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SIGNATURE GUY NORDAHL
TITLE MANAGER
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Northstar Advantage Special Fund
In planning and performing our audit of the financial statements
and financial highlights of Northstar Advantage Special Fund for
year ended December 31, 1995, we considered its internal control
structure, including procedures for safeguarding securities, in
order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and financial
highlights and to comply with the requirements of Form N-SAR,
not to provide assurance on the internal control structure.
The management of Northstar Advantage Special Fund is
responsible for establishing and maintaining an internal control
structure. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected
benefits and related costs of internal control structure
policies and procedures. Two of the objectives of an internal
control structure are to provide management with reasonable, but
not absolute, assurance that assets are safeguarded against loss
from unauthorized use or disposition and that transactions are
executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements
in conformity with generally accepted accounting principles.
Because of inherent limitations in any internal control
structure, errors or irregularities may occur and not be
detected. Also, projection of any evaluation of the structure
to future periods is subject to the risk that it may become
inadequate because of changes in conditions or that the
effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control
structure that might be material weaknesses under standards
established by the American Institute of Certified Public
Accountants. A material weakness is a condition in which the
design or operation of the specific internal control structure
elements does not reduce to a relatively low level the risk that
errors or irregularities in amounts that would be material in
relation to the financial statements and financial highlights
being audited may occur and not be detected within a timely
period by employees in the normal course of performing their
assigned functions. However, we noted no matters involving the
internal control structure, including procedures for
safeguarding securities, that we consider to be material
weaknesses, as defined above, as of December 31, 1995.
This report is intended solely for the information and use of
management of the Northstar Advantage Special Fund and the
Securities and Exchange Commission.
New York, New York
February 15, 1996
MULTIPLE CLASS PRICING TESTING REPORT
INDEX
Report of Independent Accountants
A. Overview of Internal Control Structure Policies and
Procedures for Calculating Net Asset Value, Dividend
Distributions, and Allocation of Expenses to Class A Shares,
Class B Shares, Class C and Class T Shares
B. Control Objectives and Procedures of the Northstar Advantage
Multiple Class Pricing Worksheet
C. Testing Compliance with Internal Control Procedures Relating
to the Northstar Advantage Multiple Class Pricing Worksheet
Report of Independent Accountants
Northstar Distributors, Inc.
Northstar Investment Management Corporation
We have examined the accompanying description (Appendix A) of
the overview of internal control structure policies and
procedures of Northstar Advantage Government Securities Fund,
Northstar Advantage Strategic Income Fund, Northstar Advantage
High Yield Fund, Northstar Advantage Income Fund, Northstar
Advantage Growth Fund and Northstar Advantage Special Fund (the
"Funds") for calculating the net asset value, dividend
distributions, and allocation of expenses among multiple classes
of fund shares. Our examination included procedures to obtain
reasonable assurance about whether (1) the accompanying
description presents fairly, in all material respects, the
aspects of the Funds' policies and procedures that may be
relevant to the Funds' internal control structure, (2) the
control structure policies and procedures were suitably designed
to achieve the control objectives specified in the description,
if those policies and procedures were complied with
satisfactorily, and (3) such policies and procedures had been
placed in operation as of December 31, 1995. The control
objectives were specified by the Funds' management in the Second
Amended and Restated Application Pursuant to Section 6(c) of the
Investment Company Act of 1940 for an Order of Exemption from
the Provisions of Section 2(a)(32), 2(a)(35), 18(f), 18(g),
18(i), 22(c) and 22(d) of such Act and Rule 22c-1 thereunder.
Our examination was performed in accordance with standards
established by the American Institute of Certified Public
Accountants and included those procedures we considered
necessary in the circumstances to obtain a reasonable basis for
rendering our opinion.
In our opinion, the accompanying description of the
aforementioned calculation of net asset value, dividend
distributions and allocation of expenses among the classes of
fund shares of the Funds present fairly, in all material
respects, the relevant aspects of the Funds' policies and
procedures that had been placed in operations as of December 31,
1995. Also, in our opinion, the policies and procedures, as
described, are suitably designed to provide reasonable assurance
that the specified control objectives would be achieved if the
described policies and procedures were complied with
satisfactorily.
In addition to the procedures we considered necessary to render
our opinion as expressed in the previous paragraph, we applied
tests, listed in Appendix C, to specific policies and procedures
to obtain evidence about their effectiveness in meeting the
control objectives, described in Appendix B, for the year ended
December 31, 1995. The specific policies and procedures and the
nature, timing, extent, and results of our tests are listed in
Appendix C. In our opinion, the policies and procedures that
were tested as described in Appendix C, were operating with
sufficient effectiveness to provide reasonable, but not
absolute, assurance that the control objectives specified in
Appendix B were achieved for the year ended December 31, 1995.
However, the scope of our engagement did not include tests to
determine whether the control objectives listed in Appendix B
and not listed in Appendix C were achieved; accordingly, we
express no opinion on the achievement of control objectives
listed in Appendix B and not tested in Appendix C.
The description of policies and procedures with respect to the
Funds is as of December 31, 1995, and information about tests of
the operating effectiveness of specified policies and procedures
covers the year ended December 31, 1995. Any projection of such
information to the future is subject to the risk that, because
of change, the description may no longer portray the system in
existence. The potential effectiveness of specified policies
and procedures with respect to the Funds are subject to inherent
limitations and, accordingly, errors or irregularities may occur
and not be detected. Furthermore, the projection of any
conclusions, based on our findings, to future periods is subject
to the risk that changes may alter the validity of such
conclusions.
This report is intended solely for the use of the management of
the Funds, Northstar Distributors, Inc., and Northstar
Investment Management Corporation and for the filing with the
Securities and Exchange Commission and should not be used for
any other purpose.
New York, New York
February 15, 1996.
Appendix A
OVERVIEW OF INTERNAL CONTROL STRUCTURE POLICIES AND
PROCEDURES FOR CALCULATING NET ASSET VALUE, DIVIDEND
DISTRIBUTIONS, AND ALLOCATION OF INCOME AND EXPENSES
AMONG MULTIPLE CLASSES OF FUND SHARES
The Northstar Advantage Government Securities Fund, Northstar
Advantage Strategic Income Fund, Northstar Advantage High Yield
Fund, Northstar Advantage Income Fund, Northstar Advantage
Growth Fund and Northstar Advantage Special Fund (the "Funds")
have adopted a Multiple Pricing System, consisting of four
classes of shares, Class A, Class B, Class C and Class T shares.
Class A shares are subject to a front-end sales charge with a
distribution ("12b-1") fee. Class B and Class T shares are
charged a contingent deferred sales charge and a greater 12b-1
fee. Class C shares are offered with a level sales charge and a
greater 12b-1 fee. The multiple classes of shares represent
interests in the same portfolio of investments of the Funds and
are identical in all respects, except with respect to the
expense allocable exclusively to each class. Since 12b-1 fees
will vary for each class of shares, separate NAV's, dividends
and distributions must be calculated for each class. The
procedures for calculating NAV, dividends and distributions are
substantially similar, but will vary slightly depending on the
dividend policy of the particular Fund.
In maintaining the records for each Fund, the income and expense
accounts must be allocated to each class of shares. Investment
income, unrealized and realized gains or losses will be
allocated daily to each class based on the percentage of net
assets at the beginning of each day.
Daily expenses of the Funds will be allocated to each class
depending upon the nature of the expense item. Operating
expenses, which are attributable to each class, will be
allocated based on the percentages of net assets at the
beginning of the day. Operating expenses will include fees paid
to the Advisor and Administrator, and all other expenses such as
accounting, custody and transfer agent fees, professional fees,
and registration and other regulatory fees and printing charges.
Certain expenses that have a greater cost for one class versus
another (i.e., 12b-1 fees and transfer agent fees) will be
calculated and charged to the respective class as follows:
12b-1 Fees: Using prior day's net assets for each class,
calculate the current day's accrual based upon the respective
rates for each class.
Transfer Agent Fees: For those charges where different rates
may exist for each class of shares, use existing budgets for
each class and accrue separately daily amount for each class.
Such "unique" expenses which are greater for one class versus
another must be calculated prior to determining the daily NAV or
dividend/distibutions as they may potentially impact the NAV of
each class (i.e., create different NAV's for each class).
In order to allocate income and expenses among the multiple
classes of shares, State Street Bank & Trust (the "Accounting
Agent"), the Funds' recordkeeper, utilizes the Multiple Class
Pricing Worksheets (the "Worksheets"). The Worksheets utilize
relevant data input by the Fund Accountant of the Accounting
Agent obtained from the Funds' primary accounting system. The
Worksheets allocate income and expenses among the multiple
classes of shares and computes the daily net asset value, and if
applicable, the dividend/distribution for each class of shares.
Internal accounting controls that are relevant to the Funds can
be divided into two components - control relevant to the mutual
fund accounting system resident at the Accounting Agent (the
"primary accounting system") and controls related to the
Worksheets. The design of the internal controls structure
policies and procedures related to the Worksheets contemplate
the application of certain internal control structure policies
and procedures to the primary accounting system.
The Trust has provided the detail description of the procedures
for accounting and reconciling multiple classes of shares and
calculating dividend rates and net asset value for Class A
Shares, Class B Shares, Class C and Class T Shares in Appendix B.
The specific control objectives relating to the Worksheets are
described in Appendix B.
Appendix C discusses the scope of specific audit procedures
performed and the results of those procedures.
Appendix B
CONTROL OBJECTIVES AND PROCEDURES OF THE
NORTHSTAR ADVANTAGE FUNDS'
MULTIPLE CLASS PRICING WORKSHEETS
Certain data is utilized from the primary accounting system to
allocate income and expenses and to calculate the daily net
asset value and, if applicable, dividends/distribution for each
class of shares. The primary accounting system includes the
details of transactions in accordance with the Investment
Company Act of 1940, as amended.
The following represents the internal accounting control
objectives and procedures for the allocation of income and
expenses and the computation of the net asset value and, if
applicable, the dividend/distribution for each class of shares
utilizing the format of the Worksheets. It does not cover the
internal accounting control procedures surrounding the
processing of information into each Fund's primary accounting
system as maintained by the Accounting Agent. These control
procedures are applicable to all of the Funds.
The following are the control objectives:
To ascertain the "unique" fees (i.e., 12b-1) charged to each
class of shares are correctly recorded in each Fund's accounting
records and are correctly allocated to each class.
To ascertain that income and operating expenses are allocated
properly to each class based on the appropriate net assets of
each class at the beginning of each day.
To ascertain that the dividend rates and daily NAV per share for
each class of shares reflect the proper allocation of income and
operating expenses as well as the full amount of "unique" fees
charged to the respective class of shares.
Set forth below are additional procedures which have been
implemented to satisfy the objectives described above for the
calculation of dividends/distributions and NAV for each class.
These procedures presume that the normal procedures and controls
remain in effect for all other daily fund accounting. The
procedures are described for the Funds based upon the respective
dividend policy.<PAGE>
The calculation procedure for NAV and dividends/distributions
consistent with each Fund's dividend policy will be as follows:
Fund Declares Periodic Net Investment Income, Declares Periodic
Net Realized Gains; Does Not Distribute Unrealized Gains/Losses:
Dividends/Distributions
Determination of the dividend/distribution by class is made upon
completion of the Multiple Class Pricing Worksheet by dividing
net income by the number of shares eligible to receive
dividends. The appropriate dividend is then posted to each
class' trial balance.
Annual distribution rate for realized gains will be determined
by taking net realized gains for the entire Fund and dividing by
total shares outstanding.
NAV
After completion of the Multiple Class Pricing Worksheet and
corresponding posting to the respective class' trial balance,
the NAV by class will be determined by dividing the net assets
applicable to a specific class by the number of shares
outstanding relating to that class.
Fund Distributes Net Investment Income (and Possibly Net Short
Term Gains) Quarterly/Monthly/Annually, Net Long-Term Gains and
Short-Term Gains on Annual Basis; Does Not Distribute Unrealized
Gains/Losses:
Dividends/Distributions: the dividend rate for net investment
income will be calculated as follows:
Dividends
Determine total Fund (all classes) net income available for
distribution for the appropriate period by reference to the
applicable trial balances.
Add incremental distribution fees and other unique expenses to
obtain the adjusted net income.
Divide adjusted net income by the total shares of all classes
outstanding to obtain the dividend rate before class specific
expenses.
Dividend rate for each class is determined by subtracting from
the dividend rate before class specific expenses the incremental
class specific expenses per share.
Distributions
Distribution rate is determined by dividing Fund's total
undistributed net realized gains by the total shares outstanding.
NAV:
After completion of the Multiple Class Pricing Worksheet and
corresponding posting to the class' trial balance, the NAV by
class will be determined by dividing the net assets applicable
to the class by the respective class' number of shares
outstanding.
CONTROL PROCEDURES
On a daily basis a fund accountant at the Accounting Agent
checks the appropriate rate to be charged each class for the
12b-1 fee. The fund accountant calculates the amount of the
12b-1 charge for each class of shares by multiplying the
appropriate daily rate times the value of the shares outstanding.
The fund accountant then calculates any other "unique" expenses
to be charged to the appropriate class. This charge will be at
the daily accrual rate established for these expenses which will
be calculated based upon invoices and fee estimates received.
After calculating these "unique" expenses, the fund accountant
allocates income and fund expenses among the different classes
of shares based on the value of their relative outstanding
shares using the attached worksheet. The number of shares is
provided by the Transfer Agent, who maintains separate records
of shares outstanding for each class of shares. Expense
allocations are adjusted so that any limitations on expenses are
not exceeded, including, for daily dividend, to assure that
accrual expenses do not exceed accrued income. The fund
accountant calculates the appropriate limitation percentage and
allocates the expenses accordingly.
For fluctuating NAV funds, the fund accountant determines
whether the proration calculation is being calculated on an
ex-dividend date. If it is an ex-dividend date, the dividend
must be accrued and reflected in that day's NAV. The fund
accountant must insert the calculated amounts (as described
above) on the appropriate lines of the worksheet.
The fund accountant then completes the Multiple Class Pricing
Worksheet, using the allocated income and expense calculations
from step 3 above, the additional fees calculated from 1 and 2
above, and the dividends and distributions calculated in step 4.
The results of this worksheet are the determination of net
asset value and daily dividend rates and amounts for each class
of shares.
The fee calculations, income and expense allocations,
determination of net asset value and the Multiple Class Pricing
Worksheet are included in the daily work which is reviewed by
the Fund Manager at the Accounting Agent. The reviewer verifies
the calculation of the net asset value and dividend rates after
reviewing the fee calculations, allocation of income and
expenses and daily dividends. Special attention is paid to the
differences between the daily yields or the daily NAV per share
of the different classes of shares. Because the sole difference
between any class of shares is the "unique" expenses, the
difference in the daily NAV per share of any of the classes
should be equal to the difference in the "unique" expenses
charged to those classes.<PAGE>
If the reviewer notes any unusual
differences in NAV per share,or any other unusual fluctuations,
the fund accountant is asked to research such items and
provide the reviewer with a complete
explanation as well as a corrected trial balance and Multiple
Class Pricing Worksheet, as necessary.
Once the reviewer is satisfied that the above steps have been
completed and that the NAV per share and dividend rates are
correct, he signs the Multiple Class Pricing Worksheet to
evidence his review and releases this data to the transfer agent
for processing purposes.
On a monthly basis, the fund accountant verifies the calculation
of the 12b-1 fee and any other "unique" expenses of each class.
In doing so, the fund accountant also keeps a separate record of
the average daily net assets of each class of shares in each
Fund. The monthly fee is then agreed to the General Ledger of
each Fund.
Appendix C
TESTING COMPLIANCE WITH INTERNAL CONTROL
PROCEDURES RELATING TO NORTHSTAR ADVANTAGE
MULTIPLE CLASS PRICING WORKSHEETS (the "Worksheets")
FOR THE YEAR ENDED DECEMBER 31, 1995
We reviewed the methodology and procedures for calculating the
daily net asset value and, if applicable, the
dividends/distributions of the multiple classes of shares and
the allocation of income and accrual of expenses for those
classes of shares.
AUDIT PROCEDURES
We performed the following procedures with respect to the
Worksheets.
Examined 10 worksheets to ensure proper sign-off by the fund
accountant and fund manager (preparer and reviewer).
We tested the daily activity on 24 Worksheets to test compliance
with control procedures described in Appendix B, as follows:
Agreed the prior day's total net assets to the previous day's
Worksheet.
Agreed the capital share activity (shares) to the Daily
Supersheet obtained from the transfer agent.
Recalculated the capital share activity (amount) by multiplying
the prior day's net asset value per share with the current day's
capital share activity.
Recalculated the current day's adjusted net assets (which is the
basis for determining the allocation percentage for each class
of shares) by adding the capital share activity for the day to
the prior day's total net assets.
Recalculated the percentage of net assets by class for each
class of shares by dividing the respective class's ending net
assets by the total Fund's ending net assets.
Agreed gross income, operating expenses and realized and
unrealized gains/losses to the Trial Balance.
Recalculated the allocation of gross income, operating expenses,
exclusive class specific expenses, and realized and unrealized
gains/losses for each class of shares.
Recalculated the distribution fee based on a percentage of net
assets as specified in the prospectus.
Recalculated the allocation of transfer agent fees for each
class of shares.
Recalculated shares outstanding by adding the shares outstanding
for the prior day to the current day's subscriptions and
redemptions.
Recalculated the net asset value per share for each class of
shares by dividing its net assets by the shares outstanding.
