03) ( 0.56) -- --
6/05/95-
12/31/95 9.51 0.30 0.59 0.89 ( 0.33) -- --
Government Securities Fund, Class C
12/31/98 9.54 0.45 ( 0.05) 0.40 ( 0.56) -- --
12/31/97 9.47 0.59 0.04 0.63 ( 0.56) -- --
12/31/96 10.07 0.58 ( 0.62) (0.04) ( 0.56) -- --
6/05/95-
12/31/95 9.51 0.30 0.59 0.89 ( 0.33) -- --
Government Securities Fund, Class T
12/31/98 9.55 0.58 ( 0.14) 0.44 ( 0.60) -- --
12/31/97 9.48 0.57 0.10 0.67 ( 0.60) -- --
12/31/96 10.07 0.60 ( 0.59) 0.01 ( 0.60) -- --
12/31/95 8.74 0.58 1.35 1.93 ( 0.60) -- --
12/31/94 10.32 0.56 ( 1.56) (1.00) ( 0.57) -- ( 0.01)
12/31/93 9.22 0.59 1.09 1.68 ( 0.58) -- --
12/31/92 8.99 0.61 0.23 0.84 ( 0.61) -- --
12/31/91 8.47 0.67 0.52 1.19 ( 0.67) -- --
12/31/90 8.47 0.68 -- 0.68 ( 0.68) -- --
<CAPTION>
Net Ratio of Ratio of net
Net Asset Assets, Ratio of expense investment
Value, end of expenses reimbursement income
Period Total end Total period to average to average to average Portfolio
ended Distributions of period Return (000's) net assets (1) net assets (1) net assets (1) turnover
- ---------- --------------- ----------- ---------- ---------- ---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/98 $ 0.81) $ 8.53 2.25% $ 31,134 1.26% -- 8.27% 135%
12/31/97 ( 0.76) 9.14 11.18 16,213 1.20 -- 8.06 134
12/31/96 ( 0.82) 8.94 14.74 13,146 1.11 -- 8.60 128
6/05/95-
12/31/95 ( 0.50) 8.56 4.48 7,466 1.02 -- 9.83 103
12/31/98 ( 0.75) 8.52 1.28 139,711 1.97 -- 7.50 135
12/31/97 ( 0.70) 9.15 10.38 108,469 1.91 -- 7.35 134
12/31/96 ( 0.76) 8.95 13.94 79,199 1.81 -- 7.88 128
06/05/95-
12/31/95 ( 0.46) 8.57 4.17 29,063 1.71 -- 9.18 103
12/31/98 ( 0.75) 8.53 1.39 23,559 1.98 -- 7.48 135
12/31/97 ( 0.70) 9.15 10.37 21,393 1.92 -- 7.35 134
12/31/96 ( 0.76) 8.95 13.93 14,275 1.82 -- 7.85 128
06/05/95-
12/31/95 ( 0.46) 8.57 4.17 3,410 1.72 -- 9.29 103
12/31/98 ( 0.79) 8.52 1.79 89,116 1.60 -- 7.83 135
12/31/97 ( 0.74) 9.14 10.86 109,320 1.47 -- 7.77 134
12/31/96 ( 0.80) 8.94 14.49 124,431 1.31 -- 8.43 128
12/31/95 ( 0.83) 8.56 13.71 139,711 1.33 -- 9.69 103
12/31/94 ( 0.84) 8.29 ( 2.18) 136,426 1.34 -- 9.08 86
12/31/93 ( 1.43) 9.31 18.89 125,095 1.40 -- 8.84 176
12/31/92 ( 0.96) 9.09 27.57 64,063 1.50 0.05% 10.30 122
12/31/91 ( 1.08) 7.94 46.49 25,651 1.50 0.46 14.84 57
12/31/90 ( 1.10) 6.27 (14.59) 11,342 1.44 0.81 15.15 156
12/31/98 ( 0.64) 9.38 5.27 31,181 1.17 0.15 6.18 304
12/31/97 ( 0.63) 9.53 7.46 1,744 1.15 0.17 6.44 129
12/31/96 ( 0.62) 9.48 0.57 14,185 1.09 0.20 6.85 101
6/05/95-
12/31/95 ( 0.37) 10.07 10.04 3,235 1.02 0.20 6.01 295
12/31/98 ( 0.57) 9.40 4.49 27,250 1.90 0.15 5.55 304
12/31/97 ( 0.56) 9.55 6.93 13,503 1.89 0.17 5.50 129
12/31/96 ( 0.56) 9.48 ( 0.15) 9,135 1.80 0.20 6.05 101
6/05/95-
12/31/95 ( 0.33) 10.07 9.61 2,790 1.70 0.20 5.20 295
12/31/98 ( 0.56) 9.38 4.35 2,652 1.90 0.15 5.44 304
12/31/97 ( 0.56) 9.54 6.93 542 1.85 0.17 5.67 129
12/31/96 ( 0.56) 9.47 ( 0.21) 1,147 1.80 0.21 6.22 101
6/05/95-
12/31/95 ( 0.33) 10.07 9.61 8 1.68 0.20 5.28 295
12/31/98 ( 0.60) 9.39 4.84 49,713 1.55 0.15 5.97 304
12/31/97 ( 0.60) 9.55 7.38 89,939 1.45 0.20 5.99 129
12/31/96 ( 0.60) 9.48 0.32 112,126 1.30 0.21 6.37 101
12/31/95 ( 0.60) 10.07 22.90 150,951 1.30 0.20 6.23 295
12/31/94 ( 0.58) 8.74 ( 9.82) 152,608 1.29 0.20 6.00 315
12/31/93 ( 0.58) 10.32 18.48 184,156 1.31 0.20 5.83 81
12/31/92 ( 0.61) 9.22 9.77 144,144 1.39 0.20 6.81 120
12/31/91 ( 0.67) 8.99 14.73 121,389 1.44 0.20 7.68 87
12/31/90 ( 0.68) 8.47 8.57 108,420 1.43 0.20 8.23 17
</TABLE>
(1) Annualized See accompanying notes to financial statements.
39
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Note 1. Organization and Significant Accounting Policies
Organization -- Northstar Growth Fund, Northstar Special Fund, Northstar
Balance Sheet Opportunities Fund, Northstar High Yield Fund and Northstar
Government Securities Fund (collectively the "Funds") were organized under the
laws of the Commonwealth of Massachusetts and registered under the Investment
Company Act of 1940 as diversified open-end management investment companies.
The name of each of the separate investment companies with its own investment
objective and specific investment goals are set forth below:
Northstar Growth Fund ("Growth Fund") seeks to achieve long-term growth
of capital by investing principally in common stocks selected for their
prospects for capital appreciation.
Northstar Special Fund ("Special Fund") seeks to achieve capital
appreciation through investment in a diversified portfolio of equity securities
selected for their potential for growth, primarily in small and
mid-capitalization companies.
Northstar Balance Sheet Opportunities Fund ("Balance Sheet Opportunities
Fund") seeks to realize income and secondarily, capital appreciation through
investments in a balance of debt securities, common and preferred stocks, and
securities convertible into common stock.
Northstar High Yield Fund ("High Yield Fund") seeks to achieve high
current income primarily through investments in long and intermediate-term high
yield-high risk, lower-rated and nonrated corporate debt instruments.
Northstar Government Securities Fund ("Government Securities Fund") seeks
to achieve a high level of current income and to conserve principal by
investing in debt obligations issued or guaranteed by the U.S. Government or
its agencies and instrumentalities.
Security Valuation -- Equity securities are valued daily at the closing
sale prices reported on recognized securities exchanges or lacking any sales,
at the last available bid price. Prices of long-term debt securities are valued
on the basis of last reported sales price, or if no sales are reported, the
value is determined based upon the mean of representative quoted bid and asked
prices for such securities, or, if such prices are not available, at prices
provided by market makers, or at prices for securities of comparable maturity,
quality and type. Short-term debt instruments with remaining maturities of less
than 60 days are valued at amortized cost, unless the Trustees determine that
amortized cost does not reflect the fair value of such obligations. Securities
for which market quotations are not readily available are valued at fair value
determined in good faith by or under direction of the Trustees of the Funds.
The books and records of the Funds are maintained in U.S. dollars. Securities
quoted in foreign currencies are translated into U.S. dollars based on the
prevailing exchange rates on that day. The Adviser uses independent pricing
services to price the Funds' securities.
Security Transactions, Investment Income, Expenses -- Security
transactions are recorded on the trade date. Realized gains or losses on sales
of investments are calculated on the identified cost basis. Interest income is
recorded on the accrual basis except when collection is not expected; discounts
are accreted, and premiums amortized to par at maturity; dividend income is
recorded on the ex-dividend dates. Income, expenses (except class specific
expenses), and realized/ unrealized gains/losses, are allocated
proportionately to each Fund or class of shares based upon the relative daily
net asset value.
Distributions to Shareholders -- Dividends from net investment income are
declared and paid monthly by the Government Securities Fund and High Yield
Fund, and declared and paid quarterly by the Balance Sheet Opportunities Fund
and declared and paid annually by the Growth Fund and Special Fund.
Distributions of net realized capital gains, if any, are declared annually;
however, to the extent that a net realized capital gain can be reduced by a
capital loss carryover, such gain will not be distributed.
The Funds may periodically make reclassifications among certain of their
capital accounts as a result of the timing and characterization of certain
income and capital gains distributions determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of net
operating losses and foreign currency transactions. As of December 31, 1998,
the following amounts have been reclassified between undistributed net
investment income, accumulated net realized gain on investments and
paid-in-capital:
<TABLE>
<CAPTION>
Undistributed Accumulated Net
Net Investment Realized Gain Paid-In-
Income on Investments Capital
---------------- ---------------- ----------------
<S> <C> <C> <C>
Growth Fund $1,120,133 $ 83,651 $(1,203,784)
Special Fund 3,424,661 -- (3,424,661)
Balance Sheet
Opportunities
Fund (1,646) 1,646 --
High Yield
Fund 441,228 (11,073,838) 10,632,610
Government
Securities
Fund -- 12,562 (12,562)
</TABLE>
These restatements did not affect net investment income, net realized
gain on investments, or net assets for the year ended December 31,1998.
Foreign Currency -- The Funds isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held.
40
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Net realized gain(loss) on foreign currency transactions represents the
foreign exchange: (1) gains and losses from the sale of holdings of foreign
currencies, (2) gains and losses between trade date and settlement date on
investment securities transactions and forward exchange contracts, and (3)
gains and losses from the difference between amounts of interest and dividends
recorded and the amounts actually received. Net change in unrealized
appeciation (depreciation) of investment and foreign currency arise from
changes in the value of assets and liabilities including investment in
securities at fiscal year end, resulting from changes in the exchange rate.
Foreign Currency Forward Contracts -- The Funds may enter into foreign
currency forward contracts primarily to hedge against foreign currency exchange
rate risks on their non-U.S. dollar denominated investment securities. When
entering into a currency forward contract, the Funds agree to receive or
deliver a fixed quantity of foreign currency for an agreed-upon price on an
agreed future date. These contracts are valued daily and the funds' net equity
therein, representing unrealized gain or loss on the contracts as measured by
the difference between the forward foreign exchange rates at the dates of entry
into the contracts and the forward rates at the reporting date, is included in
the statement of assets and liabilities. Realized and unrealized gains and
losses are included in the statement of operations. These instruments involve
market and/or credit risk in excess of the amount recognized in the statement
of assets and liabilities. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movement in
currency and securities values and interest rates.
Options -- The Funds may write (sell) and purchase put and call options.
The premium collected or paid by a Fund for the sale or purchase of a call or
put option is recorded as an investment and subsequently "marked to market" to
reflect the current market value of the option. If an option which a Fund has
sold or purchased expires on the stipulated expiration date, the Fund realizes
a gain or loss in the amount of the premium received or paid for the option.
For written options, the Fund's obligation may be discharged in three
ways: (1) the option expires on the stipulated expiration date; (2) the option
holder excercises the right to call (buy) or put (sell) the security, or (3)
the Fund enters into a closing transaction. If the option is held until
expiration, the Fund recognizes a gain equal to the amount of premium received.
If the written call option is exercised by the counterparty, the premium is
added to the proceeds from the sale of the underlying security or currency in
determining whether the Fund has realized a gain or loss. If the written put
option is exercised by the counterparty, the premium reduces the cost basis of
the securities purchased by the Fund. If the Fund enters into a closing
transaction, a gain or loss is recognized equal to the difference between the
premium received by the Fund from the counterparty and the amount paid by the
Fund on effecting a closing purchase transaction, including brokerage
commissions. As the writer of options, the Fund bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Futures contracts -- The Funds may invest in futures contracts solely for
the purpose of hedging its existing portfolio securities, or securities that
the Funds intend to purchase, against fluctuations in fair value caused by
changes in prevailing market or interest rates.
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Funds' agent in acquiring the
futures position). During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the daily market value of the
contract.
Variation margin payments are received or made by the Funds each day,
depending upon the daily fluctuations in the fair value of the underlying
instrument. The Funds recognize a gain or loss equal to the daily variation
margin. When the contract is closed, the Funds record a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Funds' basis in the contract.
Should market conditions move unexpectedly, the Funds may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates, and the underlying
hedged assets.
Repurchase Agreements -- The Funds' Custodian takes possession of
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to assure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Funds have the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. If the seller defaults and the value of the collateral declines or
if bankruptcy proceedings are commenced with respect to the seller of the
security, realization of the collateral by the Funds may be delayed or limited.
Federal Income Taxes -- The Funds intend to comply with the special
provisions of the Internal Revenue Code available to investment companies and
to distribute all of the taxable net income to their respective shareholders.
Therefore, no Federal income tax provision or excise tax provision is required.
Management's Use of Estimates -- The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that
41
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
affect the reported amounts of assets and liabilites at the date of financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Note 2. Investment Adviser, Administrator and Distributor
Northstar, Inc. (and its wholly-owned operating subsidiaries, Northstar
Investment Management Corp., Northstar Distributors, Inc. and Northstar
Administrator Corp.) is an indirect wholly-owned subsidiary of ReliaStar
Financial Corp. Northstar Investment Management Corp. (the "Adviser") serves as
each Fund's investment adviser. Each Fund pays the Adviser an investment
advisory fee calculated at an annual rate of 0.60% of average daily net assets
for High Yield Fund, 0.65% of average daily net assets for the Government
Securities Fund, and Balance Sheet Opportunities Funds, and 0.75% of average
daily net assets for the Growth and Special Funds. The Adviser has agreed to
waive 0.15% of its advisory fee for the Government Securities Fund through
December 31, 1998 and therefore the rate paid equals 0.50% of average daily net
assets. For the year ended December 31, 1998, the Adviser waived $160,854 of
advisory fees for the Government Securities Fund. For the year ended December
31, 1998, the Funds paid advisory fees to Northstar Investment Management Corp.
of $6,175,634. Navellier Fund Management, Inc.("Navellier"), a registered
investment adviser, served as subadviser to the Special Fund pursuant to a
Subadvisory Agreement dated February 1, 1996 which was terminated June 30,
1998, between the Adviser and Navellier. For its services, Navellier received
an annual fee equal to 0.48% of the average daily net assets of the Fund. For
the period ended June 30, 1998, Navellier received $789,408.
Northstar Administrators Corp.(the "Administrator"), an affiliate of the
Adviser, serves as each Fund's administrator. The Funds pay the Administrator a
fee calculated at an annual rate of 0.10% of each Fund's average daily net
assets, and an annual shareholder account servicing fee of $5.00, payable
semi-annually, for each account of benefical owners of shares. For the year
ended December 31, 1998, the Administrator earned $1,163,818 in administrative
and account servicing fees.
Northstar Distributors, Inc. (the "Distributor") an affiliate of the
Adviser and the Administrator, is the distributor of each Fund's shares. Under
separate Plans of Distribution pertaining to Class A, Class B, Class C, and
Class T shares, the Funds pay the Distributor monthly service fees at an annual
rate of 0.25% of the average daily net assets in the case of Class A, Class B,
Class C and Class T shares, and monthly distribution fees at the annual rate of
0.05% of the average daily net assets of Class A shares and 0.75% of the
average daily net assets of Class B and Class C shares for all Funds. Class T
shares pay monthly distribution fees at an annual rate of 0.40% of average
daily net assets for the Government Securities and High Yield Funds, 0.50% of
average daily net assets for the Balance Sheet Opportunities Fund and 0.70% of
average daily net assets for the Growth and Special Funds. Class I does not pay
distribution or service fees. At December 31, 1998, the Funds owed the
Distributor $485,359 in service and distribution fees.
The Distributor also receives the proceeds of the initial sales charges
paid by shareholders upon the purchase of Class A shares, and the contingent
deferred sales charge paid by shareholders upon certain redemptions of Class A,
Class B, Class C, and Class T shares. For the year ended December 31, 1998, the
Distributor earned the following amounts in sales charges:
<TABLE>
<CAPTION>
Class A Class B Class C Class T
Shares Shares Shares Shares
--------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Initial sales charges $53,329 N/A N/A N/A
Contingent deferred sales
charges $16,257 $1,751,799 $47,162 $81,733
</TABLE>
Note 3. Transactions in Written Call and Put Options
As of December 31, 1998, cash valued at $517,407 was held in escrow by
the custodian as collateral for call options written by the Government
Securities Fund.
Transactions in options written for the Government Securities Fund during
the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Contracts Premiums
------------- ---------------
<S> <C> <C>
Options written 229,700 $ 21,084,634
Options terminated in closing purchase
transactions (48,145) (11,179,581)
Options expired (155,905) (8,572,240)
Options exercised (25,650) (1,332,813)
--------- ------------
Options outstanding at December 31,
1998 0 $ 0
--------- ------------
</TABLE>
During the year ended December 31, 1998, the Government Securities Fund
had $1,005,381 in realized losses from closing option transactions.
42
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Note 4. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments
(excluding short-term investments) for the year ended December 31, 1998, were
as follows:
<TABLE>
<CAPTION>
Government
Growth Special Balance Sheet High Yield Securities
Fund Fund Opportunities Fund Fund Fund
--------------- --------------- -------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $194,008,779 $648,431,570 $20,700,341 $369,326,663 $367,759,249
Aggregate sales $258,936,606 $770,163,258 $33,183,313 $328,631,154 $325,235,806
</TABLE>
U.S. Government Securities included above were as follows:
<TABLE>
<CAPTION>
Balance Sheet Government
Growth Special Opportunities High Yield Securities
Fund Fund Fund Fund Fund
-------- --------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $ -- $ -- $-- $1,032,616 $365,081,437
Aggregate sales $ -- $ -- $-- $ -- $323,739,381
</TABLE>
Note 5. Portfolio Securities (Tax Basis)
The cost of securities for federal income tax purposes and the aggregate
appreciation and depreciation of securities at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Balance Sheet Government
Growth Special Opportunities High Yield Securities
Fund Fund Fund Fund Funnd
--------------- --------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Cost (tax basis) $109,994,482 $152,914,809 $ 41,943,283 $ 277,578,627 $104,877,804
------------ ------------ ------------ ------------- ------------
Appreciated Securities 70,897,467 64,004,652 13,729,190 6,812,342 2,133,787
Depreciated Securities (279,006) (1,066,508) (7,843,159) (20,783,811) (2,323,526)
------------ ------------ ------------ ------------- ------------
Net Unrealized Appreciation (Depreciation) $ 70,618,461 $ 62,938,144 $ 5,886,031 $ (13,971,469) $ (189,739)
------------ ------------ ------------ ------------- ------------
</TABLE>
Note 6. Capital Share Transactions
Transactions in capital shares of each Fund for the year ended December
31, 1998, were as follows:
<TABLE>
<CAPTION>
Growth Fund
--------------------------------------------------------------------------------------
Class A Class B Class C
---------------------------- ---------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
------------- -------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,006,647 $ 22,997,231 273,349 $ 5,996,702 79,910 $ 1,823,822
Reinvested
dividends 8,571 215,136 3,913 95,879 424 10,410
Shares redeemed (327,683) (7,307,908) (90,460) (1,938,294) (71,640) (1,591,116)
--------- ------------ ------- ------------- ------- -------------
Net increase
(decrease) 687,535 $ 15,904,459 186,802 $ 4,154,287 8,694 $ 243,116
--------- ------------ ------- ------------- ------- -------------
<CAPTION>
Growth Fund
-----------------------------------------------------------------
Class T Class I
-------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 46,535 $ 630,574 0 $ 0
Reinvested
dividends 15,938 392,841 34,255 866,645
Shares redeemed (1,533,469) (34,281,909) (2,181,662) (49,663,312)
---------- ------------- ---------- -------------
Net increase
(decrease) (1,470,996) $ (33,258,494) (2,147,407) $ (48,796,667)
---------- ------------- ---------- -------------
</TABLE>
43
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special Fund
-----------------------------------------------------------------
Class A Class B
-------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 382,273 $ 10,956,276 545,403 $ 15,056,320
Reinvested dividends 37,919 920,290 90,696 2,145,768
Shares redeemed (1,667,328) (46,516,064) (2,460,940) (65,745,031)
---------- ------------- ---------- -------------
Net decrease (1,247,136) $ (34,639,498) (1,824,841) $ (48,542,943)
---------- ------------- ---------- -------------
Balance Sheet Opportunities Fund
------------------------------------------------------------------
Class A Class B
-------------------------------- --------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Shares sold 1,534,971 $ 20,636,138 102,560 $ 1,348,124
Reinvested dividends 111,595 1,358,125 31,791 388,308
Shares redeemed (242,430) (3,001,196) (102,461) (1,330,402)
------------- ------------- ------------- -------------
Net increase (decrease) 1,404,136 $ 18,993,067 31,890 $ 406,030
------------- ------------- ------------- -------------
High Yield Fund
------------------------------------------------------------------
Class A Class B
-------------------------------- --------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Shares sold 1,333,841 $ 12,457,996 3,919,058 $ 35,441,155
Issued in merger (Note12) 1,101,804 9,430,284 2,327,545 19,939,792
Reinvested dividends 119,266 1,050,377 336,103 2,973,114
Shares redeemed (677,072) (6,031,135) (2,048,986) (17,616,654)
------------- ------------- ------------- -------------
Net increase (decrease) 1,877,839 $ 16,907,522 4,533,720 $ 40,737,407
------------- ------------- ------------- -------------
Government Securities Fund
------------------------------------------------------------------
Class A Class B
-------------------------------- --------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Shares sold 4,260,830 $ 40,351,078 2,068,718 $ 19,733,721
Reinvested dividends 69,676 659,133 90,647 859,973
Shares redeemed (1,188,942) (11,249,259) (674,093) (6,406,150)
------------- ------------- ------------- -------------
Net increase (decrease) 3,141,564 $ 29,760,952 1,485,272 $ 14,187,544
------------- ------------- ------------- -------------
<CAPTION>
Special Fund
-----------------------------------------------------------------
Class C Class T
-------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 282,590 $ 7,713,920 5,412 $ 163,550
Reinvested dividends 14,731 348,396 19,335 459,210
Shares redeemed (1,131,357) (30,735,989) (582,436) (15,952,837)
---------- ------------- -------- -------------
Net decrease (834,036) $ (22,673,673) (557,689) $ (15,330,077)
---------- ------------- -------- -------------
Class C Class T
-------------------------------- ---------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Shares sold 9,419 $ 124,617 22,306 $ 297,230
Reinvested dividends 5,343 65,485 178,879 2,227,493
Shares redeemed (11,961) (148,181) (2,345,539) (31,109,175)
------------- ------------- ------------- -------------
Net increase (decrease) 2,801 $ 41,921 (2,144,354) $ (28,584,452)
------------- ------------- ------------- -------------
Class C Class T
-------------------------------- ---------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Shares sold 950,767 $ 8,562,136 164,080 $ 1,235,978
Issued in merger (Note12) 208,474 1,787,395 1,185,636 10,147,120
Reinvested dividends 58,769 519,682 455,225 4,355,999
Shares redeemed (793,765) (7,042,221) (3,304,234) (29,905,769)
------------- ------------- ------------- -------------
Net increase (decrease) 424,245 $ 3,826,992 (1,499,293) $ (14,166,672)
------------- ------------- ------------- -------------
Class C Class T
-------------------------------- ---------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Shares sold 842,471 $ 8,018,617 35,329 $ 336,252
Reinvested dividends 6,162 58,582 295,996 2,807,524
Shares redeemed (622,700) (5,907,953) (4,458,543) (42,359,549)
------------- ------------- ------------- -------------
Net increase (decrease) 225,933 $ 2,169,246 (4,127,218) $ (39,215,773)
------------- ------------- ------------- -------------
</TABLE>
Transactions in capital shares of each Fund for the year ended December
31, 1997, were as follows:
<TABLE>
<CAPTION>
Growth Fund
-----------------------------------------------------------
Class A Class B
-------------------------------- --------------------------
Shares Amount Shares Amount
--------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold 4,948,104 $ 90,181,184 196,741 $4,073,833
Reinvested dividends 16,078 328,000 14,024 278,226
Shares redeemed (4,790,196) (92,183,541) (39,870) (806,346)
---------- ------------- ------- ----------
Net increase
(decrease) 173,986 $ (1,674,357) 170,895 $3,545,713
---------- ------------- ------- ----------
<CAPTION>
Growth Fund
-------------------------------------------------------------------------------------
Class C Class T Class I
-------------------------- ------------------------------ ---------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------- ------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 45,632 $ 942,905 103,219 $ 2,051,076 5,103,096 $ 99,644,149
Reinvested dividends 1,589 31,885 132,655 2,674,236 212,049 4,342,756
Shares redeemed (12,677) (268,724) (682,339) (13,898,169) 0 0
------- ----------- -------- ------------- --------- ------------
Net increase
(decrease) 34,544 $ 706,066 (446,465) $ (9,172,857) 5,315,145 $103,986,905
------- ----------- -------- ------------- --------- ------------
</TABLE>
44
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special Fund
-----------------------------------------------------------------
Class A Class B
-------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 1,364,964 $ 35,499,440 2,018,199 $ 52,638,926
Reinvested dividends 50,419 1,341,158 88,461 2,311,517
Shares redeemed (1,257,205) (33,779,086) (1,077,764) (28,194,293)
---------- ------------- ---------- --------------
Net increase (decrease) 158,178 $ 3,061,512 1,028,896 $ 26,756,150
---------- ------------- ---------- --------------
Balance Sheet Opportunities Fund
------------------------------------------------------------------
Class A Class B
-------------------------------- --------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- --------------
Shares sold 18,655 $ 247,494 80,799 $ 1,029,162
Reinvested dividends 9,094 115,909 34,359 436,019
Shares redeemed (22,622) (289,132) (51,749) (651,384)
------------- ------------- ------------- --------------
Net increase (decrease) 5,127 $ 74,271 63,409 $ 813,797
------------- ------------- ------------- --------------
High Yield Fund
------------------------------------------------------------------
Class A Class B
-------------------------------- --------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- --------------
Shares sold 673,910 $ 6,107,186 4,082,034 $ 36,992,626
Reinvested dividends 68,304 617,643 223,181 2,020,829
Shares redeemed (438,817) (3,958,008) (1,299,119) (11,783,138)
------------- ------------- ------------- --------------
Net increase (decrease) 303,397 $ 2,766,821 3,006,096 $ 27,230,317
------------- ------------- ------------- --------------
Government Securities Fund
------------------------------------------------------------------
Class A Class B
-------------------------------- --------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- --------------
Shares sold 61,921 $ 582,690 578,504 $ 5,464,770
Reinvested dividends 39,003 361,654 56,149 526,891
Shares redeemed (1,414,955) (13,335,151) (184,573) (1,732,986)
------------- ------------- ------------- --------------
Net increase (decrease) (1,314,031) $ (12,390,807) 450,080 $ 4,258,675
------------- ------------- ------------- --------------
<CAPTION>
Special Fund
----------------------------------------------------------------
Class C Class T
------------------------------ ---------------------------------
Shares Amount Shares Amount
------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 875,397 $ 22,754,897 49,189 $ 1,297,161
Reinvested dividends 16,358 427,279 25,930 679,363
Shares redeemed (531,137) (13,917,748) (332,440) (8,754,042)
-------- -------------- -------- -------------
Net increase (decrease) 360,618 $ 9,264,428 (257,321) $ (6,777,518)
-------- -------------- -------- -------------
Class C Class T
------------------------------ ----------------------------------
Shares Amount Shares Amount
----------- -------------- ------------- -------------
Shares sold 26,217 $ 320,585 19,037 $ 257,056
Reinvested dividends 6,029 76,490 399,395 5,088,456
Shares redeemed (5,429) (70,103) (1,374,726) (17,318,819)
----------- -------------- ------------- -------------
Net increase (decrease) 26,817 $ 326,972 (956,294) $ (11,973,307)
----------- -------------- ------------- -------------
Class C Class T
------------------------------ ----------------------------------
Shares Amount Shares Amount
----------- -------------- ------------- -------------
Shares sold 1,196,278 $ 10,861,847 304,769 $ 2,758,156
Reinvested dividends 30,648 277,663 552,318 4,989,424
Shares redeemed (483,573) (4,370,241) (2,811,948) (25,483,373)
----------- -------------- ------------- -------------
Net increase (decrease) 743,353 $ 6,769,269 (1,954,861) $ (17,735,793)
----------- -------------- ------------- -------------
Class C Class T
------------------------------ ----------------------------------
Shares Amount Shares Amount
----------- -------------- ------------- -------------
Shares sold 68,250 $ 644,001 37,047 $ 353,721
Reinvested dividends 700 6,593 424,682 3,974,851
Shares redeemed (133,228) (1,259,675) (2,875,090) (26,999,184)
----------- -------------- ------------- -------------
Net increase (decrease) (64,278) $ (609,081) (2,413,361) $ (22,670,612)
----------- -------------- ------------- -------------
</TABLE>
45
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Note 7. Credit risk and Defaulted Securities
Although the Funds have a diversified portfolio, the High Yield had 91.0%
and 49.2%, respectively, of their portfolios invested in lower rated and
comparable quality unrated high yield securities. Investments in higher yield
securities are accompanied by a greater degree of credit risk and such lower
rated securities tend to be more sensitive to economic conditions than higher
rated securities. The risk of loss due to default by the issuer may be
significantly greater for the holders of high yielding securities, because such
securities are generally unsecured and are often subordinated to other
creditors of the issuer. At December 31, 1998, the Balance Sheet Opportunities
and High Yield Income Funds held SA Telecommunications, Inc., a company in
bankruptcy. In addition, the High Yield Fund held Capital Gaming International,
Inc., a security in default.
For financial reporting purposes, it is each Fund's accounting practice
to discontinue accrual of income and provide an estimate for probable losses
due to unpaid interest income on defaulted bonds for the current reporting
period.
Note 8. Security Loans
Each Fund may lend its securities to brokers, dealers and other financial
institutions in amounts up to one third of the value of its total assets. The
loans are fully collateralized at all times by cash or liquid high grade
securities. As with other extensions of credit, each Fund may bear risk of
delay in recovery or even loss of rights in the collateral should the borrower
of the securities fail financially. The Funds receive compensation for lending
its securities in the form of fees or all or a portion of the income from
investments of the collateral. The Funds also continue to earn income on the
securities loaned. At December 31, 1998, the Funds did not have any securities
on loan.
Note 9. Federal Income Tax -- Capital Loss Carryforward
At December 31, 1998, the High Yield Fund had capital loss carryforwards
acquired from Northstar Strategic Income Fund expiring December 31, 2002, 2003
and 2006 of $640,074, $1,301,325 and $8,691,211, respectively. The Government
Securities Fund had capital loss carryforwards expiring December 31, 2002 and
2005 of $16,131,129 and $2,339,660, respectively.
Note 10. Compensating Balance Arrangement
The Funds have an informal compensating balance with the Custodian
whereby the Funds may have overdrafts in their respective accounts and have no
interest assessed on the overdrafts. In return, the Funds are required to
maintain positive balances to offset negative balances. The required deposits
are calculated by dividing the overdrawn amounts by 0.90. At December 31, 1998,
the Funds did not have any compensating balances.
Note 11. Letter of Credit
The Northstar Funds,Northstar Equity Trust, Northstar Galaxy Trust and
Northstar Trust (collectively the "Funds") have entered into an unsecured
committed revolving line of credit agreement (the "Credit Agreement") with
State Street Bank and Trust Company for an aggregate amount of $50,000,000. The
proceeds may be used only to (1) temporarily finance the purchase and sale of
securities; (2) finance the redemption of shares of an investor in the Funds;
and (3) enable the Funds to meet other emergency expenses as defined in the
Credit Agreement. The Funds pay a commitment fee equal to 0.08% per annum on
the daily unused portion of the committed line amount payable quarterly in
arrears. During the year ended December 31, 1998, the Funds did not have any
loans outstanding.
Note 12. Transfer of Net Assets
At the close of business on November 20, 1998 ( the "Closing"), the
Northstar High Yield Fund ("High Yield Fund") acquired the net assets of the
Northstar Strategic Income Fund, ("Strategic Income Fund ") pursuant to an
Agreement and Plan of Reorganization (the "Agreement") dated September 1, 1998.
In accordance with the Agreement, the High Yield Fund, at the Closing, issued
4,822,341 shares having an aggregate value of $41,304,591, which included
unrealized depreciation on investments of $1,662,193 and accumulated net
realized loss of ($10,632,61). As a result the High Yield Fund issued
1.184579439 shares for each Strategic Fund Class A; 1.183197200 shares for each
Strategic Fund Class B; 1.180863477 shares for each Strategic Fund Class C; and
1.184579439 shares for each Strategic Fund Class T . The transaction was
structured for tax purposes to qualify as a tax-free reorganization under the
Internal Revenue Code. Directly after the merger the combined net assets in the
High Yield Fund were $283,575,377 with a net asset value of $8.56 for Class A,
$8.57 for Class B and C, and $8.56 for Class T shares.
Tax Information (Unaudited)
The amount of the long-term capital gain paid for the year ended December
31, 1998 was $1,668,524, $5,804,109, $1,454,847 and $1,942,393 for the
Northstar Growth, Special, Balance Sheet Opportunities, and High Yield Funds,
respectively.
Of the ordinary distribution made during the year ended December 31,
1998, the following percentages qualify for the dividend received deduction
available to corporate shareholders; 2.55% and 14.16% for the High Yield Fund
and Balance Sheet Opportunities Fund, respectively.
The above figures may differ from those cited elsewhere in this report
due to the difference in the calculation of income and gains for Securities
and Exchange Commission (book) purpose and Internal Revenue Service (tax)
purposes.
46
<PAGE>
NORTHSTAR FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of Northstar Funds:
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly in all material respects, the financial position of the Northstar Funds,
comprising the Northstar Growth Fund, Northstar Special Fund, Northstar Balance
Sheet Opportunities Fund, Northstar High Yield Fund, and Northstar Government
Securities Fund (collectively, the "Funds") at December 31, 1998, the results
of each of their operations for the year then ended, the changes in each of
their net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereinafter referred to as "financial statements")are the
responsibility of the Funds'management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 5, 1999
47
<PAGE>
[NORTHSTAR LOGO APPEARS HERE]
