<PAGE>
As filed with the Securities and Exchange Commission on February 27, 1998
Registration Nos. 33-847; 811-4434
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form N1-A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 22
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23
NORTHSTAR SPECIAL FUND
---------------------------------------------------------------
(Exact name of Registrant as specified in charter)
Two Pickwick Plaza, Greenwich, CT 06830
-----------------------------------------------------
(Address of Principal Executive Offices)
(203)863-6200
--------------------------------------
(Registrant's telephone number)
Mark L. Lipson
c/o Northstar Investment Management Corporation
Two Pickwick Plaza, Greenwich, CT 06830
-----------------------------------------------------
(Name and address for agent for service)
Copies of all correspondence to:
Jeff Steele, Esq.
Dechert, Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
<PAGE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
- - -
X on March 1, 1998 pursuant to paragraph (b)
- - -
60 days after filing pursuant to paragraph (a)(1)
- - -
on [date] pursuant to paragraph (a)(1)
- - -
75 days after filing pursuant to paragraph (a)(2)
- - -
on [date] pursuant to paragraph (a)(2) of Rule 485
- - -
If appropriate, check the following box:
this post-effective amendment designates a new effective
- - - date for a previously filed post-effective amendment.
- -------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(a)
UNDER THE SECURITIES ACT OF 1933
PART A
COMBINED PROSPECTUS
<TABLE>
<CAPTION>
FORM N-1A PART A ITEM PROSPECTUS CAPTION
<S> <C>
1. Cover Page Cover Page
2. Synopsis What you pay to invest
3. Condensed Financial Information Cover Page; Objective; Investment
Strategy; Holdings; Risks; The Risks
of Investing in Mutual Funds; Investment
Practices; The Business of Mutual Funds;
Where to go for more Information
4. General Description of Registrant Cover Page; Objective; Investment
Strategy; Holdings; Risks; The Risks
of Investing in Mutual Funds; Investment
Practices; The Business of Mutual Funds;
Where to go for more Information
5. Management of the Fund Meet the Portfolio Managers; The Business
of Mutual Funds
6. Capital Stock and Other Securities Buying, Selling and Exchanging;
Choosing a Share Class; Opening a
NorthStar Account; Mutual Fund Earnings
and your Taxes; Where to go for more
Information
7. Purchases of Securities Being Offered Buying, Selling and Exchanging;
Choosing a Share Class; Opening a
NorthStar Account; How Dealers
are Compensated
8. Redemption or Repurchase Buying, Selling and Exchanging
9. Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
PART B
<TABLE>
<CAPTION>
FORM N-1A PART B ITEM STATEMENT OF ADDITIONAL INFORMATION
CAPTION
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information & History Cover Page; Other Information
13. Investment Objectives and Policies Cover Page; Investment Restrictions;
Investment Techniques
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal N/A
Holders of Securities
16. Investment Advisory and Other Services of Northstar; the Subadvisers
Services and the Administrator
17. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Practices Allocation
18. Capital Stock and Other Purchases and Redemptions
Securities
19. Purchases, Redemptions and Net Asset Value; Purchases and
Redemptions
20. Tax Status Dividends, Distribution and Taxes
21. Underwriter Underwriter and Distribution Services
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C in the Registration Statement.
<PAGE>
THE
NORTHSTAR
FUNDS
PROSPECTUS
March 1, 1998
[Star Graphic]
This prospectus contains important information about investing in the Northstar
Funds. In this prospectus, we have divided our Funds into three categories:
GROWTH FUNDS: Growth Fund, Growth + Value Fund, Special Fund, International
Value Fund and Emerging Markets Value Fund; INCOME AND GROWTH FUNDS: the Income
and Growth Fund and Balance Sheet Opportunities Fund; and INCOME FUNDS: the High
Yield Fund, High Total Return Fund II, Strategic Income Fund and Government
Securities Fund. Please read the prospectus carefully before you invest and keep
it for future reference. Your investment: is not a bank deposit, is not insured
or guaranteed by the FDIC, the Federal Reserve Board or any other government
agency, is affected by market fluctuations -- there is no guarantee that the
funds will achieve their objectives. Like all mutual funds, these securities
have not been approved or disapproved by the Securities and Exchange Commission
or any state securities commission nor has the Securities and Exchange
Commission or any state securities commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
WHAT'S
INSIDE
<TABLE>
<S> <C>
[LOGO] OBJECTIVES
INVESTMENT
[LOGO] STRATEGY
[LOGO] HOLDINGS
[LOGO] RISKS
WHAT
YOU PAY
[LOGO] TO INVEST
HOW THE
FUND HAS
[LOGO] PERFORMED
</TABLE>
These pages contain a description of each of our
funds, including its objective, investment strategy,
types of holdings, risks and portfolio manager(s).
You'll also find:
WHAT YOU PAY TO INVEST. A list of the fees and
expenses you pay -- both directly and indirectly --
when you invest in the fund.
HOW THE FUND HAS PERFORMED.
A chart that shows the fund's financial performance
for up to ten years, by share class.
<TABLE>
<S> <C>
AN INTRODUCTION TO THE
NORTHSTAR FAMILY OF FUNDS 3
NORTHSTAR GROWTH FUNDS
Growth Fund 4
Growth + Value Fund 6
Special Fund 8
International Value Fund 10
Emerging Markets Value Fund 12
NORTHSTAR INCOME AND GROWTH FUNDS
Income and Growth Fund 14
Balance Sheet Opportunities Fund 16
NORTHSTAR INCOME FUNDS
High Yield Fund 18
High Total Return Fund II 20
Strategic Income Fund 22
Government Securities Fund 24
MEET THE PORTFOLIO MANAGERS 26
YOUR GUIDE TO BUYING, SELLING AND
EXCHANGING SHARES OF NORTHSTAR
FUNDS 32
MUTUAL FUND EARNINGS AND YOUR
TAXES 39
THE BUSINESS OF MUTUAL FUNDS 41
THE RISKS OF INVESTING IN MUTUAL
FUNDS 43
WHERE TO GO FOR MORE INFORMATION 47
</TABLE>
<PAGE>
INTRODUCTION TO
THE NORTHSTAR
FAMILY OF FUNDS
Risk is the potential that your investment will lose money or not earn as much
as you hope. All mutual funds have varying degrees of risk, depending on the
securities they invest in. Please read this prospectus carefully to be sure you
understand the risks and potential benefits associated with each of our funds.
This prospectus has been designed to help you make informed decisions about your
investments. As noted below, the Northstar family of funds is divided into three
categories.
[ICON]
GROWTH FUNDS
If you have any questions about the Northstar family of funds or about choosing
suitable investments, please call us at 1-800-595-7827.
Our Growth Funds focus on long-term growth by investing primarily in equities.
They will suit you if you:
- are investing for the long-term -- at least several years
- are willing to accept higher risk in exchange for potentially higher
long-term returns.
INCOME AND GROWTH FUNDS
Our Income and Growth Funds seek income and growth of capital in varying
combinations.
They will suit you if you:
- want both regular income and capital appreciation
- are looking for potentially higher returns than those offered by the Income
Funds, but don't feel comfortable with the level of risk associated with the
Growth Funds.
INCOME FUNDS
Northstar offers both aggressive and conservative Income Funds. Both offer
regular income, but some take higher risks to attain higher returns.
They will suit you if you:
- want a regular stream of income
- want higher potential returns than a money market fund
- are willing to accept more risk than a money market fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
3
<PAGE>
Registrant
NORTHSTAR Northstar Growth
GROWTH Fund
FUND Portfolio manager
Geoffrey Wadsworth
OBJECTIVE
This fund seeks long-term growth of capital by investing primarily in domestic
common stocks.
INVESTMENT
STRATEGY
The fund invests in large and mid-sized companies that the portfolio manager
feels have above average prospects for growth.
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. The fund also holds preferred stocks and convertible securities.
It may invest up to 20% of its net assets in foreign issuers, but only 10% can
be in securities that are not listed on a U.S. securities exchange. It may also
invest in other higher-risk securities and engage in other investment practices.
These are described in the section beginning on page 42.
RISKS
Because it invests in equities, the fund is affected by changes in the stock
market. This fund is also subject to the risks associated with investing in
foreign securities. Please refer to the section beginning on page 42, THE RISKS
OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee % 0.75 0.75 0.75 0.75
12b-1 fee(3) % 0.30 1.00 1.00 0.95
Other expenses % 0.32 0.39 0.42 0.33
TOTAL FUND OPERATING EXPENSES % 1.37 2.14 2.17 2.03
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 61 89 119 204
..........................................................................................................................
Class B
with redemption $ 72 97 135 227(4)
without redemption $ 22 67 115 227(4)
..........................................................................................................................
Class C
with redemption $ 32 68 116 250
without redemption $ 22 68 116 250
..........................................................................................................................
Class T
with redemption $ 61 84 109 219 (5)
without redemption $ 21 64 109 219 (5)
..........................................................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
4 Growth Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS GROWTH
PERFORMED The following Audited by other FUND
[ICON] chart shows the independent
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., these trading
independent symbols: GRWTHA or
accountants. GRWTHT.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(5) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Growth Fund 5
<PAGE>
REGISTRANT
NORTHSTAR Northstar Growth
GROWTH Fund
FUND PORTFOLIO MANAGER
Geoffrey Wadsworth
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 17.92 15.53 17.59 17.76 15.50 17.59
Net investment income (loss) $ 0.03 0.02 0.08 (0.15) (0.06) 0.06
Net realized and unrealized gain on
investments $ 4.16 3.18 1.95 4.17 3.13 1.92
TOTAL FROM INVESTMENT OPERATIONS $ 4.19 3.20 2.03 4.02 3.07 1.98
Dividends from net investment income $ -- -- (0.10) -- -- (0.08)
Dividends from net realized gain on
investments sold $ (0.85) (0.81) (3.99) (0.85) (0.81) (3.99)
TOTAL DISTRIBUTIONS $ (0.85) (0.81) (4.09) (0.85) (0.81) (4.07)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 21.26 17.92 15.53 20.93 17.76 15.50
TOTAL INVESTMENT RETURN(2) % 23.59 20.54 11.55 22.84 19.74 11.27
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 9,334 4,750 1,355 8,815 4,444 1,987
Ratio of expenses to average net assets % 1.37 150 1.42(3) 2.14 2.20 2.07(3)
Ratio of expense reimbursement to
average net assets % 0.03 0.06 -- -- 0.04 --
Ratio of net investment income (loss)
to average net assets % 0.04 0.11 0.63(3) (0.95) (0.55) 0.06(3)
Average commissions per share $ 0.0609 0.0593 -- 0.0609 0.0593 --
Portfolio turnover rate % 32 62 134 32 62 134
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1)
- ----------------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period 17.76 15.50 17.59
Net investment income (loss) (0.13) (0.05) 0.04
Net realized and unrealized gain on
investments 4.13 3.12 1.92
TOTAL FROM INVESTMENT OPERATIONS 4.00 3.07 1.96
Dividends from net investment income -- -- (0.06)
Dividends from net realized gain on
investments sold (0.85) (0.81) (3.99)
TOTAL DISTRIBUTIONS (0.85) (0.81) (4.05)
NET ASSET VALUE AT THE END OF THE
PERIOD 20.91 17.76 15.50
TOTAL INVESTMENT RETURN(2) 22.73 19.74 11.17
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 1,152 365 69
Ratio of expenses to average net assets 2.17 220 2.11(3)
Ratio of expense reimbursement to
average net assets -- 0.15 --
Ratio of net investment income (loss)
to average net assets (1.00) (0.57) 0.02(3)
Average commissions per share 0.0609 0.0593 --
Portfolio turnover rate 32 62 134
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 17.82 15.53 15.75 17.33 16.36 16.37 12.49
Net investment income (loss) $ (0.17) (0.06) 0.07 0.08 0.02 0.02 0.09
Net realized and unrealized gain (loss)
on investments $ 4.22 3.16 3.77 (1.41) 1.67 1.30 4.62
TOTAL FROM INVESTMENT OPERATIONS $ 4.05 3.10 3.84 (1.33) 1.69 1.32 4.71
Dividends from net investment income $ -- -- (0.07) (0.08) (0.04) (0.02) (0.08)
Dividends from net realized gain on
investments sold $ (0.85) (0.81) (3.99) (0.15) (0.67) (1.31) (0.75)
Distributions from capital $ -- -- -- (0.02) (0.01) -- --
TOTAL DISTRIBUTIONS $ (0.85) (0.81) (4.06) (0.25) (0.72) (1.33) (0.83)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 21.02 17.82 15.53 15.75 17.33 16.36 16.37
TOTAL INVESTMENT RETURN(2) % 22.94 19.90 24.40 (7.66) 10.36 8.05 38.10
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 73,674 70,406 76,343 76,391 80,759 56,759 40,884
Ratio of expenses to average net assets % 2.03 2.00 2.00 2.00 2.04 2.15 2.25
Ratio of expense reimbursement to
average net assets % -- 0.04 -- -- -- -- --
Ratio of net investment income (loss)
to average net assets % (0.81) (3.05) 0.37 0.49 0.13 0.09 0.66
Average commissions per share $ 0.0609 0.0593 -- -- -- -- --
Portfolio turnover rate % 32 62 134 54 42 47 64
<CAPTION>
YEAR ENDED DECEMBER 31, 1990 1989 1988
- ----------------------------------------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period 13.85 11.96 10.47
Net investment income (loss) 0.10 0.20 0.16
Net realized and unrealized gain (loss)
on investments (0.83) 2.66 1.58
TOTAL FROM INVESTMENT OPERATIONS (0.73) 2.86 1.74
Dividends from net investment income (0.10) (0.20) (0.17)
Dividends from net realized gain on
investments sold (0.51) (0.76) (0.08)
Distributions from capital (0.02) (0.01) --
TOTAL DISTRIBUTIONS (0.63) (0.97) (0.25)
NET ASSET VALUE AT THE END OF THE
PERIOD 12.49 13.85 11.96
TOTAL INVESTMENT RETURN(2) (5.24) 24.25 16.70
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 24,927 29,842 25,359
Ratio of expenses to average net assets 2.33 2.33 2.46
Ratio of expense reimbursement to
average net assets -- -- --
Ratio of net investment income (loss)
to average net assets 0.80 1.39 1.40
Average commissions per share -- -- --
Portfolio turnover rate 54 75 59
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
6 Growth Fund
<PAGE>
Registrant
NORTHSTAR GROWTH + Northstar Trust
VALUE FUND Portfolio manager
Louis Navellier
OBJECTIVE
This fund seeks capital appreciation by investing in a diversified portfolio of
equity securities.
INVESTMENT
STRATEGY
The fund invests primarily in companies the portfolio manager identifies as
either GROWTH or VALUE through quantitative analysis.
Growth companies have above average earnings or sales growth and higher price to
earnings ratios. Value companies are temporarily undervalued or out of favor,
and tend to have lower price to book ratios, higher earnings or dividend yields
and higher returns on equity. The percentage of fund assets allocated to the two
different kinds of companies varies depending on the portfolio manager's
assessment of economic conditions and investment opportunities.
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. The fund also holds preferred stocks and convertible securities.
It may invest up to 20% of its net assets in foreign issuers, but only 10% can
be in securities that are not listed on a U.S. securities exchange. It may also
invest in other higher-risk securities and engage in other investment practices.
These are described in the section beginning on page 40.
RISKS
Because it invests in equities, the fund is affected by changes in the stock
market. This fund is also subject to the risks associated with investing in
foreign securities. Please refer to the section beginning on page 40, THE RISKS
OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee % 1.00 1.00 1.00
12b-1 fee(3) % 0.30 1.00 1.00
Other expenses % 0.54 0.55 0.56
TOTAL FUND OPERATING EXPENSES % 1.84 2.55 2.56
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 65 103 142 253
..........................................................................................................................
Class B
with redemption $ 76 109 156 271(4)
without redemption $ 26 79 136 271(5)
..........................................................................................................................
Class C
with redemption $ 36 80 136 290
without redemption $ 26 80 136 290
..........................................................................................................................
</TABLE>
- ----------------------------
6 Northstar Growth + Value Fund
<PAGE>
HOW THE
FUND HAS NORTHSTAR GROWTH +
PERFORMED The following The fund's VALUE FUND
[ICON] chart shows the performance is
fund's financial also reported in
performance by national
share class. These newspapers under
figures have been these trading
audited by Coopers symbols: GR+VALA,
& Lybrand L.L.P., GR+VALB or
independent GR+VALC.
accountants.
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Northstar Growth + Value Fund 7
<PAGE>
REGISTRANT
NORTHSTAR GROWTH + Northstar Trust
VALUE FUND PORTFOLIO MANAGER
Louis Navellier
<TABLE>
<CAPTION>
CLASS A(1) CLASS B(1) CLASS C(1)
YEAR ENDED OCTOBER 31, 1997 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 10.00 10.00 10.00
Net investment loss $ (0.05) (0.08) (0.08)
Net realized and unrealized gain on
investments $ 2.20 2.16 2.16
TOTAL FROM INVESTMENT OPERATIONS $ 2.15 2.08 2.08
NET ASSET VALUE AT THE END OF THE PERIOD $ 12.15 12.08 12.08
TOTAL INVESTMENT RETURN(2) % 21.50 20.80 20.80
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period ($000s) $ 34,346 76,608 26,962
Ratio of expenses to average net assets(3) % 1.84 2.55 2.56
Ratio of expense reimbursement to average
net assets(3) % 0.02 0.02 0.02
Ratio of net investment loss to average net
assets(3) % (0.94) (1.68) (1.70)
Average commissions per share $ 0.0394 0.0394 0.0394
Portfolio turnover rate % 144 144 144
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A, B and C commenced operations on November 18, 1996.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
8 Northstar Growth + Value Fund
<PAGE>
Registrant
NORTHSTAR Northstar Special
SPECIAL Fund
FUND Portfolio manager
Louis Navellier
OBJECTIVE
This fund seeks capital appreciation by investing primarily in a diversified
portfolio of domestic equity securities on the basis of their potential for
growth.
INVESTMENT
STRATEGY
The fund focuses on smaller, lesser-known companies, including emerging growth
companies.
HOLDINGS
The fund holds common stocks, preferred stocks, convertible securities, warrants
and other stock purchase rights, private placements and other restricted equity
securities, equity interests in trusts, limited partnerships and joint ventures
and interests in real estate investment trusts. It may invest up to 20% of its
net assets in foreign issuers, but only 10% can be in securities that are not
listed on a U.S. securities exchange. It may also invest in other higher-risk
securities and engage in other investment practices. These are described in the
section beginning on page 40.
RISKS
Because it invests in equities, the fund is affected by changes in the stock
market. This fund is also subject to the risks associated with investing in
smaller companies, emerging growth companies and foreign securities. Please
refer to the section beginning on page 40, THE RISKS OF INVESTING IN MUTUAL
FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee % 0.75 0.75 0.75 0.75
12b-1 fee(3) % 0.30 1.00 1.00 0.95
Other expenses % 0.38 0.40 0.43 0.29
TOTAL FUND OPERATING EXPENSES % 1.43 2.15 2.18 1.99
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 61 91 122 211
..........................................................................................................................
Class B
with redemption $ 72 97 135 230(4)
without redemption $ 22 67 115 230(4)
..........................................................................................................................
Class C
with redemption $ 32 68 117 251
without redemption $ 22 68 117 251
..........................................................................................................................
Class T
with redemption $ 60 82 107 217 (5)
without redemption $ 20 62 107 217 (5)
..........................................................................................................................
</TABLE>
- -------------------------
(1) Except for purchases of $1 million or more, when you sell
8 Special Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS SPECIAL
PERFORMED The following Audited by other FUND
[ICON] chart shows the independent
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., these trading
independent symbols: SPECLA,
accountants. SPECLB, SPECLC or
SPECLT.
any of the shares within 18 months of when you bought them. Please see page 31
for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(5) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Special Fund 9
<PAGE>
REGISTRANT
NORTHSTAR Northstar Special
SPECIAL Fund
FUND PORTFOLIO MANAGER
Louis Navellier
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 24.72 20.92 19.56 24.46 20.84 19.56
Net investment loss $ (0.02) (0.04) (0.09) (0.19) (0.12) (0.12)
Net realized and unrealized gain on
investments $ 3.68 3.84 2.48 3.61 3.74 2.43
TOTAL FROM INVESTMENT OPERATIONS $ 3.66 3.80 2.39 3.42 3.62 2.31
Dividends from net realized gain on
investments sold $ (0.61) -- (1.03) (0.61) -- (1.03)
TOTAL DISTRIBUTIONS $ (0.61) -- (1.03) (0.61) -- (1.03)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 27.77 24.72 20.92 27.77 24.46 20.84
TOTAL INVESTMENT RETURN(2) % 14.92 18.16 12.20 14.10 17.37 11.79
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 78,160 65,660 2,335 169,516 126,859 1,491
Ratio of expenses to average net
assets % 1.43 1.46 1.50(3) 2.15 2.17 2.20(3)
Ratio of expense reimbursement to
average net assets % -- 0.01 -- -- 0.01 0.01
Ratio of net investment loss to
average net assets % (0.07) (0.30) (0.91)(3) (0.78) (1.01) (1.64)(3)
Average commissions per share $ 0.0383 0.0392 -- 0.0383 0.0392 --
Portfolio turnover rate % 175 140 71 175 140 71
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1)
- --------------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 24.46 20.84 19.56
Net investment loss (0.20) (0.13) (0.15)
Net realized and unrealized gain on
investments 3.61 3.75 2.46
TOTAL FROM INVESTMENT OPERATIONS 3.41 3.62 2.31
Dividends from net realized gain on
investments sold (0.61) -- (1.03)
TOTAL DISTRIBUTIONS (0.61) -- (1.03)
NET ASSET VALUE AT THE END OF THE
PERIOD 27.26 24.46 20.84
TOTAL INVESTMENT RETURN(2) 14.06 17.37 11.79
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 51,460 37,342 62
Ratio of expenses to average net
assets 2.18 2.20 21.20(3)
Ratio of expense reimbursement to
average net assets -- 0.01 0.03
Ratio of net investment loss to
average net assets (0.82) (1.03) (1.60)(3)
Average commissions per share 0.0383 0.0392 --
Portfolio turnover rate 175 140 71
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 24.48 20.84 19.64 20.79 17.40 15.74 10.64
Net investment loss $ (0.18) (0.21) (0.34) (0.25) (0.32) (0.33) (0.21)
Net realized and unrealized gain
(loss) on investments $ 3.65 3.85 2.57 (0.76) 3.83 2.61 6.24
TOTAL FROM INVESTMENT OPERATIONS $ 3.47 3.64 2.23 (1.01) 3.51 2.28 6.03
Dividends from net realized gain on
investments sold $ (0.61) -- (1.03) (0.14) (0.12) (0.62) (0.93)
TOTAL DISTRIBUTIONS $ (0.61) -- (1.03) (0.14) (0.12) (0.62) (0.93)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 27.34 24.48 20.84 19.64 20.79 17.40 15.74
TOTAL INVESTMENT RETURN(2) % 14.29 17.47 11.34 (4.86) 20.16 14.54 57.27
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 32,800 35,670 33,557 38,848 28,838 11,336 5,480
Ratio of expenses to average net
assets % 1.99 2.07 2.16 2.16 2.34 2.84 2.95
Ratio of expense reimbursement to
average net assets % -- 0.04 -- -- -- -- 0.74
Ratio of net investment loss to
average net assets % (0.62) (0.89) (1.50) (1.25) (1.66) (2.12) (1.57)
Average commissions per share $ 0.0383 0.0392 -- -- -- -- --
Portfolio turnover rate % 175 140 71 39 35 40 85
<CAPTION>
YEAR ENDED DECEMBER 31, 1990 1989 1988
- --------------------------------------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 11.67 9.55 7.90
Net investment loss (0.20) (0.06) (0.13)
Net realized and unrealized gain
(loss) on investments (0.83) 2.18 1.78
TOTAL FROM INVESTMENT OPERATIONS (1.03) 2.12 1.65
Dividends from net realized gain on
investments sold -- -- --
TOTAL DISTRIBUTIONS -- -- --
NET ASSET VALUE AT THE END OF THE
PERIOD 10.64 11.67 9.55
TOTAL INVESTMENT RETURN(2) (8.83) 22.20 20.89
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 3,024 3,958 3,330
Ratio of expenses to average net
assets 2.95 2.95 2.96
Ratio of expense reimbursement to
average net assets 2.03 1.94 3.05
Ratio of net investment loss to
average net assets (0.97) (0.44) (1.06)
Average commissions per share -- -- --
Portfolio turnover rate 72 85 40
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
10 Special Fund
<PAGE>
Registrant
NORTHSTAR Northstar Trust
INTERNATIONAL Portfolio managers
VALUE FUND Charles Brandes,
Jeff Busby
OBJECTIVE
This fund's investment objective is long-term capital appreciation.
INVESTMENT
STRATEGY
The fund invests primarily in foreign companies with a market capitalization of
greater than $1 billion, but it may hold up to 25% of its assets in companies
with smaller market capitalization.
The portfolio managers apply the technique of "value investing" by seeking
stocks that their research indicates are priced below their long-term value.
This gives the fund both a possible margin of safety against price declines and
an opportunity for profit.
HOLDINGS
The fund holds common stocks, preferred stocks, American, European and Global
depository receipts, as well as convertible securities. It may also invest in
other higher-risk securities and engage in other investment practices. These are
described in the section beginning on page 40.
Under normal circumstances, it will invest at least 65% of its total assets in
securities of companies located in at least three countries other than the U.S.,
located in Western Europe, North and South America, Australia, Asia and other
nations. The fund may invest the greater of either 20% of its assets in any one
country or industry or 150% of the weighting of such country represented in the
Morgan Stanley Capital International European Australasian Far Eastern (MSCI
EAFE) Index, subject to any and all restrictions regarding industry
concentration or diversification requirements under the Investment Company Act.
RISKS
Because it invests in equities, the fund is affected by changes in the stock
market. It is also subject to the risks associated with investing in smaller
companies, foreign securities and emerging markets. Please refer to the section
beginning on page 40, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your initial
investment (as a % of offering price) % 4.75 none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee % 1.00 1.00 1.00
12b-1 fee(3) % 0.30 1.00 1.00
Other expenses % 0.50 0.50 0.50
TOTAL FUND OPERATING EXPENSES % 1.80 2.50 2.50
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 65 101 140 249
................................................................................
Class B
with redemption $ 75 108 153 266(4)
without redemption $ 25 78 133 266(4)
................................................................................
Class C
with redemption $ 35 78 133 284
without redemption $ 25 78 133 284
................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
10 International Value Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS INTERNATIONAL
PERFORMED The following The 1995 and 1996 VALUE FUND
[ICON] chart shows the figures have been
fund's financial audited by Ernst &
performance by Young, L.L.P. The
share class.(1) fund's performance
The 1997 figures is also reported
have been audited in national
by Coopers & newspapers under
Lybrand L.L.P., these trading
independent symbols: INTVALA,
accountants. INTVALB or
INTVALC.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
YEAR ENDED OCTOBER 31, 1997 1996 1995(1) 1997(2) 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the
beginning of the period $ 9.05 8.10 7.64 10.00 8.93 8.05 7.61
Net investment income (loss) $ (0.09) 0.14 0.09 (0.02) (0.06) 0.05 0.06
Net realized and unrealized
gain on investments $ 2.30 0.85 0.37 0.89 2.20 0.86 0.38
TOTAL FROM INVESTMENT
OPERATIONS $ 2.21 0.99 0.46 0.87 2.14 0.91 0.44
Dividends from net investment
income $ (0.14) (0.04) -- 0.00 (0.04) (0.03) --
Dividends from net realized
gain on investments sold $ (0.22) -- -- 0.00 (0.17) -- --
TOTAL DISTRIBUTIONS $ (0.36) (0.04) -- 0.00 (0.21) (0.03) --
NET ASSET VALUE AT THE END OF
THE PERIOD $ 10.90 9.05 8.10 10.87 10.86 8.93 8.05
TOTAL INVESTMENT RETURN(3) % 27.59 12.15 9.39(4) 8.70 25.92 11.39 8.89(4)
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) $ 60,539 16,777 5,188 59,185 62,103 14,530 5,749
Ratio of expenses to average
net assets % 1.80(4) 1.85 1.85(4) 2.50(4) 2.50(4) 2.50 2.50(4)
Ratio of expense
reimbursement to average net
assets % 0.27(4) 0.97 6.08(4) 0.08(4) 0.24(4) 1.21 6.08(4)
Ratio of net investment
income to average net assets % 0.46(4) 1.52 1.67(4) (0.71)(4) (0.23)(4) 0.62 1.13(4)
Average commissions per share $ 0.0218 0.0314 -- 0.0218 0.0218 0.0314 --
Portfolio turnover rate % 26 74 -- 26 26 74 --
</TABLE>
- --------------------------------------------------------------------------------
(1) The mutual fund commenced operations on March 6, 1995 as the Brandes
International Fund, a series of the Brandes Investment Trust. At the close
of business on April 18, 1997 (the "Closing"), the Northstar International
Value Fund ("International Value Fund") acquired the net assets of the
Brandes International Fund, pursuant to an Agreement of Reorganization dated
February 4, 1997. In accordance with the agreement, the International Value
Fund, at the closing, issued 4,152,725 shares having an aggregate value of
$41,569,860 which included unrealized appreciation on investments of
$4,321,823. As a result, the International Value Fund issued 1.637 shares
for each Brandes International Fund Class A share and 1.643 shares for each
Brandes International Fund Class C share. 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
International Value Fund were $41,569,860 with a net asset value of $10.00
for Class A and Class C shares. On April 21, 1997, the Brandes International
Fund was reorganized as the Northstar International Value Fund.
(2) Class B commenced operations on April 18, 1997.
(3) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(4) Annualized.
[ICON]
If you have any questions, please call 1-800-595-7827.
International Value Fund 11
<PAGE>
Registrant
NORTHSTAR Northstar Trust
EMERGING Portfolio managers
MARKETS VALUE FUND Charles Brandes,
Ian Sunder
OBJECTIVE
This fund's investment objective is long-term capital appreciation.
INVESTMENT
STRATEGY
The fund invests primarily in companies located in countries with emerging
markets.
The portfolio managers apply the technique of "value investing" by seeking
stocks that their research indicates are priced below their long-term value.
This gives the fund both a possible margin of safety against price declines and
an opportunity for profit.
HOLDINGS
The fund holds primarily common stocks, preferred stocks, American, European and
Global depository receipts, shares of closed-end investment companies, as well
as convertible securities. It may also invest in other higher-risk securities
and engage in other investment practices. These are described in the section
beginning on page 42.
Under normal market conditions, it will invest at least 65% of its total assets
in securities of companies located in countries with emerging markets. Countries
with emerging markets include those countries that are generally considered to
be emerging countries by the international financial community. The fund may
invest the greater of either 20% of its assets in any one country or industry or
150% of the weighting of such country or industry represented in the Morgan
Stanley Capital International Emerging Markets Free (MSCI EMF) Index, subject to
any and all restrictions regarding industry concentration or diversification
requirements under the Investment Company Act.
RISKS
Because it invests in equities, the fund is affected by changes in stock
markets. It is also subject to the risks associated with investing in smaller
companies, foreign securities and emerging markets. Please refer to the section
beginning on page 42, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares,
and operating expenses paid each year by the fund.
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your initial
investment (as a % of offering price) % 4.75 none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee(3) % 1.00 1.00 1.00
12b-1 fee(4) % 0.30 1.00 1.00
Other expenses(3) % 0.50 0.50 0.50
TOTAL FUND OPERATING EXPENSES(3) % 1.80 2.50 2.50
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average return of 5%, and
annual operating expenses remained at the current level. Keep in mind that this
is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 65 101 140 249
................................................................................
Class B
with redemption $ 75 108 153 266(5)
without redemption $ 25 78 133 266(5)
................................................................................
Class C
with redemption $ 35 78 133 284
without redemption $ 25 78 133 284
................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 33 for details.
(2) This charge decreases over time. Please see page 33 for details.
- -------------------------------
(3) The adviser, subadviser and administrator have agreed to waive or reimburse
fees until the net assets of the fund exceed $25 million or until April 1,
1998, whichever comes first. These figures are after the adviser reimbursed
certain expenses. Before reimbursement, management fee would have been 1.00%
for Class A, Class B and Class C; other expenses would have been 0.70% for
Class A, Class B and Class C; and total fund operating expenses would have
been 2.00% for Class A and 2.70% for Class B and Class C.
(4) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- -------------------------------
(5) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
<PAGE>
(This page intentionally left blank.)
[ICON]
If you have any questions, please call 1-800-595-7827.
13
<PAGE>
NORTHSTAR Registrant
INCOME AND Northstar Trust
GROWTH FUND Portfolio manager
Geoffrey Wadsworth
OBJECTIVE
This fund seeks current income balanced with capital appreciation primarily by
investing in dividend paying equity securities, convertible securities, and
investment grade debt securities.
INVESTMENT
STRATEGY
The fund invests in a mix of equity and investment grade debt securities
designed to provide both current income and long-term growth of capital.
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in income-producing securities. It generally holds no more than 30% of
its assets in convertible securities. It may invest up to 20% of its net assets
in foreign issuers, but only 10% can be in securities that are not listed on a
U.S. securities exchange. The fund may invest in interests in real estate
investment trusts. It may also invest in other higher-risk securities and engage
in other investment practices. These are described in the section beginning on
page 40.
RISKS
Because it is an income and growth fund, the fund is affected by changes in
interest rates. It is also subject to the risks associated with investing in
foreign securities. Please refer to the section beginning on page 40, THE RISKS
OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your initial
investment (as a % of offering price) % 4.75 none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee(3) % 0.75 0.75 0.75
12b-1 fee(4) % 0.30 1.00 1.00
Other expenses % 0.42 0.43 0.40
TOTAL FUND OPERATING EXPENSES % 1.47 2.18 2.15
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 62 92 124 215
................................................................................
Class B
with redemption $ 72 98 137 233(5)
without redemption $ 22 68 117 233(5)
................................................................................
Class C
with redemption $ 32 67 115 248
without redemption $ 22 67 115 248
................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) This is the maximum management fee. The actual fee charged reduces with
asset size: 0.75% on the first $250 million, 0.70% on the next $250 million,
0.65% on the next $250 million, 0.60% on the next $250 million and 0.55% on
assets over $1 billion.
(4) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(5) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
14 Income and Growth Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS INCOME AND
PERFORMED The following The fund's GROWTH FUND
[ICON] chart shows the performance is
fund's financial also reported in
performance by national
share class. These newspapers under
figures have been these trading
audited by Coopers symbols: INCGRA,
& Lybrand L.L.P., INCGRB or INCGRC.
independent
accountants.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
YEAR ENDED OCTOBER 31, 1997 1996 1995 1994(1) 1997 1996 1995 1994(1) 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the
beginning of the period $ 12.16 10.86 10.00 10.00 12.13 10.84 9.99 10.64 12.12
Net investment income $ 0.38 0.32 0.35 0.30 0.27 0.24 0.27 0.20 0.28
Net realized and unrealized
gain (loss) on investments $ 1.53 1.29 0.84 (0.05) 1.55 1.28 0.85 (0.65) 1.54
TOTAL FROM INVESTMENT
OPERATIONS $ 1.91 1.61 1.19 0.25 1.82 1.52 1.12 (0.45) 1.82
Dividends from net investment
income $ (0.34) (0.31) (0.33) (0.25) (0.25) (0.23) (0.27) (0.20) (0.26)
Dividends from net realized
gain on investments sold $ (1.26) -- -- -- (1.26) -- -- -- (1.26)
TOTAL DISTRIBUTIONS $ (1.60) (0.31) (0.33) (0.25) (1.51) (0.23) (0.27) (0.20) (1.52)
NET ASSET VALUE AT THE END OF
THE PERIOD $ 12.47 12.16 10.86 10.00 12.44 12.13 10.84 9.99 12.42
TOTAL INVESTMENT RETURN(2) % 17.02 14.48 13.19 2.48 15.06 13.60 12.31 (4.20) 15.04
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) $ 53,805 85,250 76,031 72,223 73,829 71,123 60,347 37,767 69,494
Ratio of expenses to average
net assets % 1.47 1.52 1.51 1.50(3) 2.18 2.26 2.23 2.20(3) 2.15
Ratio of expense
reimbursement to average net
assets % -- -- -- 0.47(3) -- -- -- 0.16(3) --
Ratio of net investment
income to average net assets % 2.90 2.78 3.39 3.73(3) 2.18 2.04 2.66 3.00(3) 2.21
Average commissions per share $ 0.0600 0.0600 -- -- 0.0600 0.0600 -- -- 0.0600
Portfolio turnover rate % 56 147 91 26 56 147 91 26 56
<CAPTION>
YEAR ENDED OCTOBER 31, 1996 1995 1994(1)
- ------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the
beginning of the period 10.83 9.99 10.37
Net investment income 0.24 0.27 0.20
Net realized and unrealized
gain (loss) on investments 1.28 0.85 (0.38)
TOTAL FROM INVESTMENT
OPERATIONS 1.52 1.12 (0.18)
Dividends from net investment
income (0.23) (0.28) (0.20)
Dividends from net realized
gain on investments sold -- -- --
TOTAL DISTRIBUTIONS (0.23) (0.28) (0.20)
NET ASSET VALUE AT THE END OF
THE PERIOD 12.12 10.83 9.99
TOTAL INVESTMENT RETURN(2) 13.68 12.33 (1.75)
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) 60,458 53,661 4,823
Ratio of expenses to average
net assets 2.20 2.22 2.20(3)
Ratio of expense
reimbursement to average net
assets -- -- 0.06(3)
Ratio of net investment
income to average net assets 2.10 2.67 2.87(3)
Average commissions per share 0.0600 -- --
Portfolio turnover rate 147 91 26
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A commenced operations on November 8, 1993. Class B commenced
operations on February 9, 1994. Class C commenced operations on March 31,
1994.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[ICON]
If you have any questions, please call 1-800-595-7827.
Income and Growth Fund 15
<PAGE>
Registrant
NORTHSTAR Northstar Balance
BALANCE SHEET Sheet
OPPORTUNITIES Opportunities Fund
FUND Portfolio manager
Thomas Ole Dial
OBJECTIVE
This fund seeks income, with a secondary objective of capital appreciation,
primarily by investing in domestic debt and equity securities.
INVESTMENT
STRATEGY
The portfolio manager reviews various factors relating to a potential issuer,
especially its financial statements, to determine which type of security -- debt
or equity -- offers the best potential for high current income combined with the
potential for capital growth.
HOLDINGS
Under normal market conditions, the fund invests at least 51% of its total
assets in income-producing securities. It may hold up to 50% of its assets in
debt securities rated as low as B by Moody's or S&P (junk bonds). Equity
securities include common stocks, preferred stocks, convertible securities and
warrants and other stock purchase rights. Income-producing securities have
varying maturities and pay fixed, floating or adjustable interest rates. The
fund may also hold pay-in-kind securities and discount obligations, including
zero coupon securities. The fund may invest up to 20% of its net assets in
foreign issuers, but only 10% of its net assets can be in securities that are
not listed on a U.S. securities exchange. It may also invest in other
higher-risk securities and engage in other investment practices. These are
described in the section beginning on page 40.
RISKS
Because it is an income and growth fund, the fund is affected by changes in
interest rates. It is also subject to the risks associated with investing in
junk bonds and foreign securities. Please refer to the section beginning on page
40, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee % 0.65 0.65 0.65 0.65
12b-1 fee(3) % 0.30 1.00 1.00 0.75
Other expenses % 0.55 0.50 0.60 0.43
TOTAL FUND OPERATING EXPENSES % 1.50 2.15 2.25 1.83
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 62 93 125 218
..........................................................................................................................
Class B
with redemption $ 72 97 135 232(4)
without redemption $ 22 67 115 232(4)
..........................................................................................................................
Class C
with redemption $ 33 70 120 258
without redemption $ 23 70 120 258
..........................................................................................................................
Class T
with redemption $ 59 78 99 206 (5)
without redemption $ 19 58 99 206 (5)
..........................................................................................................................
</TABLE>
- ----------------------------
16 Balance Sheet Opportunities Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS BALANCE SHEET
PERFORMED The following Audited by other OPPORTUNITIES
[ICON] chart shows the independent FUND
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., this trading
independent symbol: BASHOPT.
accountants.
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(5) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Balance Sheet Opportunities Fund 17
<PAGE>
REGISTRANT
NORTHSTAR Northstar Balance
BALANCE SHEET Sheet
OPPORTUNITIES Opportunities Fund
FUND PORTFOLIO MANAGER
Thomas Ole Dial
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 11.78 12.53 12.77 11.74 12.51 12.77
Net investment income $ 0.52 0.56 0.43 0.44 0.50 0.35
Net realized and unrealized gain on
investments $ 2.27 0.74 1.06 2.25 0.71 1.09
TOTAL FROM INVESTMENT OPERATIONS $ 2.79 1.30 1.49 2.69 1.21 1.44
Dividends from net investment income $ (0.54) (0.57) (0.48) (0.46) (0.50) (0.45)
Dividends from net realized gain on
investments sold $ (1.03) (1.48) (1.25) (1.03) (1.48) (1.25)
TOTAL DISTRIBUTIONS $ (1.57) (2.05) (1.73) (1.49) (1.98) (1.70)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 13.00 11.78 12.53 12.94 11.74 12.51
TOTAL INVESTMENT RETURN(2) % 24.31 10.54 11.95 23.48 9.76 11.56
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 1,281 1,100 797 4,969 3,765 1,759
Ratio of expenses to average net
assets % 1.50 1.40 1.27(3) 2.15 2.10 1.95(3)
Ratio of expense reimbursement to
average net assets % 0.02 0.09 -- 0.02 0.07 --
Ratio of net investment income to
average net assets % 4.01 4.30 4.99(3) 3.37 3.64 4.38(3)
Average commissions per share $ 0.0629 0.0690 -- 0.0629 0.0690 --
Portfolio turnover rate % 130 107 131 130 107 131
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1)
- --------------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 11.75 12.52 12.77
Net investment income 0.43 0.49 0.38
Net realized and unrealized gain on
investments 2.25 0.70 1.07
TOTAL FROM INVESTMENT OPERATIONS 2.68 1.19 1.45
Dividends from net investment income (0.45) (0.48) (0.45)
Dividends from net realized gain on
investments sold (1.03) (1.48) (1.25)
TOTAL DISTRIBUTIONS (1.48) (1.96) 1.70
NET ASSET VALUE AT THE END OF THE
PERIOD 12.95 11.75 12.52
TOTAL INVESTMENT RETURN(2) 23.41 9.72 11.49
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 756 372 231
Ratio of expenses to average net
assets 2.25 2.10 1.91(3)
Ratio of expense reimbursement to
average net assets -- 0.10 --
Ratio of net investment income to
average net assets 3.30 3.61 4.49(3)
Average commissions per share 0.0629 0.0690 --
Portfolio turnover rate 130 107 131
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 11.79 12.54 11.54 12.94 12.05 11.66 10.13
Net investment income $ 0.50 0.53 0.57 0.57 0.49 0.55 0.57
Net realized and unrealized gain
(loss) on investments $ 2.24 0.73 2.27 (1.25) 1.20 0.36 1.53
TOTAL FROM INVESTMENT OPERATIONS $ 2.74 1.26 2.84 (0.68) 1.69 0.91 2.10
Dividends from net investment income $ (0.49) (0.53) (0.59) (0.54) (0.49) (0.52) (0.57)
Dividends from net realized gain on
investments sold $ (1.03) (1.48) (1.25) (0.16) (0.31) -- --
Distributions from capital $ -- -- -- (0.02) -- -- --
TOTAL DISTRIBUTIONS $ (1.52) (2.01) (1.84) (0.72) (0.80) (0.52) (0.57)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 13.01 11.79 12.54 11.54 12.94 12.05 11.66
TOTAL INVESTMENT RETURN(2) % 23.91 10.18 25.11 (5.33) 14.08 8.06 21.17
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 53,201 59,490 72,472 73,764 80,841 56,823 49,367
Ratio of expenses to average net
assets % 1.83 1.69 1.68 1.69 1.77 2.02 2.06
Ratio of expense reimbursement to
average net assets % 0.04 0.06 -- -- -- -- --
Ratio of net investment income to
average net assets % 3.70 3.99 4.44 4.36 3.99 4.73 5.21
Average commissions per share $ 0.0629 0.0690 -- -- -- -- --
Portfolio turnover rate % 130 107 131 59 38 59 77
<CAPTION>
YEAR ENDED DECEMBER 31, 1990 1989 1988
- --------------------------------------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 10.71 9.71 9.11
Net investment income 0.61 0.68 0.62
Net realized and unrealized gain
(loss) on investments (0.54) 1.00 0.58
TOTAL FROM INVESTMENT OPERATIONS 0.07 1.68 1.20
Dividends from net investment income (0.63) (0.68) (0.60)
Dividends from net realized gain on
investments sold -- -- --
Distributions from capital (0.02) -- --
TOTAL DISTRIBUTIONS (0.65) (0.68) (0.60)
NET ASSET VALUE AT THE END OF THE
PERIOD 10.13 10.71 9.71
TOTAL INVESTMENT RETURN(2) 0.78 17.70 13.39
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 44,750 58,006 57,425
Ratio of expenses to average net
assets 2.10 2.04 2.10
Ratio of expense reimbursement to
average net assets -- -- --
Ratio of net investment income to
average net assets 5.73 6.38 6.30
Average commissions per share -- -- --
Portfolio turnover rate 57 56 25
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
18 Balance Sheet Opportunities Fund
<PAGE>
Registrant
NORTHSTAR Northstar High
HIGH YIELD Yield Fund
FUND Portfolio manager
Jeffrey Aurigemma
OBJECTIVE
This fund seeks high current income by investing primarily in long-term and
intermediate-term fixed income securities, with emphasis on high-yield corporate
debt instruments of domestic and foreign issuers.
INVESTMENT
STRATEGY
The fund invests mostly in high-yield bonds (junk bonds) to achieve high current
income.
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in high-yield or junk bonds rated below investment grade. It can hold up
to 100% of its assets in debt securities rated as low as Ca by Moody's or CC by
S&P or in securities that aren't rated but Northstar considers to be of
equivalent quality, and up to 1% of its assets in bonds in the lowest rating
categories. It may invest up to 35% of its net assets in foreign issuers, but
only 10% can be in securities that are not listed on a U.S. securities exchange.
The fund may also hold up to 25% of its assets in equity or equity-related
instruments, such as preferred stocks, convertible securities and rights and
warrants associated with debt instruments. It may also invest in other
higher-risk securities and engage in other investment practices. These are
described in the section beginning on page 40.
RISKS
Because it is an income fund, the fund is affected by changes in interest rates.
It is also subject to the risks associated with investing in lower-rated bonds
that are speculative in nature and foreign securities. Please refer to the
section beginning on page 40, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee % 0.60 0.60 0.60 0.60
12b-1 fee(3) % 0.30 1.00 1.00 0.65(4)
Other expenses % 0.30 0.31 0.32 0.22
TOTAL FUND OPERATING EXPENSES % 1.20 1.91 1.92 1.47
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 59 84 110 186
..........................................................................................................................
Class B
with redemption $ 69 90 123 205(5)
without redemption $ 19 60 103 205(5)
..........................................................................................................................
Class C
with redemption $ 29 60 104 224
without redemption $ 19 60 104 224
..........................................................................................................................
Class T
with redemption $ 55 66 80 168 (6)
without redemption $ 15 46 80 168 (6)
..........................................................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
(4) The Class T 12b-1 Plan provides for payments up to 0.95%.
- ----------------------------
(5) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(6) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
18 High Yield Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS HIGH YIELD
PERFORMED The following Audited by other FUND
[ICON] chart shows the independent
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., these trading
independent symbols: HIYLDB or
accountants. HIYLDT.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
High Yield Fund 19
<PAGE>
REGISTRANT
NORTHSTAR Northstar High
HIGH YIELD Yield Fund
FUND PORTFOLIO MANAGER
Jeffrey Aurigemma
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 8.94 8.56 8.68 8.95 8.57 8.68
Net investment income $ 0.73 0.76 0.48 0.67 0.71 0.44
Net realized and unrealized gain
(loss) on investments $ 0.23 0.44 (0.10) 0.23 0.43 (0.09)
TOTAL FROM INVESTMENT OPERATIONS $ 0.96 1.20 0.38 0.90 1.14 0.35
Dividends from net investment income $ (0.76) (0.75) (0.50) (0.70) (0.69) (0.46)
Dividends from capital $ -- (0.07) -- -- (0.07) --
TOTAL DISTRIBUTIONS $ (0.76) (0.82) (0.50) (0.70) (0.76) (0.46)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 9.14 8.94 8.56 9.15 8.95 8.57
TOTAL INVESTMENT RETURN(2) % 11.18 14.74 4.48 10.38 13.94 4.17
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 16,213 13,146 7,466 108,469 79,199 29,063
Ratio of expenses to average net
assets % 1.20 1.11 1.02(4) 1.91 1.81 1.71(4)
Ratio of net investment income to
average net assets % 8.06 8.60 9.83(4) 7.35 7.88 9.18(4)
Average commissions per share $ -- 0.0777 -- -- 0.0777 --
Portfolio turnover rate % 134 128 103 134 128 103
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1)
- --------------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 8.95 8.57 8.68
Net investment income 0.67 0.72 0.44
Net realized and unrealized gain
(loss) on investments 0.23 0.42 (0.09)
TOTAL FROM INVESTMENT OPERATIONS 0.90 1.14 0.35
Dividends from net investment income (0.70) (0.76) (0.46)
Dividends from capital -- (0.07) --
TOTAL DISTRIBUTIONS (0.70) (0.76) (0.46)
NET ASSET VALUE AT THE END OF THE
PERIOD 9.15 8.95 8.57
TOTAL INVESTMENT RETURN(2) 10.37 13.93 4.17
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 21,393 14,275 3,410
Ratio of expenses to average net
assets 1.92 1.82 1.72(4)
Ratio of net investment income to
average net assets 7.35 7.85 9.29(4)
Average commissions per share -- 0.0777 --
Portfolio turnover rate 134 128 103
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 8.94 8.56 8.29 9.31 9.09 7.94 6.27
Net investment income $ 0.71 0.73 0.84 0.81 0.85 0.92 1.08
Net realized and unrealized gain
(loss) on investments $ 0.23 0.45 0.26 (0.99) 0.80 1.19 1.67
TOTAL FROM INVESTMENT OPERATIONS $ 0.94 1.18 1.10 (0.18) 1.65 2.11 2.75
Dividends from net investment income $ (0.74) (0.73) (0.83) (0.83) (0.83) (0.94) (1.08)
Dividends from net realized gain $ -- -- -- (0.01) (0.60) (0.02) --
Distributions from capital $ -- (0.07) -- -- -- -- --
TOTAL DISTRIBUTIONS $ (0.74) (0.80) (0.83) (0.84) (1.43) (0.96) (1.08)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 9.14 8.94 8.56 8.29 9.31 9.09 7.94
TOTAL INVESTMENT RETURN(2) % 10.86 14.49 13.71 (2.18) 18.89 27.57 46.49
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 109,320 124,431 139,711 136,426 125,095 64,063 25,651
Ratio of expenses to average net
assets % 1.47 1.31 1.33 1.34 1.40 1.50 1.50
Ratio of expense reimbursement to
average net assets % -- -- -- -- -- 0.05 0.46
Ratio of net investment income (loss)
to average net assets % 7.77 8.43 9.69 9.08 8.84 10.30 14.84
Average commissions per share $ -- 0.0777 -- -- -- -- --
Portfolio turnover rate % 134 128 103 86 176 122 57
<CAPTION>
YEAR ENDED DECEMBER 31, 1990 1989(3)
- --------------------------------------
<S> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 8.55 10.00
Net investment income 1.12 0.60
Net realized and unrealized gain
(loss) on investments (2.30) (1.45)
TOTAL FROM INVESTMENT OPERATIONS (1.18) (0.85)
Dividends from net investment income (1.10) (0.60)
Dividends from net realized gain -- --
Distributions from capital -- --
TOTAL DISTRIBUTIONS (1.10) (0.60)
NET ASSET VALUE AT THE END OF THE
PERIOD 6.27 8.55
TOTAL INVESTMENT RETURN(2) (14.59) (8.81)
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 11,342 11,045
Ratio of expenses to average net
assets 1.44 1.35(4)
Ratio of expense reimbursement to
average net assets 0.81 1.30(4)
Ratio of net investment income (loss)
to average net assets 15.15 11.44(4)
Average commissions per share -- --
Portfolio turnover rate 156 40
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Class T commenced operations on May 30, 1989.
(4) Annualized.
20 High Yield Fund
<PAGE>
Registrant
NORTHSTAR Northstar Trust
HIGH TOTAL Portfolio managers
RETURN FUND II Thomas Ole Dial,
Jeffrey Aurigemma
OBJECTIVE
This fund seeks high income and capital appreciation.
INVESTMENT
STRATEGY
The fund invests primarily in higher-yielding, lower-rated bonds (junk bonds) to
achieve high current income with potential for capital growth.
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of
U.S. and foreign issuers. It may also invest up to 35% of its total assets in
securities denominated in foreign currencies. No more than 50% of its assets can
be in securities of foreign issuers, including 35% in emerging market debt. Most
of the debt securities the fund invests in are lower-rated and considered
speculative, including bonds in the lowest rating categories and unrated bonds.
It can invest up to 10%, and can hold up to 25% of its assets in securities
rated below Caa by Moody's or CCC by S&P. It also holds debt securities that pay
fixed, floating or adjustable interest rates and may hold pay-in-kind securities
and discount obligations, including zero coupon securities. The fund may also
invest in equity or equity-related securities, such as common stock, preferred
stock, convertible securities and rights and warrants attached to debt
instruments. It may also invest in other higher-risk securities and engage in
other investment practices. These are described in the section beginning on page
40.
RISKS
Because it is an income fund, the fund is affected by changes in interest rates.
It is also subject to the risks associated with investing in lower-rated bonds
that are speculative in nature and foreign securities. Please refer to the
section beginning on page 40, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your
initial
investment (as a % of
offering price) % 4.75 none none
Maximum deferred sales
charge % none(1) 5.00(2) 1.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee % 0.75 0.75 0.75
12b-1 fee(3) % 0.30 1.00 1.00
Other expenses % 0.21 0.20 0.20
TOTAL FUND OPERATING EXPENSES % 1.26 1.95 1.95
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 60 86 113 193
................................................................................
Class B
with redemption $ 70 91 125 209(4)
without redemption $ 20 61 105 209(4)
................................................................................
Class C
with redemption $ 30 61 105 227
without redemption $ 20 61 105 227
................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
<PAGE>
HOW THE NORTHSTAR
FUND HAS HIGH TOTAL
PERFORMED The following The fund's RETURN FUND II
[ICON] chart shows the performance is
fund's financial also reported in
performance by national
share class. These newspapers under
figures have been this trading
audited by Coopers symbol: HTR 2 B.
& Lybrand L.L.P.,
independent
accountants.
<TABLE>
<CAPTION>
CLASS A(1) CLASS B(1) CLASS C(1)
YEAR ENDED OCTOBER 31, 1997 1997 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the
beginning of the period $ 5.00 5.00 5.00
Net investment income $ 0.28 0.25 0.25
Net realized and unrealized
loss on investments $ 0.53 0.53 0.54
TOTAL FROM INVESTMENT
OPERATIONS $ 0.81 0.78 0.79
Dividends from net investment
income $ (0.28) (0.25) (0.25)
DIVIDENDS FROM NET REALIZED
GAIN (LOSS) ON INVESTMENTS
SOLD $ (0.04) (0.04) (0.04)
TOTAL DISTRIBUTIONS $ (0.32) (0.29) (0.29)
NET ASSET VALUE AT THE END OF
THE PERIOD $ 5.49 5.49 5.50
TOTAL INVESTMENT RETURN(2) % 16.53 15.91 16.12
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) $ 8,548 38,076 12,334
Ratio of expenses to average
net assets(3) % 1.26 1.95 1.95
Ratio of expense
reimbursement to average net
assets(3) % 3.36 0.75 0.78
Ratio of net investment
income to average net
assets(3) % 5.89 5.20 5.17
Portfolio turnover rate % 164 164 164
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B and C commenced operations on January 31, 1997.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[ICON]
If you have any questions, please call 1-800-595-7827.
High Total Return Fund II 21
<PAGE>
Registrant
NORTHSTAR Northstar
STRATEGIC Strategic Income
INCOME Fund
FUND Portfolio manager
Ryan Johanson
OBJECTIVE
This fund seeks high current income and a net asset value with limited
volatility by allocating substantially all of its assets among (i) U.S.
Government Securities, (ii) high-yield securities, including preferred stocks,
convertible securities, zero coupon, pay-in-kind securities and lower-rated
foreign government securities, (iii) investment grade corporate debt securities,
and (iv) investment grade securities (or unrated securities that Northstar
determines to be of equivalent quality) issued by foreign governments or their
agencies or instrumentalities, or supranational entities.
INVESTMENT
STRATEGY
The portfolio manager rotates the allocation of assets between the four sectors
based on the economic outlook, to maximize current income without assuming undue
risk. To control risk, the fund will never allocate more than 60% of its assets
to a single sector.
HOLDINGS
In addition to the securities listed above, the fund holds debt securities rated
as low as Ca by Moody's or CC by S&P or in securities that aren't rated but
Northstar considers to be equivalent quality (junk bonds). Up to 10% of the
assets allocated to the high-yield sector can be in bonds in the lowest rating
categories (C by Moody's and D by S&P) including bonds in default. It may also
invest in other higher-risk securities and engage in other investment practices.
These are described in the section beginning on page 40.
RISKS
Because it is an income fund, the fund is affected by changes in interest rates.
It is also subject to the risks associated with investing in junk bonds and
foreign securities, but the fund also attempts to limit these risks by investing
in less volatile securities. Please refer to the section beginning on page 40,
THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a %
of offering price) % 4.75 none none none
Maximum deferred sales
charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee % 0.65 0.65 0.65 0.65
12b-1 fee(3) % 0.30 1.00 1.00 0.95(4)
Other expenses % 0.50 0.53 0.52 0.43
TOTAL FUND OPERATING
EXPENSES % 1.45 2.18 2.17 2.03
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 62 91 123 213
..........................................................................................................................
Class B
with redemption $ 72 98 137 233(5)
without redemption $ 22 68 117 233(5)
..........................................................................................................................
Class C
with redemption $ 32 68 116 250
without redemption $ 22 68 116 250
..........................................................................................................................
Class T
with redemption $ 61 84 109 221 (6)
without redemption $ 21 64 109 221 (6)
..........................................................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
(4) The Class T 12b-1 Plan provides for payments up to 1.00%.
- ----------------------------
(5) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
22 Strategic Income Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS STRATEGIC
PERFORMED The following Audited by other INCOME
[ICON] chart shows the independent FUND
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., these trading
independent symbols: STRINCA,
accountants. STRINCB or STRINT.
(6) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Strategic Income Fund 23
<PAGE>
REGISTRANT
NORTHSTAR Northstar
STRATEGIC Strategic Income
INCOME Fund
FUND PORTFOLIO MANAGER
Ryan Johanson
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 12.67 12.40 12.24 12.67 12.39 12.24
Net investment income $ 1.00 0.93 0.63 0.87 0.85 0.55
Net realized and unrealized gain (loss) on
investments $ (0.69) 0.35 0.13 (0.66) 0.36 0.15
TOTAL FROM INVESTMENT OPERATIONS $ 0.31 1.28 0.76 0.21 1.21 0.70
Dividends from net investment income $ (0.94) (1.01) (0.60) (0.85) (0.93) (0.55)
TOTAL DISTRIBUTIONS $ (0.94) (1.01) (0.60) (0.85) (0.93) (0.55)
NET ASSET VALUE AT THE END OF THE PERIOD $ 12.04 12.67 12.40 12.03 12.67 12.39
TOTAL INVESTMENT RETURN(2) % 2.50 10.88 6.40 1.67 10.18 5.89
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 12,523 17,293 21,790 29,921 30,733 22,143
Ratio of expenses to average net assets % 1.45 1.40 1.36 (3) 2.18 2.10 2.06(3)
Ratio of expense reimbursement to average
net assets % 0.03 0.05 0.07 (3) 0.02 0.09 0.06(3)
Ratio of net investment income to average
net assets % 7.75 7.55 7.03 (3) 7.02 6.82 6.47(3)
Portfolio turnover rate % 225 130 153 225 130 153
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1)
- -------------------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period 12.65 12.38 12.24
Net investment income 0.88 0.85 0.55
Net realized and unrealized gain (loss) on
investments (0.65) 0.35 0.14
TOTAL FROM INVESTMENT OPERATIONS 0.23 1.20 0.69
Dividends from net investment income (0.86) (0.93) (0.55)
TOTAL DISTRIBUTIONS (0.86) (0.93) (0.55)
NET ASSET VALUE AT THE END OF THE PERIOD 12.02 12.65 12.38
TOTAL INVESTMENT RETURN(2) 1.75 10.11 5.81
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 4,397 4,222 2,172
Ratio of expenses to average net assets 2.17 2.10 2.02 (3)
Ratio of expense reimbursement to average
net assets 0.02 0.11 0.06 (3)
Ratio of net investment income to average
net assets 7.03 6.79 6.48 (3)
Portfolio turnover rate 225 130 153
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994(4)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 12.67 12.39 11.71 12.00
Net investment income $ 0.94 0.88 0.98 0.51
Net realized and unrealized gain (loss) on
investments $ (0.70) 0.35 0.66 (0.25)
TOTAL FROM INVESTMENT OPERATIONS $ 0.24 1.23 1.64 0.26
Dividends from net investment income $ (0.87) (0.95) (0.96) (0.49)
Dividends from net realized gain on
investments sold $ -- -- -- (0.05)
Distributions from capital $ -- -- -- (0.01)
TOTAL DISTRIBUTIONS $ (0.87) (0.95) (0.96) (0.55)
NET ASSET VALUE AT THE END OF THE PERIOD $ 12.04 12.67 12.39 11.71
TOTAL INVESTMENT RETURN(2) % 1.89 10.39 14.54 2.14
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 20,172 27,350 30,228 25,252
Ratio of expenses to average net assets % 2.03 1.90 1.90 1.90(3)
Ratio of expense reimbursement to average
net assets % 0.05 0.09 0.28 0.63(3)
Ratio of net investment income to average
net assets % 7.17 7.07 6.86 7.92(3)
Portfolio turnover rate % 225 130 153 156
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------
<S> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period
Net investment income
Net realized and unrealized gain (loss) on
investments
TOTAL FROM INVESTMENT OPERATIONS
Dividends from net investment income
Dividends from net realized gain on
investments sold
Distributions from capital
TOTAL DISTRIBUTIONS
NET ASSET VALUE AT THE END OF THE PERIOD
TOTAL INVESTMENT RETURN(2)
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s)
Ratio of expenses to average net assets
Ratio of expense reimbursement to average
net assets
Ratio of net investment income to average
net assets
Portfolio turnover rate
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
(4) Class T commenced operations on July 1, 1994.
24 Strategic Income Fund
<PAGE>
Registrant
NORTHSTAR Northstar
GOVERNMENT Government
SECURITIES Securities Fund
FUND Portfolio manager
Ryan Johanson
OBJECTIVE
This fund seeks high current income and conservation of principal by investing
primarily in debt obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities.
INVESTMENT
STRATEGY
The portfolio manager selects U.S. Government Securities of various terms
depending on interest rates and market opportunities. This fund is managed so it
qualifies as an investment for federal credit unions. Shareholders will be
notified 60 days before making any change to this policy.
HOLDINGS
Under normal conditions, the fund holds at least 65% of its total assets in
securities supported by the full faith and credit of the U.S. Government. No
more than 20% of its assets may be in securities issued by a single
instrumentality or agency not supported by the full faith and credit of the U.S.
Government. It may also invest in mortgage-backed, zero coupon and other
higher-risk securities and engage in other investment practices. These are
described in the section beginning on page 40.
To the extent that any investment or investment practice under the fund's
investment policies described in this prospectus or the SAI is not permissable
for federal credit unions, the fund shall refrain from purchasing such
investment or engaging in such practices.
RISKS
Because it is an income fund, the fund is affected by changes in interest rates.
Shares of this fund are not insured or guaranteed by the U.S. Government or its
agencies or instrumentalities, but the fund's holdings are not subject to the
credit risks associated with corporate securities. Please refer to the section
beginning on page 40, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee(5) % 0.50 0.50 0.50 0.50
12b-1 fee(3) % 0.30 1.00 1.00 0.65(4)
Other expenses % 0.35 0.39 0.35 0.30
TOTAL FUND OPERATING EXPENSES
AFTER WAIVER(5) % 1.15 1.89 1.85 1.45
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 59 82 108 181
..........................................................................................................................
Class B
with redemption $ 69 89 122 202(6)
without redemption $ 19 59 102 202(6)
..........................................................................................................................
Class C
with redemption $ 29 58 100 217
without redemption $ 19 58 100 217
..........................................................................................................................
Class T
with redemption $ 55 66 79 165 (7)
without redemption $ 15 46 79 165 (7)
..........................................................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
24 Government Securities Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS GOVERNMENT
PERFORMED The following Audited by other SECURITIES
[ICON] chart shows the independent FUND
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., this trading
independent symbol: GOVTT.
accountants.
(4) The Class T 12b-1 plan provides for payment up to 0.95%.
(5) After management fee waiver of 0.15% effective June 2, 1997. Without the
waiver, the management fee would be 0.65% and the total fund operating
expenses would be 1.30% for Class A, 2.04% for Class B, 2.00% for Class C
and 1.60% for Class T.
- ----------------------------
(6) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(7) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Government Securities Fund 25
<PAGE>
REGISTRANT
NORTHSTAR Northstar
GOVERNMENT Government
SECURITIES Securities Fund
FUND PORTFOLIO MANAGER
Ryan Johanson
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1) 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 9.48 10.07 9.51 9.48 10.07 9.51 9.47
Net investment income $ 0.68 0.63 0.34 0.52 0.57 0.30 0.59
Net realized and unrealized gain
(loss) on investments $ -- (0.60) 0.59 0.11 (0.60) 0.59 0.04
TOTAL FROM INVESTMENT OPERATIONS $ 0.68 0.03 0.93 0.63 (0.03) 0.89 0.63
Dividends from net investment income $ (0.63) (0.62) (0.37) (0.56) (0.56) (0.33) (0.56)
TOTAL DISTRIBUTIONS $ (0.63) (0.62) (0.37) (0.56) (0.56) (0.33) (0.56)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 9.53 9.48 10.07 9.55 9.48 10.07 9.54
TOTAL INVESTMENT RETURN(2) % 7.46 0.57 10.04 6.93 (0.15) 9.61 6.93
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 1,744 14,185 3,235 13,503 9,135 2,790 542
Ratio of expenses to average net
assets % 1.15 1.09 1.20(3) 1.89 1.80 1.70(3) 1.85
Ratio of expense reimbursement to
average net assets % 0.17 0.20 0.20(3) 0.17 0.20 0.20(3) 0.17
Ratio of net investment income to
average net assets % 6.44 6.85 6.01(3) 5.50 6.05 5.20(3) 5.67
Portfolio turnover rate % 129 101 295 129 101 295 129
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995(1)
- --------------------------------------
<S> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 10.07 9.51
Net investment income 0.58 0.30
Net realized and unrealized gain
(loss) on investments (0.62) 0.59
TOTAL FROM INVESTMENT OPERATIONS (0.04) 0.89
Dividends from net investment income (0.56) (0.33)
TOTAL DISTRIBUTIONS (0.56) (0.33)
NET ASSET VALUE AT THE END OF THE
PERIOD 9.47 10.07
TOTAL INVESTMENT RETURN(2) (0.21) 9.61
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 1,147 8
Ratio of expenses to average net
assets 1.80 1.68(3)
Ratio of expense reimbursement to
average net assets 0.21 0.20(3)
Ratio of net investment income to
average net assets 6.22 5.28(3)
Portfolio turnover rate 101 295
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 9.48 10.07 8.74 10.32 9.22 8.99 8.47
Net investment income $ 0.57 0.60 0.58 0.56 0.59 0.61 0.67
Net realized and unrealized gain
(loss) on investments $ 0.10 (0.59) 1.35 (1.56) 1.09 0.23 0.52
TOTAL FROM INVESTMENT OPERATIONS $ 0.67 0.01 1.93 (1.00) 1.68 0.84 1.19
Dividends from net investment income $ (0.60) (0.60) (0.60) (0.57) (0.58) (0.61) (0.67)
Distributions from capital $ -- -- -- (0.01) -- -- --
TOTAL DISTRIBUTIONS $ (0.60) (0.60) (0.60) (0.58) (0.58) (0.61) (0.67)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 9.55 9.48 10.07 8.74 10.32 9.22 8.99
Total investment return(2) % 7.38 0.32 22.90 (9.82) 18.48 9.77 14.73
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 89,939 112,126 150,951 152,608 184,156 144,144 121,389
Ratio of expenses to average net
assets % 1.45 1.30 1.30 1.29 1.31 1.39 1.44
Ratio of expense reimbursement and
waiver to average net assets % 0.20 0.21 0.20 0.20 0.20 0.20 0.20
Ratio of net investment income (loss)
to average net assets % 5.99 6.37 6.23 6.00 5.83 6.81 7.68
Portfolio turnover rate % 129 101 295 315 81 120 87
<CAPTION>
YEAR ENDED DECEMBER 31, 1990 1989 1988
- --------------------------------------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 8.47 8.26 8.80
Net investment income 0.68 0.72 0.75
Net realized and unrealized gain
(loss) on investments -- 0.21 (0.48)
TOTAL FROM INVESTMENT OPERATIONS 0.68 0.93 0.27
Dividends from net investment income (0.68) (0.72) (0.75)
Distributions from capital -- -- (0.06)
TOTAL DISTRIBUTIONS (0.68) (0.72) (0.81)
NET ASSET VALUE AT THE END OF THE
PERIOD 8.47 8.47 8.26
Total investment return(2) 8.57 11.73 2.97
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 108,420 123,735 169,421
Ratio of expenses to average net
assets 1.43 1.45 1.88
Ratio of expense reimbursement and
waiver to average net assets 0.20 0.20 --
Ratio of net investment income (loss)
to average net assets 8.23 8.57 8.47
Portfolio turnover rate 17 74 494
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
26 Government Securities Fund
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
JEFFREY AURIGEMMA
Jeffrey Aurigemma has managed the Northstar High Yield Fund since May 1997 and
has co-managed the Northstar High Total Return Fund II and the Northstar High
Total Return Fund since March 1998. He joined Northstar in October 1993.
Mr. Aurigemma has over eight years of experience in the management of high-yield
fixed-income investments. From October 1993 through May 1997 he was a senior
credit analyst for the Northstar High Total Return Fund. Before joining
Northstar, he was a Senior Analyst -- Fixed Income for National Securities &
Research Corporation.
CHARLES BRANDES
Charles Brandes has co-managed the Northstar International Value Fund and the
Northstar Emerging Markets Value Fund since inception. Mr. Brandes has over 30
years of investment management experience. He founded the general partner of
Brandes Investment Partners, L.P. in 1974 and owns a controlling interest in it.
At Brandes Investment Partners, L.P., he serves as a Managing Partner and senior
member of the investment committee.
Mr. Brandes earned his BA in Economics from Bucknell University. He is a
Chartered Financial Analyst and a member of the Association for Investment
Management and Research.
Charles Brandes and Jeff Busby structure the portfolio of the Northstar
International Value Fund from a buy list determined by Brandes' Investment
Committee, of which they are senior members.
JEFF BUSBY
Jeff Busby has been co-manager of the Northstar International Value Fund since
its inception. Mr. Busby has over 12 years of investment management experience.
At Brandes Investment Partners, L.P., he serves as a Managing Partner and senior
member of the Investment Committee. He is also responsible for overseeing all
trading activities for the firm.
Mr. Busby earned his BS in Chemical Engineering from Northwestern University and
his MBA in Finance from the University of California, Berkeley. He is a
Chartered Financial Analyst and a member of the Association for Investment
Management and Research and the Financial Analysts Society.
THOMAS OLE DIAL
Thomas Ole Dial has managed the Northstar High Total Return Fund II since its
inception, and has managed the Northstar Balance Sheet Opportunities Fund since
May 1997. He has managed the Northstar High Total Return Fund since its
inception in November 1993. Mr. Dial, who has over 11 years of investment
management experience, joined Northstar in October 1993.
Before joining Northstar, Mr. Dial was Executive Vice President, Chief
Investment Officer-Fixed Income of National Securities & Research Corporation,
and Senior Portfolio Manager of the National Bond Fund from August 1990 through
July 1993.
RYAN JOHANSON
Ryan Johanson has managed the Northstar Government Securities Fund since March
1997, and has managed the Northstar Strategic Income Fund since March 1997. He
joined Northstar in March 1997.
Mr. Johanson has over 11 years of experience in fixed-income investments. Before
joining Northstar, he was Director of Global Market Risk Management -- Asia for
Barclays Bank, Senior Manager of Banque Indosuez, and Chief Investment Officer
at Fidelity Federal Bank.
LOUIS NAVELLIER
Louis Navellier has managed the Northstar Growth + Value Fund since its
inception and has managed the Northstar Special Fund since February 1996.
Mr. Navellier has been managing assets since 1985 and is the sole owner of
Navellier & Associates, Inc., a registered investment adviser that manages
investments for high net worth individuals, institutions and pension funds.
IAN SUNDER
Ian Sunder has co-managed the Northstar Emerging Markets Value Fund since its
inception. Mr. Sunder has over eight years of investment management experience.
At Brandes Investment Partners, L.P., he serves as a Portfolio Manager and
member of the Investment Committee.
Mr. Sunder earned his BA in Commerce from Karnatak University, India and his
Master of Accountancy from Bowling Green State University. He is a Chartered
Financial Analyst and a member of the Association for Investment Management and
Research and the Financial Analysts Society.
Charles Brandes and Ian Sunder structure the portfolio of the Northstar Emerging
Markets Value Fund from a buy list determined by Brandes' Investment Committee,
of which Mr. Brandes is a senior member and Mr. Sunder is a member.
GEOFFREY WADSWORTH
Geoffrey Wadsworth has managed the Northstar Growth Fund since February 1996,
and has managed the Northstar Income and Growth Fund since January 1997. Mr.
Wadsworth, who has over 26 years of investment management experience, joined
Northstar in October 1993.
Before joining Northstar, Mr. Wadsworth was a Vice President of National
Securities & Research Corporation. He was portfolio manager of the National
Stock Fund and assistant manager of the National Income and Growth Fund,
National Worldwide Opportunities Fund and National Total Return Fund.
26
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
SUB-ADVISERS
BRANDES INVESTMENT PARTNERS, L.P.
A registered investment adviser, Brandes Investment Partners, L.P. serves as
sub-adviser to the Northstar International Value Fund and the Northstar Emerging
Markets Value Fund. The company was formed in May 1996 as the successor to its
general partner, Brandes Investment Partners, Inc. which has been (through
various predecessor entities) providing investment advisory services since 1974.
Brandes Investment Partners, L.P. currently manages over $15 billion in
international and global portfolios. Brandes receives a monthly fee for its
services based on the average daily net assets of each of the funds it manages.
The fee for each fund is paid by Northstar, and not by either of the funds, at a
rate of 50% of the management fee that each of the funds pay Northstar.
NAVELLIER FUND MANAGEMENT, INC.
A registered investment adviser, Navellier Fund Management was established to
provide sub-advisory investment services for various Northstar portfolios. It
currently serves as sub-adviser to the Northstar Growth + Value Fund and the
Northstar Special Fund and manages over $2 billion in aggressive growth and
growth portfolios. The company is wholly-owned by Louis Navellier.
Navellier Fund Management receives a monthly fee for its services based on the
average daily net assets of each of the funds it manages. The fee for each fund
is paid by Northstar, and not by either of the funds, at a rate of 0.64% for the
Northstar Growth + Value Fund and 0.48% for the Northstar Special Fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
27
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
PERFORMANCE
PROFILE:
The charts below show the average annual return and the cumulative total return
since inception for
BRANDES
the Northstar International Value Fund. The fund INVESTMENT PARTNERS
commenced operations on March 6, 1995 as the Brandes International Fund, a
series of the Brandes Investment Trust. It was reorganized on April 21, 1997 as
the Northstar International Value Fund, a series of the Northstar Trust.
These figures reflect changes in the share prices and reinvestment of dividends
and distributions, and are after deduction of all fees and expenses. Included
for comparison are performance figures of the MSCI EAFE Index, an unmanaged
index of securities listed on exchanges in markets in Europe, Australia and the
Far East. It has been adjusted to reflect reinvestment of dividends. The results
presented below may not equate with the return experienced by any shareholder as
a result of timing of investments and the effects of taxes on any shareholder.
<TABLE>
<CAPTION>
NORTHSTAR
INTERNATIONAL MSCI
VALUE FUND EAFE
(%) INDEX (%)
<S> <C> <C>
One year, ended
December 31, 1997 17.86 1.78
Cumulative total
return since March 6,
1995 52.30 25.18
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NORTHSTAR VALUE MSCI EAFE
<S> <C> <C>
International
Fund Index
Mar 1995 1.02 1.06
1.05 1.1
1.06 1.09
1.06 1.07
1.1 1.14
1.09 1.09
1.09 1.11
1.06 1.08
1.09 1.12
1.12 1.16
1996 1.15 1.18
1.14 1.17
1.13 1.19
1.18 1.23
1.17 1.21
1.18 1.21
1.14 1.18
1.16 1.18
1.19 1.21
1.19 1.2
1.27 1.25
1.29 1.23
1997 1.33 1.19
1.33 1.21
1.38 1.21
1.37 1.22
1.44 1.3
1.53 1.37
1.57 1.39
1.47 1.29
1.6 1.36
1.48 1.25
1.47 1.24
12/97 1.52 1.25
</TABLE>
28
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
PERFORMANCE
PROFILE:
The charts below show the past performance of
BRANDES
Brandes Investment Partners, L.P. in managing all INVESTMENT PARTNERS
accounts with investment objectives, policies,
These figures demonstrate the historical track record of Brandes Investment
Partners, L.P. The figures have been provided by Brandes Investment Partners,
L.P. and have not been verified or audited by Northstar. They do not indicate
how the Northstar International Value Fund or Brandes Investment Partners, L.P.
will perform in the future.
techniques and restrictions substantially similar,
(a) The annual returns presented (right) were calculated on a time-weighted and
asset-though not identical to those of the Northstar weighted, total return
basis, including International Value Fund. The charts show reinvestments of all
dividends, interest and income, realized and unrealized gain or losses average
annual returns and the cumulative total and are net of applicable investment
advisory fees, brokerage commissions and execution return since July 1990 for a
composite of the costs, custodial fees and any applicable foreign withholding
taxes, without provision actual performance of all international equity for
federal and state income taxes, if any. accounts managed by Brandes Investment
Partners This total return method differs from the SEC method of calculating
total return. The from July 1990 until the present.
Brandes composite results include all actual, fee-paying, fully discretionary
international equity accounts under management for at least one month beginning
July 1, 1990 having substantially similar investment objectives, policies,
techniques and restrictions to those of the Northstar International Value Fund.
The weighted-average management fee during the period from July 1, 1990 through
December 31, 1997 was 0.91% per year. Securities transactions are accounted for
on the trade date and cash accounting is utilized. Cash and cash equivalents are
included in performance results. Net annual returns for the composite for
calendar year 1991 have been arrested by an independent accounting firm.
Starting with calendar year 1992 through calendar year 1996, the composite has
been examined by a Big Six accounting firm in accordance with AIMR Level II
verification standards. The examination for calendar year 1997 has not been
completed as of the date of this prospectus. Copies of the reports of
independent accountants and a complete list and description of Brandes'
composites are available on request. Brandes has prepared the performance data
in compliance with the Performance Presentation Standards of the Association for
Investment Management and Research (AIMR-PPS-TM-). AIMR did not prepare or
review this data. The Fund agrees to conform the performance presentation to any
changes in the SEC staff position relating to prior performance presentations.
The accounts were not subject to the same types of expenses as the fund or the
requirements of the Investment Company Act of 1940 or the Internal Revenue Code,
the limitations of which might have adversely affected performance results.
Included for comparison purposes are performance figures of the MSCI EAFE Index.
The results presented below may not equate with the return experienced by any
particular account as a result of timing of investments and the effect of taxes
on any client.
<TABLE>
<CAPTION>
BRANDES
INTERNATIONAL MSCI
EQUITY COMPOSITE EAFE
(%)(A) INDEX (%)
<S> <C> <C>
One year,
ended December
31, 1997 20.00 1.78
Three years,
ended December
31, 1997 16.67 6.27
Five years,
ended December
31, 1997 16.76 11.39
Cumulative
total return
since
July 1, 1990 319 147
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
BRANDES
INTERNATIONAL MSCI EAFE
[ICON]
If you have any questions, please call 1-800-595-7827.
29
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
</TABLE>
<TABLE>
<S> <C> <C>
Equity Index
1990 0.98 0.79
0.99 0.87
1991 1.10 0.94
1.13 0.88
1.26 0.96
1.38 0.98
1992 1.43 0.86
1.52 0.88
1.47 0.89
1.47 0.86
1993 1.58 0.96
1.65 1.06
1.82 1.13
2.07 1.14
1994 2.01 1.18
1.96 1.24
2.11 1.24
2.01 1.23
1995 2.01 1.25
2.13 1.26
2.20 1.31
2.29 1.36
1996 2.31 1.40
2.41 1.42
2.44 1.42
2.66 1.45
1997 2.82 1.42
3.16 1.61
3.34 1.60
3.19 1.47
</TABLE>
30
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
PERFORMANCE
PROFILE:
The charts below show the average annual return
LOUIS NAVELLIER
and the cumulative total return since inception for the Northstar Growth + Value
Fund.
<TABLE>
<CAPTION>
NORTHSTAR
GROWTH +
VALUE FUND S&P 500
(%) INDEX (%)
<S> <C> <C>
One year, ended
December 31, 1997 18.10 33.35
Cumulative total
return since November
18, 1996 14.80 30.92
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NORTHSTAR GROWTH + VALUE
FUND S&P 500 INDEX
<S> <C> <C>
Dec-96 0.97 0.98
Jan-97 1.00 1.04
Feb-97 0.95 1.05
Mar-97 0.92 1.01
Apr-97 0.94 1.07
May-97 1.02 1.13
Jun-97 1.08 1.18
Jul-97 1.18 1.28
Aug-97 1.19 1.21
Sep-97 1.30 1.27
Oct-97 1.21 1.23
Nov-97 1.18 1.29
Dec-97 1.15 1.31
Unit value
</TABLE>
In addition to owning Navellier Fund Management, Inc., Louis Navellier is the
sole owner of Navellier & Associates, Inc., a registered investment adviser that
has been managing large pools of private assets since 1985.
Mr. Navellier and his staff use a computer-based system he developed to analyze
over 9,000 stocks as a basis for making buying and selling decisions.
The charts on page 33 show his past performance in managing accounts with
investment policies and objectives substantially similar to the Northstar Growth
+ Value Fund.
The charts show average annual returns and the cumulative total return since
January 1985 for a composite of the actual performance of all equity accounts
managed by Navellier & Associates from 1985 to present, calculated according to
AIMR standards. This total return method differs from the SEC method of
calculating total return. Navellier has prepared the performance data in
compliance with the Performance Presentation Standards of the Association for
Investment Management and Research (AIMR-PPS-TM-). AIMR did not prepare or
review this data. The Fund agrees to conform the performance presentation to any
changes in the SEC staff position relating to prior performance presentations.
The accounts were not subject to the requirements of the Investment Company Act
of 1940 or the Internal Revenue Code, the limitations of which might have
adversely affected performance results.
[ICON]
If you have any questions, please call 1-800-595-7827.
31
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
PERFORMANCE
PROFILE:
LOUIS NAVELLIER
These figures demonstrate the historical track record of Navellier & Associates.
The figures have been provided by Navellier & Associates and have not been
verified or audited by Northstar. They do not indicate how the Northstar Growth
+ Value Fund or Navellier & Associates will perform in the future.
(a) Results are after deduction of fees and expenses. Prior to January 1, 1993,
any account expenses not deducted from the accounts, such as management fees
paid outside the accounts, are not reflected in the performance results. If
these fees had been deducted from the accounts, they would have reduced
performance. Fees were not materially different from the Growth + Value Fund's
expense ratio, but were generally higher than the expense ratio for Class A
shares and lower than the expense ratios for Class B and C shares.
<TABLE>
<CAPTION>
NAVELLIER AND
ASSOCIATES
COMPOSITE S&P 500
(%)(A) INDEX (%)
<S> <C> <C>
1985 49.95 31.84
1986 31.20 18.66
1987 8.05 5.24
1988 11.40 16.51
1989 22.20 31.58
1990 12.51 (3.15)
1991 66.41 30.50
1992 3.12 7.61
1993 16.83 10.09
1994 1.53 1.31
</TABLE>
<TABLE>
<CAPTION>
NAVELLIER AND
ASSOCIATES
COMPOSITE S&P 500
(%)(A) INDEX (%)
<S> <C> <C>
1995 43.80 37.59
1996 10.68 22.31
1997 13.05 33.32
</TABLE>
32
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
<TABLE>
<S> <C> <C>
Three years, ended
December 31, 1997 21.61 30.88
Five years, ended
December 31, 1997 16.37 20.13
Ten years, ended
December 31, 1997 18.82 17.96
Cumulative total
return since
January 1, 1985 1,092 759
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NAVELLIER AND ASSOCIATES
COMPOSITE S&P 500 INDEX
<S> <C> <C>
1985 1.00 1.00
1985 1.50 1.32
1986 1.97 1.56
1987 2.13 1.65
1988 2.37 1.92
1989 2.89 2.52
1990 3.26 2.44
1991 5.42 3.19
1992 5.59 3.43
1993 6.53 3.78
1994 6.63 3.83
1995 9.53 5.27
1996 10.55 6.44
1997 11.92 8.59
Unit value
</TABLE>
[ICON]
If you have any questions, please call 1-800-595-7827.
33
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
THERE ARE THREE STEPS TO TAKE WHEN
YOU WANT TO BUY, SELL OR EXCHANGE SHARES OF OUR FUNDS:
- - first, choose a share class
- - second, open a Northstar account and make your first investment
- - third, choose one of several ways to buy, sell or exchange shares.
- --------------------------------------------------------------------------------
CHOOSING A
SHARE CLASS
All Northstar funds are available in Class A, Class B and Class C shares.
The chart below summarizes the differences between the share classes -- your
choice of share class will depend on how much you are investing and for how
long. Large investments qualify for a reduced Class A sales charge and avoid the
higher distribution fees of classes B and C. Investments in Class B and Class C
shares don't have a front-end sales charge but there is a restriction on the
amount you can invest at one time. Your financial consultant can help you, or
feel free to call us for more information.
Some of our funds also have Class T shares. You can no longer buy Class T shares
unless you are reinvesting income, or exchanging Class T shares you already own,
including Class T shares of the Cash Management Fund of Salomon Brothers
Investment Series (a money market fund that's available through Northstar, but
isn't one of the Northstar funds).
In addition to Class A, Class B and Class C shares, the Northstar Growth Fund
offers Class I shares. Class I shares are only available to certain defined
benefit plans, insurance companies and foundations investing for their own
account. Class I shares may have different sales charges and other expenses,
which may affect performance. You can obtain additional information concerning
Class I shares by calling us at 1-800-595-7827.
We've listed actual expenses charged to the funds beginning on page 4.
<TABLE>
<S> <C> <C>
Maximum CLASS A no limit
amount you CLASS B $500,000
can buy CLASS C $750,000
CLASS T can only be purchased by reinvesting income or exchanging
other Class T shares
Front-end CLASS A yes, varies by size of investment
sales CLASS B none
charge CLASS C none
CLASS T none
Deferred CLASS A only on investments of $1 million or more if you sell within
sales CLASS B 18 months
charge CLASS C yes, if you sell within 5 years
CLASS T yes, if you sell within 1 year
yes, if you sell within 4 years
Service CLASS A 0.25% per year
fee CLASS B 0.25% per year
CLASS C 0.25% per year
CLASS T 0.25% per year
CLASS A 0.05% per year
Distribution CLASS B 0.75% per year
fee CLASS C 0.75% per year
CLASS T from 0.40% to 0.75% per year (varies by fund)
Conversion CLASS B Class B shares convert to Class A shares after 8 years
CLASS T Class T shares convert to Class A shares after 8 years or on
June 2, 1998 (whichever is later)
</TABLE>
32
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
FRONT-END SALES
CHARGES
(Class A shares only)
<TABLE>
<CAPTION>
AMOUNT RETAINED BY
- ---------------------------------------------------------------------------------------------------
FRONT-END SALES CHARGE DEALERS
as a percentage as a percentage as a percentage
YOUR INVESTMENT of your net investment of offering price of offering price
<S> <C> <C> <C>
up to $99,999 4.99 4.75 4.00
$100,000 to $249,999 3.90 3.75 3.10
$250,000 to $499,999 2.83 2.75 2.30
$500,000 to $999,999 2.04 2.00 1.70
$1,000,000 and over -- -- --
</TABLE>
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
THERE ARE THREE WAYS YOU CAN REDUCE YOUR FRONT-END SALES CHARGES.
1. TAKE ADVANTAGE OF PURCHASES YOU'VE ALREADY MADE
Rights of accumulation let you combine the value of all the Class A shares
you already own with your current investment to calculate your sales charge.
2. TAKE ADVANTAGE OF PURCHASES YOU INTEND TO MAKE
By signing a non-binding letter of intent, you can combine investments you
plan to make over a 13 month period to calculate the sales charge you'll pay
on each investment.
3. BUY AS PART OF A GROUP OF INVESTORS
You can combine your investments with others in a recognized group when
calculating your sales charge. The following is a general list of the groups
Northstar recognizes for this benefit:
- you, your spouse and your children under the age of 21
- a trustee or fiduciary for a single trust, estate or fiduciary account
(including qualifying pension, profit sharing and other employee benefit
trusts)
- any other organized group that has been in existence for at least six
months, and wasn't formed solely for the purpose of investing at a
discount.
YOU MAY NOT HAVE TO PAY FRONT-END SALES CHARGES OR A CDSC IF YOU ARE:
- an active or retired trustee, director, officer, partner or employee
(including immediate family) of
- Northstar or of any of its affiliated companies
- any Northstar affiliated investment company
- a dealer that has a sales agreement with the distributor
- a trustee or custodian of any qualified retirement plan or IRA established
for the benefit of anyone in the point above
- a dealer, broker or registered investment adviser who has entered into an
agreement with the distributor providing for the use of shares of the fund
in particular investment products such as "wrap accounts" or other similar
managed accounts for the benefit of your clients
- a service provider for Northstar, any Northstar affiliated company, or any
Northstar affiliated investment company
- a Brandes employee, officer or partner
- an owner, participant or beneficiary of life insurance and/or annuity
contracts with ReliaStar Life Insurance Company (ReliaStar) or any
ReliaStar affiliated life insurance company to the extent they invest
payments made to them under the contracts in one or more Northstar Funds
within sixty days of payment under the contracts.
You won't pay a sales charge when you buy Class A shares of a Northstar fund
through a dealer by transferring the proceeds of the sale of another open-end
fund, so long as:
- you have held the shares in the fund you're selling for at least six
months, and you paid a sales charge when you bought them
- you send the proceeds of the sale directly to Northstar or our agent or
hold them in cash or a money market fund
- you buy the shares of the fund within 60 days of the sale, and
- the fund has the same or a similar investment objective.
Pension, profit sharing and other benefit plans created pursuant to a plan
qualified under Section 401 of the Code or plans under Section 456 of the Code
don't pay a front-end sales charge or a CDSC, as long as the shares are
purchased by an employer sponsored plan with at least 50 eligible employees.
Investment Advisors or Financial Planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisors or financial planners who place trades for their own accounts don't pay
a front-end sales charge or a CDSC if the accounts are linked to the master
account of such investment advisor or financial planner on the books and records
of the broker or agent.
[ICON]
If you have any questions, please call 1-800-595-7827.
33
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
If you think you might be eligible to reduce your sales charges using any of
these methods, please call us or consult the Statement of Additional Information
(SAI).
34
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
DEFERRED SALES
CHARGES
(Classes A, B, C & T)
We deduct a contingent deferred sales charge (CDSC) from the proceeds when you
sell shares as indicated below. A CDSC is charged on the current market value of
the shares, or on the price you paid for them, whichever is less. You aren't
charged a CDSC on shares you acquired by reinvesting your dividends, or on
amounts representing appreciation.
When you ask us to sell shares, we will sell those that are exempt from the CDSC
first, and then sell the shares you have held the longest. This helps keep your
CDSC as low as possible.
CLASS A SHARES
There is generally no CDSC on Class A shares, except for purchases of $1 million
or more, when you sell them within 18 months of when you bought them.
<TABLE>
<CAPTION>
YOUR INVESTMENT CDSC ON SHARES BEING
SOLD
<S> <C>
First $1,000,000 to $2,499,999 1.00%
$2,500,000 to $4,999,999 0.50%
$5,000,000 and over 0.25%
</TABLE>
CLASS B, C & T SHARES
<TABLE>
<CAPTION>
YEARS AFTER YOU
BOUGHT THE SHARES CLASS B CLASS C CLASS T
<S> <C> <C> <C>
1st year 5.00% 1.00% 4.00%
2nd year 4.00% -- 3.00%
3rd year 3.00% -- 2.00%
4th year 2.00% -- 1.00%
5th year 2.00% -- --
after 5 years -- -- --
</TABLE>
WHEN THE CDSC MIGHT BE WAIVED
We may waive the CDSC for Class B and Class C shares if:
- - the shareholder dies or becomes disabled
- - you're selling your shares through our systematic withdrawal program
- - you're selling shares of a retirement plan and you are over 70 1/2 years old
- - you're exchanging Class B, C or T shares for the same class of shares of
another Northstar fund
- - you fall into any of the waiver categories listed on page 32.
If you think you might be eligible for a CDSC waiver, please call us or consult
the SAI.
[ICON]
If you have any questions, please call 1-800-595-7827.
35
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
OPENING A
NORTHSTAR
ACCOUNT
Once you've chosen the funds you would like to invest in and the share class you
prefer, you're ready to open an account.
First, determine how much money you want to invest. The minimum initial
investment for Northstar funds is:
- - $2,500 for non-retirement accounts (we reserve the right to accept smaller
amounts)
- - $250 for retirement accounts
- - $25 if you are investing using our automatic investment plan (see page 34).
Next, open an account in one of two ways:
- - give a check to your financial consultant, who will open an account for you,
or
- - complete the application enclosed with this prospectus and mail it to us,
along with your check made payable to Northstar Funds.
TAX-SHELTERED RETIREMENT PLANS
Call or write to us about opening your Northstar account as any one of the
following retirement plans:
- - Roth IRAs,
- - IRAs,
- - SEP-IRAs,
- - Simple IRAs.
- --------------------------------------------------------------------------------
BUYING, SELLING
AND EXCHANGING
Once you've opened an account and made your first investment, you can choose one
of three ways to buy, sell or exchange shares of Northstar funds:
- - through your financial consultant
- - directly, by mail or over the telephone
- - using one of our automatic plans.
We'll send you a confirmation statement every time you make a transaction that
affects your account balance, except when we pay distributions.
Some broker-dealers or agents might charge you a fee if you buy or sell shares
through them.
Instructions for each option appear in the chart on page 34, but here are a few
things you should know before you begin.
- --------------------------------------------------------------------------------
HOW SHARES ARE
PRICED
The price you pay or receive when you buy, sell or exchange shares is determined
by the fund's net asset value (NAV) per share and share class. NAV is calculated
each business day at the close of regular trading on the New York Stock Exchange
(usually 4:00 EST) by dividing the net assets of each fund class by the number
of shares outstanding. To calculate NAV, we determine the fair market value of
the fund's portfolio securities using the method described in the SAI.
When you're buying shares, you'll pay the NAV that is next calculated after we
receive your order in proper form, plus any sales charges that apply. When
you're selling shares, you'll receive the NAV that is next calculated after we
receive your order in proper form, less any deferred sales charges that apply.
- --------------------------------------------------------------------------------
SOME RULES FOR
BUYING
- - The minimum amount of each investment after your first one is:
- $100 for non-retirement accounts
- $25 for retirement accounts
- $25 if you are investing using our automatic investment plan (see page 34).
- - We record most shares on our books electronically. We will issue a certificate
if you ask us to in writing, however most of our shareholders prefer not to
have their shares in certificate form because certificated shares can't be
sold or exchanged by telephone or using the systematic withdrawal program.
- - We have the right to refuse a request to buy shares.
36
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
SOME RULES FOR
SELLING
- - Selling your shares may result in a deferred sales charge. Please refer to the
table on page 31.
- - We'll pay you within three days from the time we receive your request to sell,
unless you're selling shares you recently paid for by check. In that case,
we'll pay you when your check has cleared, which may take up to 15 days.
- - If you are a corporation, partnership, executor, administrator, trustee,
custodian, guardian or you are selling shares of a retirement plan, you'll
need to complete special documentation and give us your request in writing.
Please call us for information.
- - You can reinvest part or all of the proceeds of any shares you sell without
paying a sales charge. You must let us know in writing 30 days from the day
you sold the shares, and buy the same class of shares you sold. We will
reimburse you for any CDSC you paid. Please see page 36 for information about
how this can affect your taxes.
- - If selling shares results in the value of your account falling below $500, we
have the right to close your account, so long as your account has been open
for at least a year. We'll let you know 60 days in advance, and if you don't
bring the account balance above $500, we'll sell your shares, mail the
proceeds to you and close your account. We may also close your account if you
give us an incorrect social security number or taxpayer identification number.
- - In unusual circumstances, we may temporarily suspend the processing of
requests to sell.
- --------------------------------------------------------------------------------
SOME RULES FOR
EXCHANGING
- - When you exchange shares, you are selling shares of one fund and using the
proceeds to buy shares of another fund. Please see page 36 for information
about how this can affect your taxes.
- - Before you make an exchange, be sure to request and read the sections of the
prospectus of the fund you are exchanging to that discuss the shares you're
exchanging to.
- - You can exchange shares of any fund for the same class of shares of any other
fund, or for shares of the Cash Management Fund without a sales charge. You
will, however, pay a sales charge if you buy shares of the Cash Management
Fund, and then exchange them for Class A shares of any of the funds.
- - For the purposes of calculating CDSC, shares you exchange will continue to age
from the day you first purchased them, even if you're exchanging into the Cash
Management Fund.
- - We'll let you know 60 days in advance if we want to make any changes to these
rules.
[ICON]
If you have any questions, please call 1-800-595-7827.
37
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
<TABLE>
<CAPTION>
WAYS TO BUY, SELL OR EXCHANGE WHEN TO USE THIS OPTION
<S> <C> <C>
- -------------------------------------------- --------------------------------------------
THROUGH YOUR FINANCIAL CONSULTANT - buy
- sell
- exchange
<CAPTION>
- -------------------------------------------- --------------------------------------------
<S> <C> <C>
BY MAIL
Please call us if you have any questions -- - buy
we can't process your request until we have - sell
all of the documents we need. - exchange
<CAPTION>
- -------------------------------------------- --------------------------------------------
<S> <C> <C>
BY TELEPHONE
To sign up for this service, complete - sell
section 9 of the application or call us at - exchange
1-800-595-7827.
<CAPTION>
- -------------------------------------------- --------------------------------------------
<S> <C> <C>
AUTOMATIC INVESTMENT PLAN
To sign up for this service, complete - buy
section 7 of the application or call us at
1-800-595-7827.
<CAPTION>
- -------------------------------------------- --------------------------------------------
<S> <C> <C>
SYSTEMATIC WITHDRAWAL PROGRAM
To sign up for this service, complete - sell
section 8 of the application or call us at
1-800-595-7827.
</TABLE>
38
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
HOW TO USE IT
- --------------------------------------------------------------------------------
If you're BUYING shares, make your check payable to Northstar Funds and give it
to your financial consultant, who will forward it to us.
When you're SELLING, give your written request to your financial consultant, who
may charge you a fee for this service.
- --------------------------------------------------------------------------------
Send your request to buy, sell or exchange in writing to:
Northstar Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5131
Westborough MA 01581-5131
Your letter should tell us:
- - your account number
- - your social security number or taxpayer identification number
- - the name the account is registered in
- - the fund name and share class you're buying or selling, and, for exchanges,
the fund name and share class you're exchanging to
- - the dollar value or number of shares you want to buy, sell or exchange.
If you're BUYING include a check payable to Northstar Funds with your request.
If you're SELLING or EXCHANGING, your request must be signed by all registered
owners of the account.
We'll ask you to guarantee the signatures if:
- - you are selling more than $50,000 worth of shares
- - your address of record has changed in the past 30 days
- - you want us to send the payment to someone other than the registered owner, to
an address other than the address of record, or in any form other than by
check.
Signatures can be guaranteed by a bank, a member of the national stock exchange
or another eligible institution.
- --------------------------------------------------------------------------------
You can SELL or EXCHANGE up to $50,000 of your shares by telephone.
Call us at 1-800-595-7827 between 8:30 a.m. and 4:00 p.m. EST.
When you're calling with your request, we'll ask you for your name, social
security number, broker of record or other identification. If we don't ask for
these things and process an unauthorized telephone transaction, we are
responsible for any losses to your account. Otherwise you are responsible for
any unauthorized use of the telephone transaction service.
We'll mail the proceeds of the sale to the address of record or wire $1,000 or
more to any commercial bank in the U.S. that is a member of the Federal Reserve
System. Northstar does not charge a fee for this service, but your bank may
charge you a fee for receiving a wire transfer.
- --------------------------------------------------------------------------------
You can authorize us to automatically withdraw a minimum of $25 each month from
your bank account and use it to buy shares in Northstar funds.
There's no charge for this service, but your bank may charge you a small set-up
or transaction fee. You can cancel the program at any time.
- --------------------------------------------------------------------------------
You can ask us to automatically transfer money from your Northstar account into
your bank account.
We will sell shares or share fractions on your behalf monthly, quarterly or
annually and automatically deposit the proceeds into your bank account. There
may be a sales charge on shares we sell on your behalf.
You must have at least $5,000 worth of shares in your account to participate in
this program. The minimum transfer amount is $25.
It isn't to your advantage to buy and sell shares of the same fund at the same
time, so you can't set up a systematic withdrawal program for an account you've
already signed up on an automatic investment plan.
38
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
HOW THE FUNDS
PAY DISTRIBUTIONS
Each Northstar fund distributes virtually all of its net investment income and
net capital gains to shareholders at least annually in the form of dividends.
The funds pay dividends as follows:
<TABLE>
<S> <C>
Growth Funds annually
Income and Growth Funds quarterly
Income Funds monthly
</TABLE>
As a shareholder, you are entitled to a share of the income and capital gains a
fund distributes. The amount you receive is based on the number of shares you
own.
DISTRIBUTION OPTIONS
You can take your distributions as cash or reinvest them in the same class of
shares of any of our funds. You specify your preference when you open your
account. Distribution options vary by share class, as follows.
CLASS A, B & C SHARES
- - reinvest both income dividends and capital gain distributions to buy
additional Class A, B or C shares of any fund you choose
- - receive income dividends in cash and reinvest capital gain distributions to
buy additional Class A, B or C shares of any fund you choose
- - receive both income dividends and capital gain distributions in cash.
You can change your distribution instructions at any time by notifying us by
phone (if going to the address of record), or in writing.
If you don't specify how you would like to receive your distributions, we'll
automatically reinvest both income dividends and capital gain distributions in
additional shares of the same fund.
CLASS T SHARES
You must receive all distributions in the same way, either in cash or by
reinvesting them in additional shares of the same fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
39
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
HOW YOUR
DISTRIBUTIONS
ARE TAXED
Each Northstar fund intends to meet the requirements for being a tax-qualified
regulated investment company, which means they generally do not pay federal
income tax on the earnings they distribute to shareholders.
As a result, distributions that you receive will generally be considered to be
taxable in your hands. Income distributions, whether you take them as cash or
reinvest them, are taxable as ordinary income. Capital gain distributions are
taxable as long-term capital gains, regardless of how long you've held the
shares.
Distributions may also be subject to state, local or foreign taxes.
If income distributed to you includes dividends paid by U.S. corporations, part
of the dividends the fund pays may be eligible for the corporate
dividends-received deduction.
TIMING YOUR PURCHASE
If you buy shares of a fund just before it makes a distribution, you will pay
the full price but part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax- deferred account, such as an
IRA, this is not to your advantage because you'll pay tax on the dividend but
will not have shared in the increase in the net asset value of the fund.
WHEN DISTRIBUTIONS ARE DECLARED
For tax purposes, distributions declared by the fund in October, November or
December and paid to you in January are taxable in the calendar year in which
they were declared.
BACKUP WITHHOLDING TAX
We'll notify you each year of the tax status of dividends and distributions. If
we don't have your tax identification number, or if you have been told by the
IRS that you are subject to backup withholding tax, we may be required to
withhold U.S. federal income tax on any distributions at the rate of 31%.
WHEN YOU SELL YOUR SHARES
When you sell or exchange shares you will realize a capital gain or loss,
depending on the difference between what your shares cost you and what you
receive for them. A capital gain or loss will be long-term or short-term,
depending on the length of time you held the shares.
In your federal income tax return you report a capital gain as income and a
capital loss as a deduction.
CONSULT YOUR TAX ADVISER
The information above is general in nature. You should consult your tax adviser
to discuss how investing in Northstar funds affects your personal tax situation.
40
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
HOW THE FUNDS
ARE ORGANIZED
AND MANAGED
Each of the Northstar funds is a diversified mutual fund. The Northstar Growth +
Value Fund, Northstar International Value Fund, Northstar Emerging Markets Value
Fund, Northstar Income and Growth Fund, and Northstar High Total Return Fund II
are all series of the Northstar Trust (formerly the Northstar Advantage Trust),
which is registered as an investment company with the SEC. All of the other
funds are trusts registered separately with the SEC.
The trustees of each SEC-registered trust oversee the business affairs of the
funds and are responsible for major decisions about each fund's investment
objectives and policies.
The funds do not hold regular shareholder meetings, but may hold special
meetings. A special meeting is called if investors holding at least 10% of the
outstanding shares of a fund request it. Certain objectives and policies of the
funds may only be changed by shareholder vote. A shareholder vote is required to
change the investment objective of a Northstar fund because the fund investment
objectives are fundamental.
The day-to-day management of the funds is handled by the following companies and
advisers appointed by the trustees:
INVESTMENT ADVISER
Oversees the investment management of the sub-advisers for the funds which are
managed by a sub-adviser and provides advice and recommendations about
investments made by all of the funds. The investment adviser is paid out of each
fund's management fee, which are listed beginning on page 4.
Northstar Investment Management Corporation
2 Pickwick Plaza
Greenwich, CT 06830
ADMINISTRATOR
Provides administrative, compliance and accounting services to the funds. The
administrator receives an annual administrative services fee from each fund of
0.10% of the fund's average daily net assets, plus $5 per account per year.
Northstar Administrators Corporation
2 Pickwick Plaza
Greenwich, CT 06830
DISTRIBUTOR
Markets the funds and distributes shares through financial consultants and other
financial representatives.
Northstar Distributors, Inc.
2 Pickwick Plaza
Greenwich, CT 06830
CUSTODIAN
Holds all the funds' assets.
Custodian and fund accounting agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
TRANSFER AGENT
Handles shareholder record-keeping and statements, distribution of dividends and
processing of orders to buy and sell shares.
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581-5120
PORTFOLIO MANAGERS AND SUB-ADVISERS
You'll find profiles of all of our portfolio managers and sub-advisers to the
funds beginning on page 26.
[ICON]
If you have any questions, please call 1-800-595-7827.
41
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
HOW DEALERS ARE
COMPENSATED
Dealers receive payment for selling shares of Northstar funds in three ways:
THEY RECEIVE A COMMISSION WHEN
YOU BUY SHARES
The amount of the commission depends on the amount you invest and the share
class you buy. Sales commissions are detailed in the chart below.
- - CLASS A INVESTMENTS
(% OF OFFERING PRICE)
<TABLE>
<CAPTION>
COMMISSION AMOUNT
RECEIVED BY DEALERS PAID
OUT OF SALES CHARGES BY THE
YOU PAY DISTRIBUTOR
<S> <C> <C>
up to $99,999 4.00 --
$100,000 to $249,999 3.10 --
$250,000 to $499,999 2.30 --
$500,000 to $999,999 1.70 --
$1,000,000 to -- 1.00
$2,499,999
$2,500,000 to -- 0.50
$4,999,999
$5,000,000 and over -- 0.25
</TABLE>
- - CLASS B INVESTMENTS
Receives 4% of the sale price from the distributor
- - CLASS C INVESTMENTS
Receives 1% of the sale price from the distributor
THEY ARE PAID A FEE BY THE DISTRIBUTOR
FOR SERVICING YOUR ACCOUNT
They receive a service fee depending on the average net asset value of the class
of shares their clients hold in Northstar funds. These fees are paid from the
12b -1 fee deducted from each fund class. In addition to covering the cost of
commissions and service fees, the 12b -1 fee is used to pay for other expenses
such as sales literature, prospectus printing and distribution and compensation
to the distributor and its wholesalers. You'll find the 12b -1 fees listed in
the fund information beginning on page 4. Service and distribution fee
percentages appear on page 31.
THEY MAY RECEIVE ADDITIONAL BENEFITS
AND REWARDS
Selling shares of Northstar funds may make dealers eligible for awards or to
participate in sales programs sponsored by Northstar. The costs of these
benefits and rewards are not deducted from the assets of the funds -- they are
paid from the distributor's own resources.
The distributor may also pay additional compensation to dealers including
Advest, Inc. out of its own resources for marketing and other services to
shareholders. All payments it receives for Class T shares are paid to Advest,
Inc.
42
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
Risk is the potential that your investment will lose money or not earn as much
as you hope. Mutual funds have varying degrees of risk, depending on the
securities they invest in. There is no guarantee that a fund will achieve its
investment objective.
You'll find a discussion of the risk factors associated with each fund beginning
on page 4.
This section provides information about the risks associated with different
kinds of securities. It also lists additional investment practices that may
involve elements of risk.
- --------------------------------------------------------------------------------
EQUITIES
- - Give the buyer ownership rights in the issuer. Common and preferred stocks,
convertible securities, stock purchase rights and interests in real estate
investment trusts are types of equities. Real estate investment trusts are
companies that manage a portfolio of real estate to earn profits for
shareholders.
- - The market value of an equity security may go up or down rapidly depending on
market conditions. This affects the value of the shares of a fund, and the
value of your investment.
- - Securities of smaller companies may be subject to more abrupt or erratic
market movements because they are traded in lower volume and are subject to
greater changes in earnings and
growth prospects. Such securities may include securities of emerging growth
companies. Emerging growth companies may:
- be in a relatively early stage of development, but will usually have
consistent or accelerating earnings growth
- occupy a profitable market niche
- have products or technologies that are new, unique or proprietary
- be in an industry that has a favorable long-term growth outlook.
- --------------------------------------------------------------------------------
DEBT SECURITIES
- - Obligations to repay borrowed money within a certain time with or without
interest. Zero-coupon securities, pay-in-kind securities, discount
obligations, mortgage-backed securities, convertible securities and high-yield
securities are types of debt securities.
- - Debt securities are affected by changes in interest rates. In general, when
interest rates go up, the value of a debt security decreases; when interest
rates go down, the value of a debt security increases.
- - There is also the risk that the borrower won't be able to fulfill its
obligation, resulting in loss or a lower price than anticipated.
LOWER-RATED OR JUNK BONDS
The chart on page 44 indicates which funds invest in high-yield securities (junk
bonds). In addition to general risks listed above that are associated with debt
securities, junk bonds have special risks:
- - They fluctuate more in value than higher-rated securities.
- - They are more subject to the risk that the borrower won't fulfill its
obligation.
- - There may not be a market to sell them at a reasonable price, resulting in
loss or a lower price than anticipated.
- - The fund's ability to achieve its investment objective may be more dependent
on Northstar's credit analysis than is the case for higher-rated securities.
[ICON]
If you have any questions, please call 1-800-595-7827.
43
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
<TABLE>
<CAPTION>
BALANCE
SHEET
HIGH YIELD HIGH TOTAL STRATEGIC OPPORTUNITIES
QUALITY RATING FUND(1) RETURN FUND II(1) INCOME FUND(1) FUND(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment grade -- -- 13.3 --
BB 33.8 10.0 23.6 4.4
B 59.8 50.9 22.0 29.4
CCC -- 4.7 2.7 4.5
CC -- -- -- --
C -- -- -- --
D -- -- -- --
Non-rated -- 19.2 28 16.2
U.S. Governments, equities & 6.4 15.2 35.6 45.5
others
Total 100% 100% 100% 100%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Data as of December 31, 1997.
- --------------------------------------------------------------------------------
FOREIGN
INVESTMENTS
- - Securities issued by companies or governments of foreign countries. May
include equities and debt securities including sovereign debt obligations
(securities issued to refinance foreign government bank loans and other debt
also known as Brady Bonds).
- - Subject to all of the risks associated with equity and debt securities. There
are also other risks that can affect the value of a foreign investment.
- foreign markets may be less regulated, may have less volume and be less
liquid
- foreign securities may be less liquid and more volatile
- the value of the securities are affected by changes in currency exchange
rates and exchange control regulations
- the value of foreign securities may be affected by adverse political and
economic developments, seizure or nationalization of foreign deposits, and
government restrictions
- there is often less information available about foreign companies and many
countries do not have the accounting, auditing and financial reporting that
we have in the United States.
EMERGING MARKETS
- - Investment in emerging markets have additional risks: developing countries
have economic structures that are less mature, they have less stable political
systems and may have high inflation, rapidly changing interest and currency
exchange rates, and their securities markets are substantially less developed.
DEPOSITORY RECEIPTS
- - American Depository Receipts (ADRs) are typically issued by U.S. banks or
trust companies. They are based on ownership of securities issued by foreign
companies, and are traded on U.S. exchanges. European Depository Receipts
(EDRs) and Global Depository Receipts (GDRs) are typically issued by foreign
banks or trust companies, although they also may be issued by U.S. banks or
trust companies. They are based on ownership of securities issued by foreign
or U.S. companies, and are traded on stock exchanges around the world.
44
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
OTHER, HIGHER
RISK SECURITIES
ILLIQUID SECURITIES -- FUNDS ARE LIMITED TO 15% OF NET ASSET VALUE (5% OF NET
ASSET VALUE FOR INTERNATIONAL VALUE AND EMERGING MARKETS VALUE FUNDS)
- - Securities that can't be sold quickly at a reasonable price, or that can't be
sold on the open market. Includes restricted securities and private
placements.
- - Used to realize higher profits.
- - There may be fewer market players which can result in lower prices, and sales
can take longer to complete.
- - Following guidelines established by the trustees of each fund, Northstar may
consider a security than can't be sold on the open market to be liquid if it
can be sold to institutional investors (Rule 144A) or on foreign markets.
DERIVATIVE SECURITIES
- - Securities that derive their value from the performance of an underlying
asset. Usually take the form of a contract to buy or sell an asset or
commodity either now or in the future, but mortgage and other asset-backed
securities are also generally considered derivatives. Types of derivative
securities include options, futures contracts, options on futures and forward
contracts.
- - Used often to "hedge" or offset market fluctuations or changes in currency
exchange or interest rates. May also be used for speculative purposes to
increase returns.
- - In addition to the risks associated with equities and debt securities, there
are several special risks associated with the use of derivatives:
- changes in the value of the derivative may not match changes in the value of
its underlying asset
- hedging may not be successful, and may prevent the fund from making other
gains
- derivatives used for speculative purposes can result in gains or losses that
are substantially greater than the derivative's original cost.
- - The International Value and Emerging Markets Value Funds do not currently
intend to make use of any derivatives, including transactions in currency
forwards for hedging purposes.
- --------------------------------------------------------------------------------
INVESTMENT
PRACTICES
REPURCHASE AGREEMENTS -- FUNDS ARE LIMITED TO 15% OF THEIR NET ASSET VALUE
- - Buying a security from a bank or dealer who must buy it back at a fixed price
on a specified day. Repurchase agreements that mature after more than seven
days are considered to be illiquid investments. Investments in this type of
repurchase agreement can only be 5% of a fund's net asset value.
- - Used for temporary and defensive purposes or to generate income from cash
balances.
- - The bank or dealer may not be able to buy back the security.
SHORT-TERM TRADING -- NO LIMIT
- - Selling a security soon after you buy it.
- - Used when the fund needs to be more liquid, in response to changes in interest
rates and economic or other developments, or when a security has reached its
price or yield objective.
[ICON]
If you have any questions, please call 1-800-595-7827.
45
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- - May result in higher costs for brokerage commissions, dealer mark-ups and
other transactions costs, as well as taxable capital gains.
TEMPORARY INVESTMENTS -- NO LIMIT
- - Temporarily maintaining part or all of a fund's assets in cash or in U.S.
Government Securities, commercial paper, banker's acceptances, repurchase
agreements and certificates of deposit.
- - Used for temporary and defensive purposes in periods of unusual market
conditions.
- - Provides lower returns.
WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS -- NO LIMIT
- - A commitment to buy a security on a specific day in the future at a specified
price.
- - Used to realize short-term profits.
- - If made through a dealer, there is a risk that the dealer won't complete the
sale, and that the fund will lose out on a good yield or price.
- - There is also risk that the value of the security will change before the
transaction is settled, resulting in short-term losses instead of gains.
CLOSED-END INVESTMENT COMPANIES -- (EMERGING MARKETS VALUE FUND IS LIMITED TO
10% OF TOTAL ASSETS)
- - An investment company whose shares are listed on a stock exchange or are
traded in the over-the-counter market.
- - Used to invest in securities markets of certain countries where restrictions
on direct investment by foreign entities would otherwise limit the fund's
ability to invest in the securities markets of such countries, or to generate
income from cash balances.
- - The fund will indirectly bear its proportionate share of any fees and expenses
of such companies, in addition to the fund's fees and expenses.
46
<PAGE>
WHERE TO GO
FOR MORE
INFORMATION
You'll find more information about the Northstar family of funds in our:
ANNUAL REPORTS
The Annual reports contain information about fund performance, the financial
statements and the auditor's reports.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains complete information about the Northstar funds. The SAI is
legally part of this prospectus (it is incorporated by reference). A copy has
been filed with the Securities and Exchange Commission.
Prior to April 20, 1998, please write or call for a free copy of the Annual
reports or the current SAI:
The Northstar Funds
2 Pickwick Plaza
Greenwich, CT 06830
1-800-595-7827
After April 20, 1998, all written correspondence should be sent to the following
address:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
Phone inquiries should be made to the phone number noted above.
[ICON]
If you have any questions, please call 1-800-595-7827.
47
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1998
(star)NORTHSTAR GROWTH FUND
(star)NORTHSTAR GROWTH + VALUE FUND
(star)NORTHSTAR SPECIAL FUND
(star)NORTHSTAR INTERNATIONAL VALUE FUND
(star)NORTHSTAR EMERGING MARKETS VALUE FUND
(star)NORTHSTAR INCOME AND GROWTH FUND
(star)NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
(star)NORTHSTAR HIGH YIELD FUND
(star)NORTHSTAR HIGH TOTAL RETURN FUND II
(star)NORTHSTAR STRATEGIC INCOME FUND
(star)NORTHSTAR GOVERNMENT SECURITIES FUND
TWO PICKWICK PLAZA
GREENWICH, CONNECTICUT 06830
(203) 863-6200
(800) 595-7827
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectuses of
the Funds dated March 1, 1998, as each may be revised from time to time. To
obtain a copy of a Prospectus for the Funds, please contact Northstar Investment
Management Corporation at the address or phone number listed above.
Northstar Investment Management Corporation ("Northstar" or the "Adviser")
serves as the Funds' investment adviser. Northstar has engaged Navellier Fund
Management, Inc. to serve as subadviser to the Northstar Growth + Value Fund and
Northstar Special Fund, subject to the supervision of Northstar. Northstar has
engaged Brandes Investment Partners, L.P. to serve as subadviser to the
Northstar International Value Fund and Northstar Emerging Markets Value Fund.
Collectively, Navellier Fund Management, Inc., and Brandes Investment Partners,
L.P. will be referred to as (the "Sub-Advisers"). Northstar Distributors, Inc.
(the "Underwriter") is the underwriter to the Funds. Northstar Administrators
Corporation (the "Administrator") is the Funds' administrator. The Underwriter
and the Administrator are affiliates of Northstar.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT RESTRICTIONS................................................................................................. 2
INVESTMENT TECHNIQUES................................................................................................... 6
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION......................................................................... 13
SERVICES OF NORTHSTAR, THE SUB-ADVISERS AND THE ADMINISTRATOR........................................................... 15
NET ASSET VALUE......................................................................................................... 18
PURCHASES AND REDEMPTIONS............................................................................................... 19
DIVIDENDS, DISTRIBUTIONS AND TAXES...................................................................................... 21
UNDERWRITER AND DISTRIBUTION SERVICES................................................................................... 24
TRUSTEES AND OFFICERS................................................................................................... 29
OTHER INFORMATION....................................................................................................... 32
PERFORMANCE INFORMATION................................................................................................. 33
FINANCIAL STATEMENTS.................................................................................................... 38
APPENDIX................................................................................................................ A-1
</TABLE>
<PAGE>
INVESTMENT RESTRICTIONS
NORTHSTAR GROWTH + VALUE FUND. The Fund has adopted investment restrictions
numbered 1 through 11 as fundamental policies. These restrictions cannot be
changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended) of such Fund's outstanding voting
shares. Investment restrictions numbered 12 through 15 are not fundamental
policies and may be changed by vote of a majority of the Trust's Board members
at any time. The Fund may not:
1. Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks but only if,
immediately after such borrowing there is asset coverage of 300%, and (b) enter
into transactions in options, futures, and options on futures and other
transactions not deemed to involve the issuance of senior securities;
2. Underwrite the securities of others;
3. Purchase or sell real property, including real estate limited
partnerships (each of these Funds may purchase marketable securities of
companies that deal in real estate or interests therein, including real estate
investment trusts);
4. Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
5. Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to brokers or
dealers or other financial institutions not affiliated with the Fund or
Northstar, subject to conditions established by Northstar (See "Lending
Portfolio Securities" in this SAI), and may purchase or hold participations in
loans, in accordance with the investment objectives and policies of the Fund, as
described in the current Prospectus and SAI of the Fund;
6. Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with futures
contracts will not be deemed to be purchases of securities on margin);
7. Sell short, except that these Funds may enter into short sales against
the box;
8. Invest more than 25% of its assets in any one industry or related group
of industries;
9. With respect to 75% of the Fund's assets, purchase a security (other
than U.S. Government obligations) if, as a result, more than 5% of the value of
total assets of the Fund would be invested in securities of a single issuer;
10. Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an issuer,
would be held by the Fund;
11. Borrow money except to the extent permitted under the 1940 Act;
12. Purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that these Funds may
purchase shares of other investment companies, subject to such restrictions as
may be imposed by the 1940 Act and rules thereunder or by any state in which
shares of the Fund are registered;
13. Make an investment for the purpose of exercising control over
management;
14. Invest more than 15% of its net assets in illiquid securities; or
15. Borrow any amount in excess of 10% of their respective assets, other
than for temporary emergency or administrative purposes. In addition, the Fund
will not make additional investments when its borrowings exceed 5% of total
assets.
NORTHSTAR INTERNATIONAL VALUE FUND AND NORTHSTAR EMERGING MARKETS VALUE
FUND. The Funds have adopted investment restrictions numbered 1 through 6 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940, as
amended) of such Fund's outstanding voting shares. Investment restrictions
numbered 7 through 12 are not fundamental policies and may be changed by vote of
a majority of the Trust's Board members at any time. The Funds may not:
1. Issue senior securities, except to the extent permitted under the
Investment Company Act of 1940, borrow money or pledge its assets, except that
the Fund may borrow on an unsecured basis from banks for temporary or emergency
purposes or for the clearance of transactions in amounts not exceeding 10% of
its total assets (not including the amount borrowed), provided that it will not
make investments while borrowings are in excess of 5% of the value of its total
assets are outstanding;
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2. Act as underwriter (except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities in its investment
portfolio);
3. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities), except that the Fund reserves the right to invest all of
its assets in shares of another investment company;
4. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although the Fund may purchase and sell securities which
are secured by real estate, securities of companies which invest or deal in real
estate and securities issued by real estate investment trusts);
5. Purchase or sell commodities or commodity futures contracts, except that
the Fund may purchase and sell stock index futures contracts for hedging
purposes to the extent permitted under applicable federal and state laws and
regulations and except that the Fund may engage in foreign exchange forward
contracts;
6. Make loans (except for purchases of debt securities consistent with the
investment policies of the Fund and except for repurchase agreements);
7. Make short sales of securities or maintain a short position, except for
short sales against the box;
8. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
9. Write put or call options, except that the Fund may (i) write covered
call options on individual securities and on stock indices; (ii) purchase put
and call options on securities which are eligible for purchase by the Fund and
on stock indices; and (iii) engage in closing transactions with respect to its
options writing and purchases, in all cases subject to applicable federal and
state laws and regulations;
10. Purchase any security if as a result the Fund would then hold more than
10% of any class of voting securities of an issuer (taking all common stock
issues as a single class, all preferred stock issues as a single class, and all
debt issues as a single class), except that the Fund reserves the right to
invest all of its assets in a class of voting securities of another investment
company;
11. Invest more than 10% of its assets in the securities of other
investment companies or purchase more than 3% of any other investment
company's voting securities or make any other investment in other
investment companies except as permitted by federal and state law;
12. Invest more than 15% of its net assets in illiquid securities.
NORTHSTAR INCOME AND GROWTH FUND AND NORTHSTAR HIGH TOTAL RETURN FUND II.
The Funds have adopted investment restrictions numbered 1 through 11 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940, as
amended) of such Fund's outstanding voting shares. Investment restrictions
numbered 12 through 17 are not fundamental policies and may be changed by vote
of a majority of the Trust's Board members at any time. The Funds may not:
1. Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks but only if,
immediately after such borrowing there is asset coverage of 300%, and (b) enter
into transactions in options, futures, and options on futures and other
transactions not deemed to involve the issuance of senior securities;
2. Underwrite the securities of others;
3. Purchase or sell real property, including real estate limited
partnerships (each of these Funds may purchase marketable securities of
companies that deal in real estate or interests therein, including real estate
investment trusts);
4. Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
5. Make loans to other persons (but the Funds may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to brokers or
dealers or other financial institutions not affiliated with the Funds or
Northstar, subject to conditions established by Northstar) (See "Lending
Portfolio Securities" in this SAI), and may purchase or hold participations in
loans, in accordance with the investment objectives and policies of the Fund, as
described in the current Prospectus and SAI of the Fund;
6. Participate in any joint trading accounts;
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7. Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with futures
contracts will not be deemed to be purchases of securities on margin);
8. Sell short, except that these Funds may enter into short sales against
the box;
9. Invest more than 25% of its assets in any one industry or related group
of industries;
10. Purchase a security (other than U.S. Government obligations) if, as a
result, more than 5% of the value of total assets of the Fund would be invested
in securities of a single issuer;
11. Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an issuer,
would be held by the Fund;
12. Invest in a security if, as a result of such investment, more than 5%
of its total assets (taken at market value at the time of such investment) would
be invested in securities of issuers (other than issuers of federal agency
obligations) having a record, together with predecessors or unconditional
guarantors, of less than three years of continuous operation;
13. Purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that these Funds may
purchase shares of other investment companies, subject to such restrictions as
may be imposed by the 1940 Act and rules thereunder or by any state in which
shares of the Fund are registered;
14. Purchase or retain securities of any issuer if 5% of the securities of
such issuer are owned by those officers and directors or trustees of the Fund or
of Northstar who each own beneficially more than 1/2 of 1% of its securities;
15. Make an investment for the purpose of exercising control over
management;
16. Invest more than 15% of its net assets (determined at the time of
investment) in illiquid securities, including securities subject to legal or
contractual restrictions on resale (which may include private placements and
those 144A securities for which the Trustees, pursuant to procedures adopted by
the Fund, have not determined there is a liquid secondary market), repurchase
agreements maturing in more than seven days, options traded over the counter
that a Fund has purchased, securities being used to cover options a Fund has
written, securities for which market quotations are not readily available, or
other securities that, legally or in the Adviser's or Trustees' opinion, may be
deemed illiquid; or
17. Invest in interests in oil, gas or other mineral exploration
development programs (including oil, gas or other mineral leases).
As a fundamental policy, these Funds may borrow money from banks to the
extent permitted under the 1940 Act. As an operating (non-fundamental) policy,
these Funds do not intend to borrow any amount in excess of 10% of their
respective assets, and would do so only for temporary emergency or
administrative purposes. In addition, to avoid the potential leveraging of
assets, neither of these Funds will make additional investments when its
borrowings, including those investment techniques which are regarded as a form
of borrowing, are in excess of 5% of total assets. If either of these Funds
should determine to expand its ability to borrow beyond the current operating
policy, the Fund's Prospectus would be amended and shareholders would be
notified.
NORTHSTAR GROWTH, SPECIAL, BALANCE SHEET OPPORTUNITIES, HIGH YIELD,
STRATEGIC INCOME AND GOVERNMENT SECURITIES FUNDS. The Funds have adopted
investment restrictions numbered 1 through 12 as fundamental policies. These
restrictions cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act of 1940, as amended) of such Fund's
outstanding voting shares. Investment restrictions numbered 13 through 21 are
not fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. Each Fund may not:
1. Borrow money, except from a bank and as a temporary measure for
extraordinary or emergency purposes, provided the Fund maintains asset coverage
of 300% for all borrowings;
2. Purchase securities of any one issuer (except Government securities) if,
as a result, more than 5% of the Fund's total assets would be invested in that
issuer, or the Fund would own or hold more than 10% of the outstanding voting
securities of the issuer; PROVIDED, HOWEVER, that up to 25% of the Fund's total
assets may be invested without regard to these limitations;
3. Underwrite the securities of other issuers, except to the extent that in
connection with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter;
4. Concentrate its assets in the securities of issuers all of which conduct
their principal business activities in the same industry (this restriction does
not apply to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities);
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5. Make any investment in real estate, commodities or commodities
contracts, except that these Funds may: (a) purchase or sell readily marketable
securities that are secured by interest in real estate or issued by companies
that deal in real estate, including real estate investment and mortgage
investment trusts; and (b) engage in financial futures contracts and related
options, as described herein and in the Fund's Prospectus;
6. Make loans, except that these Funds may: (a) invest in repurchase
agreements, and (b) loan its portfolio securities in amounts up to one-third of
the market or other fair value of its total assets;
7. Issue senior securities, except as appropriate to evidence indebtedness
that it is permitted to incur, provided that the deposit or payment by the Fund
of initial or maintenance margin in connection with futures contracts and
related options is not considered the issuance of senior securities;
8. Borrow money in excess of 5% of its total assets (taken at market
value);
9. Pledge, mortgage or hypothecate in excess of 5% of its total assets (the
deposit or payment by a Fund of initial or maintenance margin in connection with
futures contracts and related options is not considered a pledge or
hypothecation of assets);
10. Purchase more than 10% of the voting securities of any one issuer,
except U.S. Government Securities;
11. Invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than 7 days, that cannot be
disposed of within the normal course of business at approximately the amount at
which the Fund has valued the securities, excluding restricted securities that
have been determined by the Trustees of the Fund (or the persons designated by
them to make such determinations) to be readily marketable;
12. Purchase securities of any issuer with a record of less than 3 years of
continuous operations, including predecessors, except U.S. Government Securities
and obligations issued or guaranteed by any foreign government or its agencies
or instrumentalities, if such purchase would cause the investments of a Fund in
all such issuers to exceed 5% of the total assets of the Fund taken at market
value;
13. Purchase securities on margin, except these Funds may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities (the deposit or payment by a Fund of initial or maintenance margin
in connection with futures contracts or related options is not considered the
purchase of a security on margin);
14. Write put and call options, unless the options are covered and the Fund
invests through premium payments no more than 5% of its total assets in options
transactions, other than options on futures contracts;
15. Purchase and sell futures contracts and options on futures contracts,
unless the sum of margin deposits on all futures contracts held by the Fund, and
premiums paid on related options held by the Fund, does not exceed more than 5%
of the Fund's total assets, unless the transaction meets certain "bona fide
hedging" criteria (in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing the 5%);
16. Invest in securities of any issuer if any officer or trustee of the
Fund or any officer or director of Northstar owns more than 1/2 of 1% of the
outstanding securities of the issuer, and such officers, directors and trustees
own in the aggregate more than 5% of the securities of such issuer;
17. Invest in interests in oil, gas or other mineral exploration or
development programs (although it may invest in issuers that own or invest in
such interests);
18. Purchase securities of any investment company, except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase, or except when such purchase, though not made in the open
market, is part of a plan of merger, consolidation, reorganization or
acquisition of assets;
19. Purchase more than 3% of the outstanding voting securities of another
investment company, invest more than 5% of its total assets in another
investment company, or invest more than 10% of its total assets in other
investment companies;
20. Purchase warrants if, as a result, warrants taken at the lower of cost
or market value would represent more than 5% of the value of the Fund's net
assets or if warrants that are not listed on the New York or American Stock
Exchanges or on an exchange with comparable listing requirements, taken at the
lower of cost or market value, would represent more than 2% of the value of the
Fund's net assets (for this purpose, warrants attached to securities will be
deemed to have no value); or
21. Make short sales, unless, by virtue of its ownership of other
securities, the Fund has the right to obtain securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is made
upon the same conditions,
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except in connection with arbitrage transactions. The Strategic Income Fund,
additionally, may not invest in interests of real estate limited partnerships.
In addition to the restrictions described above, each of these Funds may,
from time to time, agree to additional investment restrictions for purposes of
compliance with the securities laws of those state and foreign jurisdictions
where that Fund intends to offer or sell its shares.
INVESTMENT TECHNIQUES
DERIVATIVE INSTRUMENTS. The Funds may invest in Derivative Instruments (as
defined in the Funds' Prospectus) for a variety of reasons, including to enhance
return, hedge certain market risks, or provide a substitute for purchasing or
selling particular securities. Derivatives may provide a cheaper, quicker or
more specifically focused way for the Fund to invest than "traditional"
securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (I.E., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, Northstar and the Sub-Advisers will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as they would review the credit quality of a security to be purchased by
a Fund. Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the Derivative to be interested in bidding for
it.
FUTURES TRANSACTIONS -- IN GENERAL. A Fund may enter into futures contracts
in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the United States, such as the London International
Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may
have greater risk potential than domestic markets. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. In
addition, any profits that the Fund might realize in trading could be eliminated
by adverse changes in the exchange rate, or the Fund could incur losses as a
result of those changes. Transactions on foreign exchanges may include both
commodities which are traded on domestic exchanges and those which are not.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's or
Sub-Adviser's ability to predict correctly movements in the direction of the
relevant market, and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction being
hedged and the price movements of the futures contract. For example, if the Fund
uses futures to hedge against the possibility of a decline in the market value
of securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circum-
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stances the Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. The Fund may have to sell such securities
at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission (the "SEC"), the Fund may be required to
segregate cash or high quality money market instruments in connection
with its commodities transactions in an amount generally equal to the
value of the underlying commodity. The segregation of such assets will
have the effect of limiting the Fund's ability otherwise to invest those
assets.
SPECIFIC FUTURES TRANSACTIONS. The Funds may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
The Funds may purchase and sell interest rate futures contracts. An interest
rate future obligates the Fund to purchase or sell an amount of a specific debt
security at a future date at a specific price.
The Funds may purchase and sell currency futures. A foreign currency future
obligates the Fund to purchase or sell an amount of a specific currency at a
future date at a specific price.
The International Value Fund and Emerging Markets Value Fund will engage in
futures transactions only as a hedge against the risk of unexpected changes in
the values of securities held or intended to be held by these Funds. As a
general rule, the International Value Fund and Emerging Markets Value Fund will
not purchase or sell futures if, immediately thereafter, more than 25% of its
net assets would be hedged. In addition, these Funds will not purchase or sell
futures or related options if, immediately thereafter, the sum of the amount of
margin deposits on the Funds' existing futures positions and premiums paid for
such options would exceed 5% of the market value of the Funds' net assets.
OPTIONS -- IN GENERAL. The Funds may purchase and write (I.E., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period.
A covered call option written by a Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by a Fund is
covered when, among other things, cash or liquid securities having a value equal
to or greater than the exercise price of the option are placed in a segregated
account with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
SPECIFIC OPTIONS TRANSACTIONS. The Funds may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or traded
in the over-the-counter market. An option on a stock index is similar to an
option in respect of specific securities, except that settlement does not occur
by delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
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The Funds may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a price
which is expected to be lower or higher than the spot price of the currency at
the time the option is exercised or expires.
The Funds may purchase cash-settlement options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps in
pursuit of its investment objective. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating-rate payments for fixed-rate
payments) denominated in U.S. dollars or foreign currency. Equity index swaps
involve the exchange by the Fund with another party of cash flows based upon the
performance of an index or a portion of an index of securities which usually
includes dividends. A cash-settled option on a swap gives the purchaser the
right, but not the obligation, in return for the premium paid, to receive an
amount of cash equal to the value of the underlying swap as of the exercise
date. These options typically are purchased in privately negotiated transactions
from financial institutions, including securities brokerage firms.
Successful use by the Funds of options will be subject to the ability of
Northstar and the subadvisers to predict correctly movements in the prices of
individual stocks, the stock market generally, foreign currencies or interest
rates. To the extent the Manager's predictions are incorrect, the Funds may
incur losses.
SHORT SALES. A Fund may make short sales "against the box." A short-sale is
a transaction in which a party sells a security it does not own in anticipation
of decline in the market value of that security. A short sale is "against the
box" to the extent that the Fund contemporaneously owns or has the right to
obtain securities identical to those sold short. When the Fund makes a short
sale, it must borrow the security sold short and deliver it to the broker-dealer
through which it made the short sale as collateral for its obligation to deliver
the security upon conclusion of the sale. The Fund may have to pay a fee to
borrow particular securities, and is often obligated to pay over any accrued
interest on such borrowed securities.
PRIVATELY ISSUED COLLATERALIZED MORTGAGE-BACKED OBLIGATIONS, INTEREST
OBLIGATIONS AND PRINCIPAL OBLIGATIONS. Each of High Total Return Fund II and
Income and Growth Fund may invest up to 5% of its net assets in Privately Issued
Collateralized Mortgage-Backed Obligations ("CMOs"), Interest Obligations
("IOs") and Principal Obligations ("POs") when Northstar believes that such
investments are consistent with the Fund's investment objective. Collateralized
mortgage obligations or "CMOs" are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, privately issued CMOs are
collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but also
may be collateralized by whole loans or private pass-throughs (such collateral
collectively hereinafter referred to as "Mortgage Assets"). Privately issued
CMOs are per se illiquid. Multi-class pass-through securities are equity
interest in a trust composed of Mortgage Assets. Unless the context indicates
otherwise, all references herein to CMOs include multi-class pass-through
securities. Payments of principal of and interest on the Mortgage Assets, and
any reinvestment income thereon, are the sources of funds used to pay debt
service on the CMOs or make scheduled distributions on the multi-class
pass-through securities.
On a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. The principal of and interest on the Mortgage Assets may be allocated
among the several classes of a series of a CMO in innumerable ways. The Funds
may also invest in, among others, parallel pay CMOs and Planned Amortization
Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments
of principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally call for payments of a specified amount of
principal on each payment date.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.
SMBS are structured with two or more classes of securities that receive
different proportions of the interest and principal distributions on a pool of
Mortgage Assets. A common type of SMBS will have at least one class receiving
only a small portion of the interest and a larger portion of the principal from
the Mortgage Assets, while the other classes will receive primarily interest and
only a small portion of the principal. In the most extreme case, one class will
receive all of the interest
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(the interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity on an IO
class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying Mortgage Assets, and a rapid rate of
principal payments may have a material adverse effect on such security's yield
to maturity. If the underlying Mortgage Assets experience greater than
anticipated prepayments of principal, a Fund may fail to recoup fully its
initial investment in these securities. The determination of whether a
particular government-issued IO or PO backed by fixed-rate mortgage is liquid is
made by Northstar under guidelines and standards established by the Board of
Trustees. Such a security may be deemed liquid if it can be disposed of promptly
in the ordinary course of business at a value reasonably close to that used in
the calculation of net asset value per share.
INDEX WARRANTS. The Strategic Income Fund may purchase put warrants and call
warrants whose values vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants are generally
issued by banks or other financial institutions and give the holder the right,
at any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer, based on the value of the underlying
index at the time of exercise. In general, if the value of the underlying index
rises above the exercise price of the index warrant, the holder of a call
warrant will be entitled to receive a cash payment from the issuer upon
exercise, based on the difference between the value of the index and the
exercise price of the warrant; if the value of the underlying index falls, the
holder of a put warrant will be entitled to receive a cash payment from the
issuer upon exercise, based on the difference between the exercise price of the
warrant and the value of the index. The holder of a warrant would not be
entitled to any payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than the value of
the underlying index. If the Strategic Income Fund were not to exercise an index
warrant prior to its expiration, then the Fund would lose the amount of the
purchase price paid by it for the warrant. The Strategic Income Fund will
normally use index warrants in a manner similar to its use of options on
securities indices. The risks of the Fund's use of index warrants are generally
similar to those relating to its use of index options. Unlike most index
options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution that issues the warrant. Also, index warrants
generally have longer terms than index options. Although the Strategic Income
Fund will normally invest only in exchange-listed warrants, index warrants are
not likely to be as liquid as certain index options backed by a recognized
clearing agency. In addition, the terms of index warrants may limit the Fund's
ability to exercise the warrants at such time, or in such quantities, as the
Fund would otherwise wish to do.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which a
Fund buys a money market instrument and obtains a simultaneous commitment from
the seller to repurchase the instrument at a specified time and at an agreed
upon yield. Northstar and the Sub-Advisers will use standards set by the
relevant Fund's Trustees in reviewing the creditworthiness of parties to
repurchase agreements with such Fund. In addition, no more than an aggregate of
15% of a Fund's net assets, at the time of investment, will be invested in
illiquid investments, including repurchase agreements having maturities longer
than seven days. In the event of failure of the executing bank or broker-dealer,
a Fund could experience some delay in obtaining direct ownership of the
underlying collateral and might incur a loss if the value of the security should
decline, as well as costs in disposing of the security.
Pursuant to an Exemptive Order under Section 17(d) and Rule 17d-1 obtained
by the Funds, excluding the Northstar Trust and the Strategic Income Fund, on
March 5, 1991, such Funds may deposit uninvested cash balances into a single
joint account to be used to enter into repurchase agreements.
As an alternative to using repurchase agreements, a Fund may, from time to
time, invest up to 5% of its assets in money market investment companies
sponsored by a third party for short-term liquidity purposes. Such investments
are subject to the non-fundamental investment limitations described herein.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. The Funds may
enter into reverse repurchase agreements and dollar roll agreements. Under a
reverse repurchase agreement or a dollar roll agreement, a Fund sells securities
and agrees to repurchase them, or substantially similar securities in the case
of a dollar roll agreement, at a mutually agreed upon date and price. At the
time the Fund enters into a reverse repurchase or dollar roll agreement, it will
establish and maintain a segregated account with its custodian, containing cash,
U.S. Government Securities, or other liquid assets from its portfolio, having a
value not less than the repurchase price (including accrued interest). The Funds
do not account for dollar rolls as a borrowing.
These agreements may involve the risk that the market value of the
securities to be repurchased by a Fund may decline below the price at which the
Fund is obligated to repurchase. Also, in the event the buyer of securities
under a reverse repurchase agreement or a dollar roll agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or
9
<PAGE>
receiver may receive an extension of time to determine whether to enforce the
Fund's obligation to repurchase the securities, and the Fund's use of the
proceeds of the reverse repurchase agreement or the dollar roll agreement may
effectively be restricted pending such a decision.
LENDING PORTFOLIO SECURITIES. A Fund may lend portfolio securities to
broker-dealers and other financial institutions in an amount up to one-third of
the value of its total assets (30% of the value of total assets in the case of
the Northstar International Value and the Northstar Emerging Markets Value
Funds), provided that such loans are callable at any time by the Fund and are at
all times secured by collateral held by the Fund at least equal to the market
value, determined daily, of the loaned securities. A Fund will continue to
receive any income on the loaned securities, while simultaneously earning
interest on cash collateral (which will be invested in short-term debt
obligations) or a securities lending fee (in the case of collateral in the form
of U.S. Government Securities).
There may be risks of delay in recovery of the loaned securities and, in
some cases, loss of rights in the collateral should the borrower of the
securities fail financially. Loans of portfolio securities will only be made to
firms considered by Northstar to be creditworthy under guidelines adopted by the
Trustees.
FIRM COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Fund may enter into firm
commitment agreements to purchase securities at an agreed-upon price on a
specified future date. An amount of cash or short-term U.S. Government
Securities equal to the Fund's commitment will be deposited in a segregated
account at the Fund's custodian bank to secure the Fund's obligation. Although a
Fund will generally enter into firm commitments to purchase securities with the
intention of actually acquiring the securities for its portfolio (or for
delivery pursuant to options contracts it has entered into), the Fund may
dispose of a security prior to settlement if Northstar deems it advisable to do
so. A Fund entering into the forward commitment may realize short-term gains or
losses in connection with such sales.
A Fund may enter into To Be Announced ("TBA") sale commitments wherein the
unit price and the estimated principal amount are established upon entering into
the contract, with the actual principal amount being within a specified range of
the estimate. A Fund will enter into TBA sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, the Fund will maintain, in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. Unsettled
TBA sale commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, the Fund realizes a gain or loss on the
commitment without regard to any unrealized gain or loss on the underlying
security. If the Fund delivers securities under the commitment, the Fund
realizes a gain or loss from the sale of the securities, based upon the unit
price established at the date the commitment was entered into.
A Fund may also purchase securities on a when-issued or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date, normally within one month. The value of the security on the
settlement date may be more or less than the price paid as a result of, among
other things, changes in the level of interest rates or other market factors.
Accordingly, there is a risk of loss, which is in addition to the risk of
decline in the value of the Fund's other assets. The Fund will establish a
segregated account with its custodian in which it will maintain cash and
marketable securities equal in value to commitments for when-issued or delayed
delivery securities. While when-issued or delayed delivery securities may be
sold prior to the settlement date, it is intended that a Fund will purchase such
securities with the purpose of actually acquiring them, unless a sale appears
desirable for investment reasons.
FLOATING OR VARIABLE RATE INSTRUMENTS. The Funds may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Such bonds are
frequently secured by letters of credit or other credit support arrangements
provided by banks. Floating or variable rate instruments provide for adjustments
in the interest rate at specified intervals (weekly, monthly, semiannually,
etc.). A Fund would anticipate using these bonds as cash equivalents, pending
longer term investment of its funds. Other longer term fixed-rate bonds, with a
right of the holder to request redemption at certain times (often annually,
after the lapse of an intermediate term), may also be purchased by a Fund. These
bonds are more defensive than conventional long-term bonds (protecting to some
degree against a rise in interest rates), while providing greater opportunity
than comparable intermediate term bonds since the Fund may retain the bond if
interest rates decline. By acquiring these kinds of bonds, a Fund obtains the
contractual right to require the issuer of the security, or some other person
(other than a broker or dealer), to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person.
10
<PAGE>
ZERO COUPON SECURITIES. Zero coupon securities are fixed income securities
that have been stripped of their unmatured interest coupons. Zero coupon
securities are sold at a (usually substantial) discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. The amount of this discount is accredited over the life of the
security, and the accretion constitutes the income earned on the security for
both accounting and tax purposes. Because of these features, the market prices
of zero coupon securities are generally more volatile than the market prices of
securities that have a similar maturity but that pay interest periodically. Zero
coupon securities are likely to respond to a greater degree to interest rate
changes than are non-zero coupon securities with similar maturity and credit
qualities. Each Fund may invest a portion of its total assets in "zero coupon"
Treasury securities, which consist of Treasury bills or stripped interest or
principal components of U.S. Treasury bonds or notes.
Zero coupon Treasury bonds or notes consist of stripped interest or
principal components held in STRIPS form issued through the U.S. Treasury's
STRIPS program, which permits the beneficial ownership of the component to be
recorded directly in the Treasury book-entry system. The Funds may also purchase
custodial receipts evidencing beneficial ownership of direct interests in
component parts of U.S. Treasury bonds or notes held by a bank in a custodian or
trust account.
ADDITIONAL INFORMATION ON GNMAS. The Funds may invest in U.S. Government
Securities, which are obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities. A substantial portion of the assets of the
Government Securities Fund have, at various times, been invested in obligations
of the Government National Mortgage Association (popularly called GNMAs or
Ginnie Maes). All of the other Funds may also invest in GNMAs from time to time.
GNMAs are mortgage backed securities representing part ownership of a pool
of mortgage loans, in which the timely payment of principal and interest is
guaranteed by the full faith and credit of the U.S. Government. GNMA may borrow
U.S. Treasury funds to the extent needed to make payments under the guarantee.
The Funds purchase "modified pass-through" type GNMA Certificates for which
principal and interest are guaranteed, rather than the "straight pass through"
Certificates for which such guarantee is not available. The Funds also purchase
"variable rate" GNMA Certificates and may purchase other types that may be used
with GNMA's guarantee.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagors or when foreclosure occurs, such principal payments are passed
through to the Certificate holders (such as a Fund). Accordingly, the life of
the GNMA Certificate is likely to be substantially shorter than the stated
maturity of the mortgages in the underlying pool, which will have maturities of
up to 30 years. Because of such variation in prepayment rights, it is not
possible to accurately predict the life of a particular GNMA Certificate.
Payments to holders of GNMA Certificates consist of the monthly
distributions of interest and principal, less the GNMA and issuer's fees. The
portion of the monthly payment that represents a return of principal may be
reinvested by a Fund holding the GNMA in then-available GNMA obligations, which
may bear interest at a rate higher or lower than the obligation from which the
payment was received, or in a differing security. The actual yield to be earned
by the holder of a GNMA Certificate is calculated by dividing such payments by
the purchase price paid for the GNMA Certificate (which may be at a premium or a
discount from the face value of the Certificate). Unpredictable prepayments of
principal, however, can greatly change realized yields. In a period of declining
interest rates it is more likely that mortgages contained in GNMA pools will be
prepaid, thus reducing the effective yield. Moreover, any premium paid on the
purchase of a GNMA Certificate will be lost if the obligation is prepaid. In
periods of falling interest rates, this potential for prepayment may reduce the
general upward price increase of GNMA Certificates that might otherwise occur.
As with other debt instruments, the price of GNMA Certificates is likely to
decrease in times of rising interest rates. Price changes of the GNMA
Certificates held by a Fund have a direct impact on the net asset value per
share of the Fund.
When interest rates rise, the value of a GNMA Certificate will generally
decline. Conversely, when rates fall, the GNMA Certificate value may rise,
although not as much as other debt issues, due to the prepayment feature. As a
result, the price per share the shareholder receives on redemption may be more
or less than the price paid for the shares. The dividends per share paid by the
Government Securities Fund may also vary.
RISKS OF INTERNATIONAL INVESTING
Investments in foreign securities involve special risks, including currency
fluctuations, political or economic instability in the country of issue and the
possible imposition of exchange controls or other laws or restrictions. In
addition, securities prices in foreign markets are generally subject to
different economic, financial, political and social factors than are the prices
of securities in U.S. markets. With respect to some foreign countries there may
be the possibility of expropriation or confiscatory taxation, limitations on
liquidity of securities or political or economic developments which could affect
the foreign
11
<PAGE>
investments of a Fund. Moreover, securities of foreign issuers generally will
not be registered with the SEC, and such issuers will generally not be subject
to the SEC's reporting requirements. Accordingly, there is likely to be less
publicly available information concerning certain of the foreign issuers of
securities held by the Fund than is available concerning U.S. companies. Foreign
companies are also generally not subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to U.S. companies. There may also be less government
supervision and regulation of foreign broker-dealers, financial institutions and
listed companies than exists in the U.S. Commission rates in foreign countries,
which are generally fixed rather than subject to negotiation as in the U.S., are
likely to be higher. These factors could make foreign investments, especially
those in developing countries, more volatile. All of the above issues should be
considered before investing in the Fund.
EMERGING MARKETS AND RELATED RISKS
The International Value Fund may invest up to 25% of its assets and the
Emerging Markets Value Fund may invest greater than 65% of its assets in
securities of companies located in countries with emerging securities markets.
Emerging markets are the capital markets of any country that is generally
considered a developing country by the international financial community.
Currently, these markets include, but are not limited to, the markets of
Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hong
Kong, Hungary, India, Indonesia, Jordon, Malaysia, Mexico, Pakistan, Peru,
Philippines, Poland, Portugal, Russia, Singapore, South Africa, Thailand,
Turkey, Venezuela and Zaire. As opportunities to invest in other emerging
markets countries develop, the Fund expects to expand and diversify further the
countries in which it invests.
Investing in emerging market securities involves risks which are in addition
to the usual risks inherent in foreign investments. Some emerging markets
countries may have fixed or managed currencies that are not free-floating
against the U.S. dollar. Further, certain currencies may not be traded
internationally. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Fund's portfolio securities are denominated may have a detrimental
impact on the Fund.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
Emerging securities markets typically have substantially less volume than
U.S. markets, securities in many of such markets are less liquid, and their
prices often are more volatile than securities of comparable U.S. companies.
Such markets often have different clearance and settlement procedures for
securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets which the Fund desires to invest in emerging
markets may be uninvested. Settlement problems in emerging markets countries
also could cause the Fund to miss attractive investment opportunities.
Satisfactory custodial services may not be available in some emerging markets
countries, which may result in the Fund incurring additional costs and delays in
the transportation and custody of such securities.
ADDITIONAL INFORMATION ON FOREIGN SECURITIES. Each Fund, except Government
Securities Fund, may invest in securities of foreign issuers. Each of these
Funds other than International Value, Emerging Markets Value, High Yield,
Strategic Income, and High Total Return Fund II may invest up to 20% of its net
assets in foreign securities, of which 10% of its net assets may be invested in
foreign securities that are not listed on a U.S. securities exchange. Strategic
Income may invest up to 60% of its assets in securities of foreign issuers, High
Total Return Fund II may invest up to 50% and High Yield up to 35% of its total
assets. The International Value Fund may invest up to 100% of its total assets
in securities of foreign issuers. Eurodollar certificates of deposit are
excluded for purposes of this limitation for Strategic Income.
ADDITIONAL INFORMATION ON HIGH YIELD SECURITIES. Balance Sheet Opportunities
Fund, High Yield Fund, High Total Return Fund II, and Strategic Income Fund,
each may invest in lower-rated fixed income securities to the extent described
in the Prospectus. The lower ratings of certain securities held by these Funds
reflect a greater possibility that adverse changes in the financial condition of
the issuer or economic conditions in general, or both, or an unanticipated rise
in interest rates, may impair the ability of the issuer to make payments of
interest and principal. The inability (or perceived inability) of issuers to
make timely payment of interest and principal would likely make the values of
securities held by these Funds more volatile
12
<PAGE>
and could limit a Fund's ability to sell its securities at prices approximating
the values the Fund had placed on such securities. In the absence of a liquid
trading market for the securities held by it, a Fund may be unable at times to
establish the fair value of such securities. The rating assigned to a security
by Moody's Investors Service, Inc. or S & P (or by any other nationally
recognized securities rating organization) does not reflect an assessment of the
volatility of the security's market value or the liquidity of an investment in
the security. See the Appendix for a description of a security.
Like those of other fixed income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of a Fund's
assets. Conversely, during periods of rising interest rates, the value of a
Fund's assets will generally decline. In addition, the values of such securities
are also affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of any fixed income security and in
the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in the value of portfolio
securities generally will not affect cash income derived from such securities,
but will effect a Fund's net asset value. A Fund will not necessarily dispose of
a security when its rating is reduced below its rating at the time of purchase,
although Northstar will monitor the investment to determine whether its
retention will assist in meeting a Fund's investment objective.
Certain securities held by a Fund may permit the issuer at its option to
call, or redeem, its securities. If an issuer were to redeem securities held by
a Fund during a time of declining interest rates, the Fund may not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Each Fund may invest in loan
participations and loan assignments. A Fund's investment in loan participations
typically will result in the Fund having a contractual relationship only with
the Lender and not with the borrower. The Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participations and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations, the
Fund generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any right of set-off
against the borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund may be subject to the credit risk of both the borrower and the Lender
that is selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
When a Fund purchases a loan assignment from Lenders, it will acquire direct
rights against the borrowers on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Funds anticipate that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular assignments or participations when necessary to meet redemptions
of Fund shares, to meet the Fund's liquidity needs or when necessary in response
to a specific economic event, such as deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for assignments and
participations also may make it more difficult for a Fund to value these
securities for purposes of calculating its net asset value.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Northstar, and the Sub-Adviser in the case of Growth + Value Fund, Special
Fund, International Value Fund, and Emerging Markets Value Fund, places orders
for the purchase and sale of the Funds' securities, supervises their execution
and negotiates brokerage commissions on behalf of each Fund. For purposes of the
remainder of this section, "Portfolio Transactions and Brokerage Allocation,"
discussion of Northstar includes the Sub-Adviser, but only with respect to
Growth + Value Fund, Special Fund, International Value Fund and Emerging Markets
Value Fund. It is the practice of Northstar to seek the best prices and best
execution of orders and to negotiate brokerage commissions that in the Adviser's
opinion, are reasonable in relation to the value of the brokerage services
provided by the executing broker. Brokers who have executed orders for the Funds
are asked to quote a fair commission for their services. If the execution is
satisfactory and if the requested rate approximates rates currently being quoted
by the other brokers selected by Northstar, the rate is deemed by Northstar to
be reasonable. Brokers may ask for higher rates of commission if all or a
portion of the securities involved in the transaction are positioned by the
broker, if the broker believes it has brought a Fund an unusually favorable
trading opportunity, or if the broker regards its research services as being of
exceptional value and payment of such commissions is authorized by Northstar
after the transaction has been consummated. If Northstar more than occasionally
differs with the broker's appraisal of
13
<PAGE>
opportunity or value, the broker would not be selected to execute trades in the
future. Northstar believes that each Fund benefits with a securities industry
comprised of many and diverse firms and that the long term interest of
shareholders of the Funds is best served by its brokerage policies that include
paying a fair commission, rather than seeking to exploit its leverage to force
the lowest possible commission rate. Over-the-counter purchases and sales are
transacted directly with principal market-makers, except in those circumstances
where, in the opinion of Northstar, better prices and execution are available
elsewhere.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry groups
and individual issues. Research services will vary from firm to firm, with
broadest coverage generally from the large full-line firms. Smaller firms, in
general, tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor federal,
state, local and foreign political developments; many of the brokers also
provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff, since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, the outside research provides Northstar with a
diverse perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to Northstar and is available for
the benefit of other accounts advised by Northstar and its affiliates; and not
all of this information will be used in connection with the Funds. While this
information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value, and, in the
opinion of Northstar, it does not reduce the Adviser's expenses by a
determinable amount. The extent to which Northstar makes use of statistical,
research and other services furnished by brokers is considered by Northstar in
the allocation of brokerage business, but there is no formula by which such
business is allocated. Northstar does so in accordance with its judgment of the
best interests of the Funds and their shareholders.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. Each Fund will also
purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed income securities transactions consists primarily of dealer
spreads and underwriting commissions.
In purchasing and selling fixed income securities, it is the policy of each
Fund to obtain the best results, while taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors, such as the dealer's risk in positioning the securities involved. While
Northstar generally seeks reasonably competitive spreads or commissions, the
Funds will not necessarily pay the lowest spread or commission available.
Each Fund may, under circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Funds. By allocating
transactions in this manner, Northstar is able to supplement its research and
analysis with the views and information of other securities firms. During the
fiscal years ended October 31, 1997, October 31, 1996 and October 31, 1995 in
the case of the Growth + Value, International Value, Emerging Markets Value,
Income and Growth, and High Total Return II Funds and the fiscal years ended
December 31, 1997 December 31, 1996 and December 31, 1995 for the Growth,
Special, Balance Sheet Opportunities, High Yield, Strategic Income and
Government Securities Funds, each of the Funds listed below paid the total
brokerage commissions indicated below, including, in the case of the Growth,
Special, Balance Sheet Opportunities, High Yield, Strategic Income and
Government Securities Funds, commissions to Advest, Inc. ("Advest"), an
affiliate of the Funds' former investment adviser.
14
<PAGE>
BROKERAGE COMMISSIONS PAID DURING FISCAL YEARS ENDED OCTOBER 31, 1997, 1996 AND
1995 FOR THE NORTHSTAR TRUST
AND FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 FOR THE FUNDS
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Growth + Value Fund...................................................................... $170,986 N/A N/A
International Value Fund(1).............................................................. $421,452 $ 46,650 $ 9,822
Emerging Markets Value Fund(2)........................................................... N/A N/A N/A
Income and Growth Fund................................................................... $ 93,492 $507,638 $249,474
High Total Return Fund II................................................................ $ -- N/A N/A
</TABLE>
- ---------------
(1) Prior to April 21, 1997, the International Value Fund was operated as the
Brandes International Fund, a series of the Brandes Investment Trust, and
distributed by Worldwide Value Distributors, L.L.C.
(2) Northstar Emerging Markets Value Fund commenced operations on January 1,
1998.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996 1995(1)
-------- -------- --------
<S> <C> <C> <C>
Growth Fund.............................................................................. $169,066 $124,024 $241,864
Special Fund............................................................................. $874,698 $479,135 $ 87,375
Balance Sheet Opportunities Fund......................................................... $ 81,371 $ 90,283 $ 88,151
High Yield Fund.......................................................................... $ -- $ 16,591 $ 12,763
Strategic Income Fund.................................................................... $ -- $ -- $ 552
Government Securities Fund............................................................... $ -- $ 1,049 $ --
- ---------
(1) During the fiscal year 1995, the funds listed above paid the following
brokerage commissions to Advest, Inc.: $2,400 and $6,540 for the Growth
Fund and Special Fund, respectively. The other above listed funds did not
pay any brokerage commissions to Advest, Inc. for fiscal year 1995.
</TABLE>
A change in securities held in the portfolio of a Fund is known as
"Portfolio Turnover" and may involve the payment by a Fund of dealer markups or
brokerage or underwriting commissions and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
Portfolio turnover rate for a fiscal year is the percentage determined by
dividing the lesser of the cost of purchases or proceeds from sales of portfolio
securities by the average of the value of portfolio securities during such year,
all excluding securities whose maturities at acquisition were one year or less.
Each Fund's historical portfolio turnover rates are included in the Financial
Highlights tables in the prospectus. In evaluating a Fund's portfolio turnover
rate, you should keep in mind that a 100% annual turnover rate would occur if
all the securities in the portfolio were replaced once in a period of one year.
A Fund's portfolio turnover rate may be higher than that described above if a
Fund finds it necessary to significantly change its portfolio to adopt a
temporary defensive position or respond to economic or market events. A high
turnover rate would increase commission expenses and may involve realization of
gains that would be taxable to shareholders.
SERVICES OF NORTHSTAR, THE SUB-ADVISERS AND THE ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with each Fund, Northstar
Investment Management Corporation acts as the Investment Adviser to each Fund.
In this capacity, Northstar, subject to the authority of the Trustees of the
Funds, and subject to delegation of certain responsibilities to Brandes
Investment Partners, L.P. as the Sub-Adviser for the International Value Fund
and the Emerging Markets Value Fund, and Navellier Fund Management, Inc. as the
Sub-Adviser for the Growth + Value Fund and the Special Fund, is responsible for
furnishing continuous investment supervision to the Funds and is responsible for
the management of each Fund's portfolio. Northstar oversees the investment
management of the Sub-Advisers for the Funds which are managed by a Sub-Adviser.
Northstar is an indirect, wholly-owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar"). ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the life insurance business. Through ReliaStar Life
Insurance Company ("ReliaStar Life") and other subsidiaries, ReliaStar issues
and distributes individual life insurance and annuities, group life and health
insurance and life and health reinsurance, and provides related investment
management services. The address of Northstar is Two Pickwick Plaza, Greenwich,
Connecticut 06830. The address of ReliaStar is 20 Washington Avenue South,
Minneapolis, Minnesota 55401.
Northstar charges a fee under each advisory agreement to Growth + Value
Fund, Growth Fund, Special Fund, International Value Fund, Emerging Markets
Value Fund, Balance Sheet Opportunities Fund, High Yield Fund, High Total Return
15
<PAGE>
Fund II, Strategic Income Fund and Government Securities Fund at an annual rate,
after voluntary waivers or expense reimbursements, of 1.00%, 0.75%, 0.75%,
1.00%, 1.00%, 0.65%, 0.60%, 0.75%, 0.65% and 0.50% of such Fund's average daily
net assets, respectively. This fee is accrued daily and payable monthly.
Northstar charges a fee to the Income and Growth Fund at the annual rate of
0.75% on the first $250,000,000 of aggregate average daily net assets of each
Fund, 0.70% on the next $250,000,000 of such assets, 0.65% on the next
$250,000,000 of such assets; 0.60% on the next $250,000,000 of such assets, and
0.55% on the remaining aggregate daily net assets of each Fund in excess of $1
billion.
The Investment Advisory Agreement for the Income and Growth Fund was
originally approved by the Trustees of the Northstar Trust on October 23, 1993,
and by the sole Shareholder of the Northstar Income and Growth Fund on November
8, 1993. The Investment Advisory Agreement continued in effect for a period of
two years and was renewed by the Trustees for one year on October 31, 1995. It
will continue in effect from year to year if specifically approved annually by
(a) the Trustees, acting separately on behalf of the Fund, including a majority
of the Disinterested Trustees, or (b) a majority of the outstanding voting
securities of each class of the Fund as defined in the 1940 Act.
The Investment Advisory Agreement for the Growth + Value Fund, High Total
Return Fund II and International Value Fund were approved by the Trustees of the
Northstar Trust on July 31, 1996, October 29, 1996 and January 23, 1997,
respectively. The Investment Advisory Agreement will continue in effect for a
period of two years and annually thereafter if specifically approved annually by
(a) the Trustees, acting separately on behalf of the Fund, including a majority
of the Disinterested Trustees, or (b) a majority of the outstanding voting
securities of each class of the Fund as defined in the 1940 Act.
The Investment Advisory Agreement for the Emerging Markets Value Fund was
approved by the Trustees of the Northstar Trust on behalf of the Fund on October
29, 1997, and by the sole shareholder of the Fund on November 8, 1997. The
Investment Advisory Agreement will continue in effect until November 8, 1999,
and then will continue in effect from year to year, if specifically approved
annually by (a) the Trustees of the Trust, on behalf of the Fund, including a
majority of the Disinterested Trustees, or (b) a majority of the outstanding
voting securities of each class of the Fund as defined in the 1940 Act.
Each Investment Advisory Agreement for the remaining Funds was approved by
the Trustees of the affected Fund on March 1, 1995 and by the shareholders of
such Fund on June 2, 1995. Each such Investment Advisory Agreement continues in
effect from year to year if specifically approved annually by (a) the Trustees,
acting separately on behalf of the particular Fund, including a majority of the
Disinterested Trustees, or (b) a majority of the outstanding voting securities
of each class of such Fund as defined in the 1940 Act. The Agreements were last
approved on April 24, 1997.
A Fund's Investment Advisory Agreement may be terminated as to any class,
without penalty and at any time, by a similar vote upon not more than 60 days
nor less than 30 days written notice by Northstar, the Trustees, or a majority
of the outstanding voting securities of such class of such Fund as defined in
the 1940 Act. Such agreement will automatically terminate in the event of its
assignment, as defined in Section 2(a)(4) of the 1940 Act.
Pursuant to a Sub-Advisory Agreement between Northstar and Brandes
Investment Partners, L.P. ("Brandes"), dated February 28, 1997 and a
Sub-Advisory Agreement between Northstar and Brandes dated November 8, 1997,
Brandes acts as Sub-Adviser to the International Value Fund and the Emerging
Markets Value Fund, respectively. In this capacity, Brandes, subject to the
supervision and control of Northstar and the Trustees of the Funds, will manage
each Fund's portfolio investments, consistently with each Fund's investment
objective, and will execute any of the Fund's investment policies that it deems
appropriate to utilize from time to time. Fees payable under the Sub-Advisory
Agreements will accrue daily and be paid monthly by Northstar. As compensation
for its services, Northstar will pay Brandes at the annual rate of 50% of the
management fee that each of the Funds it subadvises pays Northstar. Brandes'
address is 12750 High Bluff Drive, San Diego, California 92130. Charles Brandes,
who controls the general partner of Brandes, serves as one of the managing
directors of Brandes. The Sub-Advisory Agreement for the International Value
Fund was approved by the Trustees of the Fund on January 23, 1997. The
Sub-Advisory Agreement for the Emerging Markets Value Fund was approved by the
Trustees of the Fund on October 29, 1997. The Sub-Advisory Agreements may be
terminated without payment of any penalty by Northstar, Brandes, the Trustees of
the Funds, or the shareholders of the Funds on not more than 60 days and not
less than 30 days prior written notice. Otherwise, the Sub-Advisory Agreements
will remain in effect for two years and will, thereafter, continue in effect
from year to year, subject to the annual approval of the Trustees of the Trust
on behalf of each of the Funds, or the vote of a majority of the outstanding
voting securities of such Fund, and the vote, cast in person at a meeting duly
called and held,
16
<PAGE>
of a majority of the Trustees of such Fund who are not parties to the
Sub-Advisory Agreement or "interested persons" (as defined in the 1940 Act) of
any such Party.
Pursuant to separate Sub-Advisory Agreements between Northstar and
Navellier Fund Management, Inc. ("Navellier"), dated July 31, 1996 and February
1, 1996, Navellier acts as subadviser to Growth + Value Fund and Special Fund,
respectively. In this capacity, Navellier, subject to the supervision and
control of Northstar and the Trustees of such Funds, will manage the Funds'
portfolio investments, consistently with their investment objective, and will
execute any of the Funds' investment policies that it deems appropriate to
utilize from time to time. Fees payable under the Sub-Advisory Agreement will
accrue daily and be paid monthly by Northstar. As compensation for its services,
Northstar will pay Navellier at the annual rate of 0.64% and 0.48% of the
average daily net assets of Growth + Value Fund and Special Fund, respectively.
Navellier is wholly-owned and controlled by its sole stockholder, Louis G.
Navellier. Navellier's address is: 1 East Liberty, Third Floor, Reno, Nevada,
89501. The Sub-Advisory Agreement for Growth + Value Fund was approved by the
Trustees of the Fund on July 31, 1996. The Sub-Advisory Agreement for Special
Fund was approved by the Trustees of the Fund on December 1, 1995, and by vote
of the Shareholders of the Fund on January 30, 1996. Each Sub-Advisory Agreement
may be terminated without payment of any penalty by Northstar, Navellier, the
Trustees of such Fund, or the shareholders of such Fund on not more than 60 days
and not less than 30 days prior written notice. Otherwise, each Sub-Advisory
Agreement will remain in effect for two years and will, thereafter, continue in
effect from year to year, subject to the annual approval of the Trustees of the
applicable Fund, or the vote of a majority of the outstanding voting securities
of such Fund, and the vote, cast in person at a meeting duly called and held, of
a majority of the Trustees of such Fund who are not parties to the Sub-Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of any such
Party.
Northstar Administrators Corporation serves as administrator for the Funds,
pursuant to an Administrative Services Agreement with each Fund. Subject to the
supervision of the Board of Trustees, the Administrator provides the overall
business management and administrative services necessary to the proper conduct
of the Funds' business, except for those services performed by Northstar under
the Investment Advisory Agreements, the custodian for the Funds under the
Custodian Agreements, the transfer agent for the Funds under the Transfer Agency
Agreements, and such other service providers as may be retained by the Funds
from time to time. The Administrator acts as liaison among these service
providers to the Funds. The Administrator is also responsible for ensuring that
the Funds operate in compliance with applicable legal requirements and for
monitoring Northstar for compliance with requirements under applicable law and
with the investment policies and restrictions of the Funds. The Administrator is
an affiliate of Northstar. The address of the Administrator is: Two Pickwick
Plaza, Greenwich, Connecticut 06830.
The Administrative Services Agreement was approved by the Trustees of the
Trust on behalf of the Income and Growth Fund on October 23, 1993, and continued
in effect for a period of two years. The Agreement was renewed by the Trustees
for one year on October 31, 1995 and will continue in effect from year to year
thereafter, provided such continuance is approved annually by a majority of the
Trustees of the Trust. The Administrative Services Agreement for the Northstar
Growth + Value Fund was approved by the Trustees of the Northstar Trust on July
31, 1996 and will continue in effect from year to year thereafter, provided such
continuance is approved annually by a majority of the Trustees. The
Administrative Services Agreement for Northstar International Value Fund was
approved by the Trustees of the Northstar Trust on January 23, 1997 and will
continue in effect from year to year thereafter, provided such continuance is
approved annually by a majority of the Trustees.
The Administrative Services Agreement for the Northstar High Total Return
Fund II was approved by the Trustees of the Northstar Trust on October 29, 1996
and will continue in effect from year to year thereafter, provided such
continuance is approved annually by a majority of the Trustees.
The Administrative Services Agreement for the Emerging Markets Value Fund
was approved by the Trustees of the Northstar Trust on behalf of the Fund on
October 29, 1997. The Administrative Services Agreement will continue in effect
until November 8, 1999, and then will continue in effect from year to year, if
specifically approved annually by a majority of the Trustees of the Trust on
behalf of the Fund.
Each Administrative Services Agreement for the remaining Funds was approved
by the Trustees of the particular Fund on March 1, 1995, and continued in effect
until June 2, 1997. The agreement was renewed by the Trustees for one year on
April 24, 1997 and will continue in effect from year to year thereafter,
provided such continuance is approved annually by a majority of the
Disinterested Trustees of the affected Fund.
The Administrator's fee is accrued daily against the value of each Fund's
net assets and is payable by each Fund monthly at an annual rate of 0.10% of
each Fund's average daily net assets. In addition, the Administrator charges an
annual
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<PAGE>
account fee of $5.00 for each account of beneficial owners of shares in a Fund
for providing certain shareholder services and assisting broker-dealer
shareholder accounts.
During the fiscal years ended October 31, 1997, 1996 and 1995, or during
the calendar years ended December 31, 1997, 1996, 1995, 1994 and 1993
respectively, the Funds listed below paid Northstar and the Administrator the
following investment advisory and administrative fees:
TOTAL ADVISORY AND ADMINISTRATIVE FEES PAID
DURING THE FISCAL YEAR ENDED OCTOBER 31,
<TABLE>
<CAPTION>
1997 1997 1996 1996 1995
------------- ----------- ------------- ----------- -------------
ADVISORY FEES ADMIN. FEES ADVISORY FEES ADMIN. FEES ADVISORY FEES
------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Growth + Value Fund.................... $ 538,291 74,529 N/A N/A N/A
International Value Fund (1)........... $ 789,163 116,315 259,033 60,000 34,019
Emerging Markets Value Fund............ N/A N/A N/A N/A N/A
Income and Growth Fund................. $ 1,513,778 233,759 1,548,967 242,294 1,158,432
High Total Return Fund II.............. $ 68,888 14,025 N/A N/A N/A
<CAPTION>
1995
-----------
ADMIN. FEES
-----------
<S> <C>
Growth + Value Fund.................... N/A
International Value Fund (1)........... 39,452
Emerging Markets Value Fund............ N/A
Income and Growth Fund................. 154,457
High Total Return Fund II.............. N/A
</TABLE>
- ---------------
(1) Prior to April 21, 1997, the International Value Fund was managed by Brandes
Investment Partners L.P. The administrator for the Fund was the Investment
Company Administration Corporation.
(2) Does not reflect expense reimbursement of $11,165 for Growth + Value Fund,
$173,911 for International Value Fund or $105,669 for Northstar High Total
Return Fund II.
TOTAL ADVISORY AND ADMINISTRATIVE FEES PAID
DURING FISCAL YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1997 1996 1996 1995 1994 1993
ADVISORY ADMIN. ADVISORY ADMIN. ADVISORY ADVISORY ADVISORY
FEES FEES FEES FEES FEES FEES FEES
---------- ------- --------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Fund (2).............................. $1,412,949 136,648 575,383 0 593,282 604,576 517,203
Special Fund (2)............................. $2,341,067 266,145 1,146,789 0 287,311(4) 268,139 145,178
Balance Sheet Opportunities Fund (2)......... $ 398,127 46,191 464,088 0 477,095 519,729 447,631
High Yield................................... $1,289,419 180,250 941,594 0 683,323 622,761 432,063
Strategic Income Fund (2).................... $ 471,957 51,242 532,941 0 252,201 57,726 --
Government Securities Fund (2)(3)............ $ 762,504 78,343 923,929 0 678,996 747,846 767,370
</TABLE>
- ---------------
(1) Prior to June 5, 1995, the Growth, Special, Balance Sheet Opportunities,
High Yield, Strategic Income and Government Securities Funds were managed by
Boston Security Counselors, Inc. ("BSC") and did not utilize the services of
an administrator. During the fiscal years ended December 31, 1997, 1996,
1995, 1994 and 1993, the Funds listed above paid Northstar or BSC the above
noted investment advisory fees.
(2) Does not reflect expense reimbursement of $10,635 for the Growth Fund,
$20,690 for the Balance Sheet Opportunities Fund, $21,320 for the Strategic
Income Fund, $227,803 for the Government Securities Fund for the year ended
December 31, 1997; of expense reimbursement of $34,126 for the Growth Fund,
$20,615 for the Special Fund, $41,925 for the Balance Sheet Opportunities
Fund, $65,578 for the Strategic Income Fund for the year ended December 31,
1996; expense reimbursement of $87,944 for the Strategic Income Fund and
expense reimbursement of $15,175 for the Government Securities Fund for the
year ended December 31, 1995.
(3) Net of waiver of investment advisory fees of $201,863, $284,286, $301,776,
$332,370 and $341,054 for the years ended December 31, 1997, 1996, 1995,
1994 and 1993, respectively.
(4) Does not reflect expense reimbursement of $733.
NET ASSET VALUE
For each Fund in the Northstar Trust, equity securities are valued at the
last sale price on the exchange or in the principal OTC market in which such
securities are being valued, or lacking any sales, at the last available bid
price. Prices of long-term debt securities are valued on the basis of last
reported sales price, or if no sales are reported, the value is determined based
upon the mean of representative quoted bid or asked prices for such securities
obtained from a quotation reporting system or
18
<PAGE>
from established market makers, or at prices for securities of comparable
maturity, quality and type. For the Northstar Growth, Special, Balance Sheet
Opportunities, High Yield, Strategic Income and Government Securities Funds,
portfolio securities, options and futures contracts and options thereon that are
traded on national exchanges or in the NASDAQ System are valued at the last sale
or settlement price on the exchange or market where primarily traded or, if none
that day, at the mean of the last reported bid and asked prices, using prices as
of the close of trading on the applicable exchange or market. Securities and
options that are traded in the OTC market (other than on the NASDAQ System) are
valued at the mean of the last available bid and asked prices. Such valuations
are based on quotations of one or more dealers that make markets in the
securities as obtained from such dealers or from a pricing service. Securities
(including OTC options) for which market quotations are not readily available
(which may constitute a major portion of the High Yield Fund's portfolio) and
other assets are valued at their fair value as determined by or under the
direction of the Trustees. Such fair value may be determined by various methods,
including utilizing information furnished by pricing services that determine
calculations for such securities using methods based, among other things, upon
market transactions for comparable securities and various relationships between
securities that are generally recognized as relevant.
The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m. EST), on each business day that the Exchange
is open. Net asset value per share is computed by determining the value of a
Fund's assets (securities held plus cash and other assets, including dividend
and interest accrued but not received) less all liabilities of the Fund
(including accrued expenses other than class specific expenses), and dividing
the result by the total number of shares outstanding at such time. The specific
expenses borne by each class of shares will be deducted from that class and will
result in different net asset values and dividends. The net asset value per
share of the Class B, Class C and Class T shares of each Fund will generally be
lower than that of the Class A or Class I shares because of the higher class
specific expenses borne by each of the Class B, Class C and Class T shares.
Under normal market conditions, daily prices for securities are obtained from
independent pricing services, determined by them in accordance with the
registration statement for each Fund. Securities are valued at market value or,
if a market quotation is not readily available, at their fair value, determined
in good faith under procedures established by and under the supervision of the
Trustees. Money market instruments maturing within 60 days are valued using the
amortized cost method of valuation. This involves valuing a security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a Fund
would receive if it sold the instrument. See "How Net Asset Value is Determined"
in the Prospectus.
PURCHASES AND REDEMPTIONS
Shares issued pursuant to the automatic reinvestment of income dividends or
capital gains distributions are not subject to a front-end or contingent
deferred sales load. There is no sales charge for qualified persons. "Qualified
Persons" are the following (a) active or retired Trustees, Directors, Officers,
Partners or Employees (including immediate family) of (i) Northstar or any of
its affiliated companies, (ii) the Funds or any Northstar affiliated investment
company or (iii) dealers having a sales agreement with the Underwriter, (b)
trustees or custodians of any qualified retirement plan or IRA established for
the benefit of a person in (a) above; (c) dealers, brokers or registered
investment advisers that have entered into an agreement with the Underwriter
providing for the use of shares of the Funds in particular investment products
such as "wrap accounts" or other similar managed accounts for the benefit of the
clients of such brokers, dealers and registered investment advisers, and (d)
pension, profit sharing or other benefit plans created pursuant to a plan
qualified under Section 401 of the Code or plans under Section 457 of the Code,
provided that such shares are purchased by an employer sponsored plan with at
least 50 eligible employees and (e) service providers of (i) Northstar or any of
its affiliated companies or (ii) the Funds or any Northstar affiliated
investment company and (f) Brandes employees, officers and partners. Class A
shares of the Funds may be purchased at net asset value, through a dealer, where
the amount invested represents redemption proceeds from another open-end fund
sold with a sales load and the same or similar investment objective, and
PROVIDED the following conditions are met: such redemption occurred no more than
60 days prior to the purchase of shares of a Northstar Fund, the redeemed shares
were held for at least six months prior to redemption, and the proceeds of the
redemption are sent directly to Northstar or its agent, or maintained in cash or
a money market fund. No commissions will be paid to dealers in connection with
such purchases. There is also no initial sales charge for "Purchasers" (defined
below) if the initial amount invested in the Funds is at least $1,000,000 or the
Purchaser signs a $1,000,000 Letter of Intent, as hereinafter defined.
REDUCED SALES CHARGES ON CLASS A SHARES. Investors choosing the initial
sales alternative may under certain circumstances be entitled to pay reduced
sales charges. The sales charge varies with the size of the purchase and reduced
charges
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<PAGE>
apply to the aggregate of purchases of a Fund made at one time by any
"Purchaser," which term includes (i) an individual and his/her spouse and their
children under the age of 21, (ii) a trustee or fiduciary purchasing for a
single trust, estate or single fiduciary account (including IRAs, pension,
profit-sharing or other employee benefit trusts created pursuant to a plan
qualified under Section 401 of the Code, a Simplified Employee Pension ("SEP"),
Salary Reduction and other Elective Simplified Employee Pension Accounts
("SARSEP")) and 403(b) and 457 plans, although more than one beneficiary or
participant is involved; and (iii) any other organized group of persons, whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase at a discount of
redeemable securities of a registered investment company. The circumstances
under which "Purchasers" may pay reduced sales charges are described in the
Prospectus.
PURCHASES IN-KIND OF THE NORTHSTAR INTERNATIONAL VALUE FUND. Investors may,
subject to the approval of the Northstar International Value Fund, Northstar and
Brandes, purchase shares of the Northstar International Value Fund (the "Fund")
with liquid securities that are eligible for purchase by the Fund and that have
a value that is readily ascertainable. These transactions will be effected only
if Northstar or Brandes intends to retain the securities in the Fund as an
investment. The Fund reserves the right amend or terminate this practice at any
time.
REDEMPTIONS. The right to redeem shares may be suspended and payment
therefore postponed during periods when the New York Stock Exchange is closed,
other than customary weekend and holiday closings, or, if permitted by rules of
the SEC, during periods when trading on the Exchange is restricted, or during
any emergency that makes it impracticable for any Fund to dispose of its
securities or to determine fairly the value of its net assets or during any
other period permitted by order of the SEC for the protection of investors.
Furthermore, the Transfer Agent will not mail redemption proceeds until checks
received for shares purchased have cleared, but payment will be forwarded
immediately upon the funds becoming available. Class B, Class C and Class T
shareholders will be subject to the applicable deferred sales charge, if any,
for their shares at the time of redemption.
The contingent deferred sales load will be waived with respect to Class T
shares in the following instances: (i) any partial or complete redemption of
shares of a shareholder who dies or becomes disabled, so long as the redemption
is requested within one year of death or the initial determination of
disability; (ii) any partial or complete redemption in connection with
distributions under Individual Retirement Accounts ("IRAs") or other qualified
retirement plans in connection with a lumpsum or other form of distribution
following retirement within the meaning of Section 72(t)(2)(A) (iv) or (v) of
the Code, disability or death, or after attaining the age of 59 1/2 in the case
of an IRA, Keogh Plan or custodial account pursuant to Section 403(b)(7) of the
Code, or on any redemption that results from a taxfree return of an excess
contribution pursuant to Section 408(d)(4) or (5) of the Code or Section 4979(f)
of the Code; (iii) redemptions effected pursuant to the Funds' right to
liquidate a shareholder's account if the aggregate net asset value of the shares
held in the account is less than $500; (iv) redemptions effected by (A)
employees of The Advest Group, Inc. ("AGI") and its subsidiaries, (B) IRAs,
Keogh plans and employee benefit plans for those employees, and (C) spouses and
minor children of those employees, so long as orders for shares are placed on
behalf of the spouses or children by the employees; (v) redemptions effected by
accounts managed by investment advisory subsidiaries of AGI registered under the
Investment Advisers Act of 1940; and (vi) redemptions in connection with
exchanges of Fund Class T shares, including shares of the Class T account of the
Money Market Portfolio.
EXCHANGES. The following conditions must be met for all exchanges among the
Funds and the Money Market Portfolio: (i) the shares that will be acquired in
the exchange (the "Acquired Shares") are available for sale in the shareholder's
state of residence; (ii) the Acquired shares will be registered to the same
shareholder account as the shares to be surrendered (the "Exchanged Shares");
(iii) the Exchanged Shares must have been held in the shareholder's account for
at least 30 days prior to the exchange; (iv) except for exchanges into the Money
Market Portfolios, the account value of the Fund whose shares are to be acquired
must equal or exceed the minimum initial investment amount required by that Fund
after the exchange is implemented; and (v) a properly executed exchange request
has been received by the Transfer Agent.
Each Fund reserves the right to delay the actual purchase of the Acquired
Shares for up to five business days if it determines that it would be
disadvantaged by an immediate transfer of proceeds from the redemption of
Exchanged Shares. Normally, however, the redemption of Exchanged Shares and the
purchase of Acquired Shares will take place on the day that the exchange request
is received in proper form. Each Fund reserves the right to terminate or modify
its exchange privileges at any time upon prominent notice to shareholders. Such
notice will be given at least 60 days in advance. It is the policy of Northstar
to discourage and prevent frequent trading by shareholders among the Funds in
response to market fluctuations. Accordingly, in order to maintain a stable
asset base in each Fund and to reduce administrative expenses borne by each
Fund, Northstar generally restricts shareholders to a maximum of six exchanges
across the Northstar Fund complex each calendar year. If a shareholder exceeds
this limit, future exchange requests may be denied.
20
<PAGE>
CONVERSION FEATURE. Class B shares of each Fund will automatically convert
to Class A shares without a sales charge at the relative net asset values of
each of the classes after eight years from the acquisition of the Class B
shares, and as a result, will thereafter be subject to the lower distribution
fee (but same service fee) under the Class A Rule 12b-1 plan for each Fund.
Class T Shares convert to Class A shares at the end of the month that is the
later of (i) eight years after the Class T Shares were purchased or (ii) June 2,
1998.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"). In order to so
qualify, the Fund must, among other things, (i) derive each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies; (ii) derive less than 30% of its gross
income each taxable year from the sale or other disposition of certain assets,
including securities, held for less than three months (the "30% Limitation");
and (iii) at the end of each quarter of the taxable year maintain at least 50%
of the value of its total assets in cash, government securities, securities of
other regulated investment companies, and other securities of issuers that
represent, with respect to each issuer, no more than 5% the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
with no more than 25% of its assets invested in the securities (other than those
of the U.S. Government or other regulated investment companies) of any one
issuer or of two or more issuers that the Fund controls and that are engaged in
the same, similar or related trades and businesses. As a regulated investment
company, each Fund generally will not be subject to federal income tax on its
income and gains that it distributes to shareholders, if at least 90% of its
investment company taxable income (which includes dividends, interest and the
excess of any short-term capital gains over long-term capital losses) for the
taxable year is distributed.
An excise tax at the rate of 4% will be imposed on the excess, if any, of a
Fund's "required distribution" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a Fund's ordinary income for
the calendar year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 plus undistributed amounts from prior
years. Each Fund intends to make distributions sufficient to avoid imposition of
the excise tax. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund during October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable as if
received on December 31 in the year they are declared by the Fund, rather than
the year in which they are received.
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by a Fund for selling a put or call option is not included in income at
the time of receipt. If the option expires, the premium is a short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is a
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining the gain or loss.
Certain options, futures contracts and forward contracts in which a Fund
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses ("60/40 gains or losses"); however, foreign currency gains or
losses (as discussed below) arising from certain section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by a Fund
at the end of each taxable year (and, generally, for purposes of the 4% excise
tax, on October 31 of each year) are treated as sold on such date at fair market
value, resulting in unrealized gains or losses being treated as though they were
realized.
Hedging transactions undertaken by a Fund may result in straddles for U.S.
federal income tax purposes. The straddle rules may accelerate income to a Fund,
defer losses to a Fund, and affect the character of gains (or losses) realized
by a Fund. Hedging transactions may increase the amount of short-term capital
gains realized by a Fund that is taxed as ordinary income when distributed to
shareholders. A Fund may make one or more of the various elections available
under the Code with
21
<PAGE>
respect to hedging transactions. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected positions will be determined under rules that vary according to the
elections made.
Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time a Fund accrues interest or other receivables,
or accrues expenses or other liabilities, denominated in a foreign currency and
the time the Fund actually collects such receivables, or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and certain
options, futures and forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
A Fund will not realize a gain or loss on a short sale of a security until
it closes the transaction by delivering the borrowed security to the lender. All
or a portion of any gain arising from a short sale may be treated as short-term
capital gain, regardless of the period for which he Fund held the security used
to close the short sale. In addition, the Fund's holding period for any security
that is substantially identical to that which is sold short may be reduced or
eliminated as a result of the short sale.
Investments by a Fund in zero coupon securities will result in income to
the Fund equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Fund receives no cash interest payments.
This income is included in determining the amount of income that the Fund must
distribute to maintain its status as a regulated investment company and to avoid
the payment of federal income tax and the 4% excise tax. If a Fund invests in
certain high yield original issue discount obligations issued by corporations, a
portion of the original issue discount accruing on the obligations may be
eligible for the deduction for dividends received by corporations. In such
event, a portion of the dividends of investment company taxable income received
from the Fund by its corporate shareholders may be eligible for this deduction.
Gains derived by a Fund from the disposition of any market discount bonds
(I.E., bonds purchased other than at original issue, where the face value of the
bonds exceeds their purchase price) held by the Fund will be taxed as ordinary
income to the extent of the accrued market discount on the bonds, unless the
Fund elects to include the market discount in income as it accrues.
If a Fund invests in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), these investments would be subject to special tax rules
designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's
earnings. In the absence of certain elections to report these earnings on a
current basis, regardless of whether the Fund actually receives any
distributions from the PFIC, investors in the Fund would be required to report
certain "excess distributions" from, and any gains from the disposition of stock
of, the PFIC as ordinary income. This ordinary income would be allocated ratably
to the Fund's holding period for the stock. Any amounts allocated to prior years
would be taxable at the highest rate of tax applicable in that year, increased
by an interest charge determined as though the amounts were underpayments of
tax.
Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. If more than
50% of the value of a Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible and
may elect to "pass through" to the Fund's shareholders the amount of foreign
taxes paid by the Fund. Pursuant to this election, a shareholder will be
required to include in gross income (in addition to dividends actually received)
its pro rata share of the foreign taxes paid by the Fund, and may be entitled
either to deduct its pro rata share of the foreign taxes in computing its
taxable income or to use the amount as a foreign tax credit against its U.S.
Federal income tax liability, subject to limitations. Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will "pass through" for that year. If a Fund is
not eligible to make the election to "pass through" to its shareholders its
foreign taxes, the foreign taxes it pays will reduce its investment company
taxable income and distributions by the Fund will be treated as U.S. source
income.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to its foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Fund's income flows through to its shareholders. With respect to
the Funds, gains from the sale of securities will be treated as derived from
U.S. sources and certain currency fluctuation gains, including fluctuation gains
from foreign currency denominated debt securities, receivables and payables, and
options, futures and forward transactions, will be treated as ordinary
22
<PAGE>
income derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source passive income (as defined for purposes of
the foreign tax credit), including the foreign source passive income passed
through by the Funds.
The current position of the Internal Revenue Service (the "IRS") generally
is to treat a regulated investment company, such as the Special Fund, as owning
its proportionate share of the income and assets of any partnership in which it
is a partner, in applying the 90% qualifying income requirement, the 30%
Limitation and the asset diversification requirements that, as described above,
each Fund must satisfy to qualify as a regulated investment company under the
Code. These requirements may limit the extent to which the Special Fund may
invest in limited partnerships, especially in the case of limited partnerships
that do not primarily invest in a diversified portfolio of stocks and
securities.
Dividends paid out of a Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of a Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated as capital
gain dividends are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the relevant Fund on the
reinvestment date. A distribution of an amount in excess of a Fund's current and
accumulated earnings and profits will be treated by a shareholder as a return of
capital that is applied against and reduces the shareholder's basis in his or
her shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as a gain from a sale or exchange of the shares. Shareholders will
be notified annually as to the U.S. federal tax status of distributions, and
shareholders receiving distributions in the form of additional shares will
receive a report as to the net asset value of those shares.
Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a capital gain or loss that will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund originally
acquired with a sales charge are disposed of within 90 days after the date on
which they were acquired and new shares of a regulated investment company are
acquired without a sales charge or at a reduced sales charge. In that case, the
gain or loss realized on the disposition will be determined by excluding from
the tax basis of the shares all or a portion of the sales charge incurred in
acquiring those shares. This exclusion applies to the extent that the otherwise
applicable sales charge with respect to the newly acquired shares is reduced as
a result of the shareholder having incurred a sales charge paid for the new
shares. This rule may be applied to successive acquisitions of shares of stock.
Distributions by a Fund reduce the net asset value of that particular
Fund's shares. Should a distribution reduce the net asset value of a share below
a shareholder's cost for the share, such a distribution nevertheless generally
would be taxable to the shareholder as ordinary income or long-term capital
gains, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution by a Fund. The
price of shares purchased at that time may include the amount of the forthcoming
distribution, but the distribution generally would be taxable to them.
Some shareholders may be subject to withholding of Federal income tax on
dividends and redemption payments from a Fund ("backup withholding") at the rate
of 31%. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. Generally, shareholders
subject to backup withholding will be (i) those for whom a certified taxpayer
identification number is not on file with a Fund, (ii) those about whom
notification has been received (either by the shareholder or by a Fund) from the
IRS that they are subject to backup withholding or (iii) those who, to a Fund's
knowledge, have furnished an incorrect taxpayer identification number.
Generally, to avoid backup withholding, an investor must, at the time an account
is opened, certify under penalties of perjury that the taxpayer identification
number furnished is correct and that he or she is not subject to backup
withholding.
23
<PAGE>
The foregoing discussion relates solely to U.S. Federal income tax law.
Dividends and distributions also may be subject to state, local and foreign
taxes. Dividends paid by a Fund from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers regarding the possible exclusion
of this portion of their dividends for state and local tax purposes. Non-U.S.
investors also should consult their tax advisers concerning the tax consequences
of ownership of shares of a Fund, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
Shareholders of Class A, Class B and Class C shares may direct that income
dividends and capital gain distributions be paid to them through various options
listed in the "How Funds Pay Distributions -- Distribution Options" section of
the Funds' current Prospectus. If a shareholder selects either of two such
options (that: (a) income dividends be paid in cash and capital gain
distributions be paid in additional shares of the same class of a designated
Fund at net asset value; or (b) income dividends and capital gain distributions
both be paid in cash), and the dividend/distribution checks cannot be delivered,
or, if such checks remain uncashed for six months, each Fund reserves the right
to reinvest the dividend or distribution in the shareholder's account at the
then-current net asset value and to convert the shareholder's election to
automatic reinvestment in shares of the Fund from which the distributions were
made. Each Fund has received from the IRS, rulings to the effect that (i) the
implementation of the multiple class purchase arrangement will not result in a
Fund's dividends or distributions constituting "preferential dividends" under
the Code, and (ii) that any conversion feature associated with a class of shares
does not constitute a taxable event under federal income tax law.
UNDERWRITER AND DISTRIBUTION SERVICES
Pursuant to Underwriting Agreements, Northstar Distributors, Inc. is the
Underwriter for each Fund and as such conducts a continuous offering pursuant to
a "best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. The Underwriter is an affiliate of the
Adviser and the Administrator.
The Underwriting Agreements may be terminated at any time on not more than
60 days written notice, without payment of a penalty, by the Underwriter, by
vote of a majority of the outstanding class of voting securities of the affected
Fund, or by vote of a majority of the Trustees of such Fund, who are not
"interested persons" of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements. The Underwriting
Agreements will terminate automatically in the event of their assignment.
In addition to the amount paid to dealers pursuant to the sales charge
table in the Prospectus, the Underwriter from time to time pays, from its own
resources or pursuant to the Plans, a bonus or other incentive to dealers (other
than the Underwriter) that employ a registered representative who sells a
minimum dollar amount of the shares of a Fund during a specific period of time.
Dealers may not use sales of any of the Fund's shares to qualify for or
participate in such programs to the extent such may be prohibited by a dealer's
internal procedures or by the laws of any state or any self-regulatory agency,
such as the National Association of Securities Dealers, Inc. Such bonuses or
other incentives take the form of payment for travel expenses, including
lodging, incurred in connection with trips taken by qualifying registered
representatives and members of their families to places within or outside the
United States, or other bonuses such as certificates for airline tickets, dining
establishments or the cash equivalent of such bonuses. The Underwriter, from
time to time, reallows all or a portion of the sales charge on Class A shares,
which it normally reallows to individual selling dealers. However, such
additional reallowance generally will be made only when the selling dealer
commits to substantial marketing support such as internal wholesaling through
dedicated personnel, internal communications and mass mailings.
Each Fund has adopted separate distribution plans under Rule 12b-1 of the
1940 Act for each class of shares of the Fund (collectively the "Plans"). The
Plans permit each Fund to compensate the Underwriter in connection with
activities intended to promote the sale of shares of each class of shares of
each Fund.
Pursuant to the Plan for Class A shares, each Fund may compensate the
Underwriter up to 0.30% of average daily net assets of such Fund's Class A
shares. Under the Plans for Class B and Class C shares, each Fund may compensate
the Underwriter up to 1.00% of the average daily net assets attributable to the
respective class of such Fund. Pursuant to the Plan for Class T shares, each
Fund compensates the Underwriter in an amount equal to 0.95% (in the case of
Growth Fund, Special Fund, and Strategic Income Fund), 0.75% (in the case of
Balance Sheet Opportunities Fund) and 0.65% (in the case of High Yield Fund and
Government Securities Fund) of annual average daily net assets of such Fund's
Class T shares. However, each of the Class T Plans provides for compensation of
up to 1.00% of annual average daily net assets. Expenditures by the Underwriter
under the Plans shall consist of: (i) commissions to sales personnel for selling
shares of the Funds
24
<PAGE>
(including underwriting fees and financing expenses incurred in connection with
the sale of Class B and Class C shares); (ii) compensation, sales incentives and
payments to sales, marketing and service personnel; (iii) payments to
broker-dealers and other financial institutions that have entered into
agreements with the Underwriter in the form of a Dealer Agreement for Northstar
Funds for services rendered in connection with the sale and distribution of
shares of the Funds; (iv) payment of expenses incurred in sales and promotional
activities, including advertising expenditures related to the Funds; (v) the
costs of preparing and distributing promotional materials; (vi) the cost of
printing the Funds' Prospectus and SAI for distribution to potential investors;
and (vii) other activities that are reasonably calculated to result in the sale
of shares of the Funds. With respect to each Class T Plan, it is anticipated
that all of the payments received by the Underwriter under the Plan will be paid
to Advest as compensation for its prior distribution related and current
shareholder servicing related activities in connection with the Class T Shares.
A portion of the fees paid to the Underwriter pursuant to the 12b-1 plans
not exceeding 0.25% annually of the average daily net assets of each Fund's
shares may be paid as compensation for providing services to each Fund's
shareholders, including assistance in connection with inquiries related to
shareholder accounts (the "Service Fee"). In order to receive Service Fees under
the Plans, participants must meet such qualifications as are established in the
sole discretion of the Underwriter, such as services to each Fund's
shareholders; or services providing each Fund with more efficient methods of
offering shares to coherent groups of clients, members or prospects of a
participant; or services permitting purchases or sales of shares, or
transmission of such purchases or sales by computerized tape or other electronic
equipment; or other processing.
The Plans are designed to be compensation plans and therefore amounts spent
by the distributor in excess of plan limits are not carried over from year to
year for reimbursement. The Plans do, however, contemplate that amounts paid to
the distributor may compensate it for past distribution efforts without regard
to any particular time period.
If the Plans are terminated in accordance with their terms, the obligations
of a Fund to compensate the Underwriter for distribution related services
pursuant to the Plans will cease; however, subject to approval by the Trustees,
including a majority of the independent Trustees, a Fund may continue to make
payments past the date on which each Plan terminates up to the annual limits set
forth in each Plan for the purpose of compensating the Underwriter for services
that were incurred during the term of the Plan.
The Trustees have concluded that there is a reasonable likelihood that the
Plans will benefit each Fund and its shareholders and that the Plans should
result in greater sales and/or fewer redemptions of Fund shares. On a quarterly
basis, the Trustees will review a report on expenditures under the Plans and the
purposes for which expenditures were made. The Trustees will conduct an
additional, more extensive review annually in determining whether the Plans
shall be continued. By their terms, continuation of the Plans from year to year
is contingent on annual approval by a majority of the Trustees acting separately
on behalf of each Fund and by a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plans or any related agreements (the
"Plan Trustees"). The Plans provide that they may not be amended to increase
materially the costs that a Fund may bear pursuant to the applicable Plan
without approval of the shareholders of the affected Fund and that other
material amendments to the Plans must be approved by a majority of the Plan
Trustees acting separately on behalf of each Fund, by vote cast in person at a
meeting called for the purpose of considering such amendments. The Plans further
provide that while each plan is in effect, the selection and nomination of
Trustees who are not "interested persons" shall be committed to the discretion
of the Trustees who are not "interested persons." A Plan may be terminated at
any time by vote of a majority of the Plan Trustees or a majority of the
outstanding class of shares of the affected Fund to which the Plan relates.
During their fiscal year ended October 31, 1997, each class of shares of
the Funds listed below paid the following 12b-1 distribution and service fees
pursuant to the Plan of Distribution for each class:
<TABLE>
<CAPTION>
1997
----------------------------------
CLASS A CLASS B CLASS C
-------- ---------- --------
<S> <C> <C> <C>
Growth + Value Fund.................................................................... $ 42,140 $ 296,385 $101,432
International Value Fund............................................................... $ 97,955 $ 148,366 $329,989
Emerging Markets Value Fund............................................................ N/A N/A N/A
Income and Growth Fund................................................................. $184,527 $ 745,510 $657,770
High Total Return Fund II.............................................................. $ 4,141 $ 59,715 $ 18,332
</TABLE>
For their fiscal year ended October 31, 1997, expenses incurred by the
Distributor for distribution related activities with respect to each class of
shares of each Fund listed below were as follows:
25
<PAGE>
<TABLE>
<CAPTION>
GROWTH + VALUE
----------------------------------
1997
----------------------------------
CLASS A CLASS B CLASS C
-------- ---------- --------
<S> <C> <C> <C>
Salaries/Overrides..................................................................... $115,950 $ 143,493 $ 51,805
Commissions Paid....................................................................... $ -- $2,713,026 $253,001
Marketing, RMM & Convention Expense.................................................... $ 44,791 $ 20,730 $ 5,231
Total.................................................................................. $160,741 $2,877,249 $310,037
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL VALUE (1)
----------------------------------
1997
----------------------------------
CLASS A CLASS B CLASS C
-------- ---------- --------
<S> <C> <C> <C>
Salaries/Overrides..................................................................... $184,835 $ 123,179 $100,027
Commissions Paid....................................................................... $ -- $2,426,113 $474,328
Marketing, RMM & Convention Expense.................................................... $ 83,050 $ 122,636 $ 9,227
Total.................................................................................. $267,885 $2,671,928 $583,582
</TABLE>
- ---------------
(1) The International Value Fund commenced operations on April 21, 1997. Prior
to April 21, 1997, the Fund was operating as the Brandes International Fund,
a series of the Brandes Investment Trust and was distributed by Worldwide
Value Distributors, L.L.C.
<TABLE>
<CAPTION>
EMERGING MARKETS VALUE FUND (2)
----------------------------------
1997
----------------------------------
CLASS A CLASS B CLASS C
-------- ---------- --------
<S> <C> <C> <C>
Salaries/Overrides..................................................................... N/A N/A N/A
Commissions Paid....................................................................... N/A N/A N/A
Marketing, RMM & Convention Expense.................................................... N/A N/A N/A
Total.................................................................................. N/A N/A N/A
</TABLE>
- ---------------
(2) The Emerging Markets Value Fund commenced operations on January 1, 1998.
<TABLE>
<CAPTION>
INCOME AND GROWTH
----------------------------------
1997
----------------------------------
CLASS A CLASS B CLASS C
-------- ---------- --------
<S> <C> <C> <C>
Salaries/Overrides..................................................................... $183,717 $ 42,293 $ 31,187
Commissions Paid....................................................................... $ -- $ 447,222 $ 73,025
Marketing, RMM & Convention Expense.................................................... $181,975 $ 39,566 $ 24,705
Total.................................................................................. $365,692 $ 529,081 $128,917
</TABLE>
<TABLE>
<CAPTION>
HIGH TOTAL RETURN FUND II (3)
----------------------------------
1997
----------------------------------
CLASS A CLASS B CLASS C
-------- ---------- --------
<S> <C> <C> <C>
Salaries/Overrides..................................................................... $ 35,784 $ 69,119 $ 23,627
Commissions Paid....................................................................... $ -- $1,439,605 $120,493
Marketing, RMM & Convention Expense.................................................... $ 17,766 $ 8,074 $ 1,630
Total.................................................................................. $ 53,550 $1,516,798 $145,750
</TABLE>
- ---------------
(3) The High Total Return Fund II commenced operations on January 31, 1997 but
was not available for purchase until July 4, 1997.
26
<PAGE>
For their fiscal year ended October 31, 1997, the Distributor received the
following amounts in sales charges, after reallowance to Dealers:
<TABLE>
<CAPTION>
UNDERWRITING FEES
----------------------------------
CLASS A CLASS B CLASS C
-------- ---------- --------
<S> <C> <C> <C>
Growth + Value Fund.................................................................... $139,035 $ 74,765 $ 8,154
International Value Fund 1............................................................. $148,040 $ 16,066 $ 8,063
Emerging Markets Value Fund............................................................ N/A N/A N/A
Income and Growth Fund................................................................. $ 14,563 $ 256,431 $ 1,889
High Total Return Fund II.............................................................. $ 49,705 $ 5,974 $ 586
</TABLE>
During their fiscal year ended December 31, 1997, each class of shares of
the Funds listed below, paid the following 12b-1 distribution and service fees
pursuant to the Distribution Plan for each class:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Growth Fund.................................................... $108,596 $ 66,765 $ 7,319 $710,164
Special Fund................................................... $232,469 $1,537,323 $463,998 $327,946
Balance Sheet Fund............................................. $ 3,440 $ 43,644 $ 6,401 $413,243
High Yield Fund................................................ $ 43,158 $ 951,060 $175,717 $761,375
Strategic Income Fund.......................................... $ 40,631 $ 310,321 $ 43,918 $224,593
Government Securities.......................................... $ 22,999 $ 106,185 $ 8,299 $639,583
</TABLE>
During the fiscal year ended December 31, 1997, expenses incurred by the
Distributor (or Advest with respect to Class T Shares prior to June 2, 1995) for
certain distribution related activities with respect to each class of shares of
the Funds listed below were as follows:
<TABLE>
<CAPTION>
GROWTH FUND
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides............................................. $106,699 $ 8,437 $ 1,262 $ --
Commissions Paid............................................... $ -- $ 123,877 $ 5,282 $ --
Marketing/Convention/RMM Expense............................... $108,693 $ 8,842 $ 2,122 $ --
Total.......................................................... $215,392 $ 141,156 $ 8,666 $ --
</TABLE>
<TABLE>
<CAPTION>
SPECIAL FUND
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides............................................. $300,845 $ 166,997 $ 58,392 $ --
Commissions Paid............................................... $ -- $2,379,287 $252,541 $ --
Marketing/Convention/RMM Expense............................... $255,360 $ 92,433 $ 20,169 $ --
Total.......................................................... $556,205 $2,638,717 $331,102 $ --
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET OPPORTUNITIES FUND
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides............................................. $ 4,150 $ 3,781 $ 1,074 $ --
Commissions Paid............................................... $ -- $ 45,171 $ 3,282 $ --
Marketing/Convention/RMM Expense............................... $ 14,481 $ 6,114 $ 1,015 $ --
Total.......................................................... $ 18,631 $ 55,066 $ 5,371 $ --
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD FUND
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides............................................. $ 55,886 $ 112,160 $ 26,225 $ --
Commissions Paid............................................... $ -- $1,618,300 $109,026 $ --
Marketing/Convention/RMM Expense............................... $108,266 $ 70,993 $ 11,594 $ --
Total.......................................................... $164,152 $1,801,453 $146,845 $ --
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides............................................. $ 48,146 $ 23,087 $ 3,969 $ --
Commissions Paid............................................... $ -- $ 265,891 $ 14,577 $ --
Marketing/Convention/RMM Expense............................... $ 49,971 $ 30,450 $ 2,388 $ --
Total.......................................................... $ 98,117 $ 319,428 $ 20,934 $ --
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides............................................. $ 20,733 $ 13,612 $ 583 $ --
Commissions Paid............................................... $ -- $ 197,258 $ 1,202 $ --
Marketing/Convention/RMM Expense............................... $ 27,181 $ 8,293 $ 868 $ --
Total.......................................................... $ 47,914 $ 219,163 $ 2,653 $ --
</TABLE>
For the following Funds' fiscal year ended December 31, 1997, the
Distributor (or Advest) received the following amounts in sales charges, after
reallowance to Dealers:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Growth Fund.................................................... $ 5,492 $ 14,834 $ 309 $ 24,863
Special Fund................................................... $122,802 $ 771,846 $ 56,849 $ 31,000
Balance Sheet Fund............................................. $ 615 $ 12,535 $ 69 $ 33,490
High Yield Fund................................................ $ 34,104 $ 257,034 $ 17,043 $100,435
Strategic Income............................................... $ 4,617 $ 94,494 $ 1,886 $ 58,489
Government Securities.......................................... $ 20,510 $ 40,318 $ 26 $ 47,359
</TABLE>
28
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal Officers of each Fund and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and Officers is Two Pickwick Plaza,
Greenwich, Connecticut 06830.
ROBERT B. GOODE, JR., Trustee. Age: 67.
Currently retired. From 1990 to 1991, Chairman of The First Reinsurance
Company of Hartford. From 1987 to 1989, President and Director of American
Skandia Life Assurance Company. Since October 1993, Trustee of the Northstar
affiliated investment companies.
PAUL S. DOHERTY, Trustee. Age: 63.
President, Doherty, Wallace, Pillsbury and Murphy, P.C., Attorneys.
Director, Tambrands, Inc. Since October 1993, Trustee of the Northstar
affiliated investment companies.
DAVID W. WALLACE, Trustee. Age: 73.
Chairman of Putnam Trust Company, Lone Star Industries and FECO Engineered
Systems, Inc. He is also President and Trustee of Robert R. Young Foundation and
Governor of the New York Hospital. Director of UMC Electronics and Zurn
Industries, Inc. Former Chairman and Chief Executive Officer, Todd Shipyards and
Bangor Punta Corporation, and former Chairman and Chief Executive Officer of
National Securities & Research Corporation. Since October 1993, Trustee of the
Northstar affiliated investment companies.
*MARK L. LIPSON, Trustee and President. Age: 48.
Director, Chairman and Chief Executive Officer of Northstar and Northstar,
Inc. Director and President of Northstar Administrators Corporation and Director
and Chairman of Northstar Distributors, Inc., President and Trustee of the
Northstar affiliated investment companies since October 1993. Prior to August,
1993, Director, President and Chief Executive Officer of National Securities &
Research Corporation and President and Director/Trustee of the National
Affiliated Investment Companies and certain of National's subsidiaries.
*JOHN G. TURNER, Trustee. Age: 58.
Since May 1993, Chairman and CEO of ReliaStar Financial Corporation and
Northwestern NationalLife Insurance Co. and Chairman of other ReliaStar
Affiliated Insurance Companies since 1995. Since October 1993, Director of
Northstar and affiliates. Prior to May 1993, President and CEO of ReliaStar and
Northwestern National.
ALAN L. GOSULE, Trustee. Age: 57.
Partner, Rogers & Wells. Director, F.L. Putnam Investment Management Co.,
Inc.
DAVID W.C. PUTNAM, Trustee. Age: 58.
President, Clerk and Director of F.L. Putnam Securities Company,
Incorporated, F.L. Putnam Investment Management Company, Incorporated,
Interstate Power Company, Inc., Trust Realty Corp. and Bow Ridge Mining Co.;
Director of Anchor Investment Management Corporation; President and Trustee of
Anchor Capital Accumulation Trust, Anchor International Bond Trust, Anchor Gold
and Currency Trust, Anchor Resources and Commodities Trust and Anchor Strategic
Assets Trust.
JOHN R. SMITH, Trustee. Age: 74.
From 1970-1991, Financial Vice President of Boston College; President of
New England Fiduciary Company (financial planning) since 1991; Chairman of
Massachusetts Educational Financing Authority since 1987; Vice Chairman of
Massachusetts Health and Education Authority.
WALTER H. MAY, Trustee. Age: 61.
Retired. Former Senior Executive for Piper Jaffrey, Inc.
THOMAS OLE DIAL, Vice President. Age: 41.
Executive Vice President and Chief Investment Officer-Fixed Income of
Northstar and Principal, T.D. & Associates, Inc. From 1989 to August 1993,
Executive Vice President and Chief Investment Officer-Fixed Income of National
Securities and Research Corporation, Vice President of National Affiliated
Investment Companies, and Vice President of NSR Asset Management Corporation.
From 1988 to 1989, President of Dial Capital Management.
- ---------------
*Deemed to be an "interested person" of the Trust, as defined by the 1940 Act.
29
<PAGE>
GEOFFREY WADSWORTH, Vice President. Age: 54.
Vice President of Northstar. Former Vice President and Portfolio Manager
with National Securities & Research Corporation.
AGNES MULLADY, Vice President and Treasurer. Age: 39.
Senior Vice President and Chief Financial Officer of Northstar, Senior Vice
President and Treasurer of Northstar Administrators corporation, and Vice
President and Treasurer of Northstar Distributors, Inc. From 1987 to 1993, Vice
President and Treasurer of National Securities & Research Corporation.
Northstar and Northstar Administrators Corporation make their personnel
available to serve as Officers and "Interested Trustees" of the Funds. All
Officers and Interested Trustees of the Funds are compensated by Northstar or
Northstar Administrators Corporation. Trustees who are not "interested persons"
of the Adviser are paid an annual retainer fee of $6,000 for their combined
services as Trustees to the Funds and to retail funds sponsored or advised by
the Adviser, and a per meeting fee of $1,500 for attendance at each joint
meeting of the Funds and the other Northstar retail funds. The Funds also
reimburse Trustees for expenses incurred by them in connection with such
meetings.
Mone Anathan, III, Dr. Loring E. Hart and Reverend Bartley MacPhaidin, each
of whom were previously Trustees of the Funds, serve on an Advisory Board. The
Advisory Board is expected to provide advice to the Board of Trustees in order
to facilitate a smooth management transition regarding the advisory services to
be provided by Northstar and to provide such other advice as the Board of
Trustees may request from time to time. The Advisory Board will have no
authority or control over the Funds. Northstar has agreed to assume all expenses
associated with the Advisory Board for three years commencing June 2, 1995.
As of December 31, 1997, all Trustees and executive officers of each Fund
as a group owned beneficially or of record less than 1% of the outstanding
securities of such Fund. To the knowledge of the Funds, as of December 31, 1997,
no shareholder owned beneficially (b) or of record (r) more than 5% of a Fund's
outstanding shares, except as set forth below:
(1) GROWTH + VALUE FUND
B
Merrill Lynch Pierce Fenner &
Smith 25.6% (r)
Jacksonville, Florida
C
Merrill Lynch Pierce Fenner &
Smith 8.7% (r)
Jacksonville, Florida
(2) SPECIAL FUND
B
Merrill Lynch Pierce Fenner &
Smith 17.7% (r)
Jacksonville, Florida
C
Merrill Lynch Pierce Fenner &
Smith 9.4% (r)
Jacksonville, Florida
(3) INTERNATIONAL VALUE FUND
B
Merrill Lynch Pierce Fenner &
Smith 11.6% (r)
Jacksonville, Florida
C
Merrill Lynch Pierce Fenner &
Smith 9.2% (r)
Jacksonville, Florida
(4) EMERGING MARKETS VALUE FUND
A
Northstar Investment Management
Corp. 33.3% (b)
Greenwich, Connecticut
30
<PAGE>
B
Northstar Investment Management
Corp. 33.3% (b)
Greenwich, Connecticut
C
Northstar Investment Management
Corp. 33.3% (b)
Greenwich, Connecticut
(5) INCOME AND GROWTH FUND
B
Merrill Lynch Pierce Fenner &
Smith 10.9% (r)
Jacksonville, Florida
(6) HIGH TOTAL RETURN FUND II
B
Merrill Lynch Pierce Fenner &
Smith 32.3% (r)
Jacksonville, Florida
C
Merrill Lynch Pierce Fenner &
Smith 10.5% (r)
Jacksonville, Florida
(7) HIGH YIELD FUND
B
Merrill Lynch Pierce Fenner &
Smith 14.3% (r)
Jacksonville, Florida
(8) STRATEGIC INCOME FUND
B
Merrill Lynch Pierce Fenner &
Smith 12.6% (r)
Jacksonville, Florida
(9) HIGH TOTAL RETURN FUND
B
Merrill Lynch Pierce Fenner &
Smith 24.3% (r)
Jacksonville, Florida
C
Merrill Lynch Pierce Fenner &
Smith 5.3% (r)
Jacksonville, Florida
(10) GROWTH FUND
I
Northstar Investment Management
Corp. 9.5% (b)
Greenwich, Connecticut
ReliaStar Pension Account 37.5% (r)
Minneapolis, Minnesota
31
<PAGE>
COMPENSATION TABLE
PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL COMPENSATION
PENSION BENEFITS ESTIMATED ANNUAL FROM ALL FUNDS(17)
COMPENSATION ACCRUED AS PART OF BENEFITS UPON IN
FROM FUNDS FUND EXPENSES RETIREMENT NORTHSTAR COMPLEX(B)
------------ ------------------ ---------------- --------------------
<S> <C> <C> <C> <C>
Robert B. Goode, Jr................................ (a)14,500 0 0 15,000
Paul S. Doherty.................................... (a)13,239 0 0 13,750
David W. Wallace................................... (a)13,239 0 0 13,750
Mark L. Lipson..................................... (a)0 0 0 --
John G. Turner..................................... (a)0 0 0 --
Alan L. Gosule..................................... (a)14,988 0 0 15,500
David W.C. Putnam.................................. (a)12,625 0 0 13,125
John R. Smith...................................... (a)14,989 0 0 15,500
Walter H. May...................................... (a)14,989 0 0 15,500
</TABLE>
- ---------------
(a) See table below for Fund specific compensation.
(b) Compensation paid by the Northstar Trust Funds, the Northstar Variable Trust
Funds and the remaining six funds, Northstar Growth, Special, Balance Sheet
Opportunities, High Yield, Strategic Income and Government Securities Funds
formerly advised by BSC.
INDIVIDUAL FUND
FISCAL YEAR COMPENSATION TABLES
<TABLE>
<CAPTION>
INCOME AND HIGH TOTAL GROWTH + INTERNATIONAL HIGH TOTAL
GROWTH RETURN VALUE VALUE RETURN II GROWTH(C)
---------- ------------- --------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Goode, Jr.................. 1,501 2,377 1,073 659 659 1,349
Paul S. Doherty...................... 1,401 2,395 915 500 500 1,229
David W. Wallace..................... 1,401 2,395 915 500 500 1,229
Mark L. Lipson....................... 0 0 0 0 0 0
John G. Turner....................... 0 0 0 0 0 0
Alan L. Gosule....................... 1,560 2,554 1,074 659 659 1,388
David W.C. Putnam.................... 1,330 2,207 902 489 489 1,179
John R. Smith........................ 1,560 2,554 1,074 659 659 1,388
Walter H. May........................ 1,560 2,554 1,074 659 659 1,388
<CAPTION>
SPECIAL(C)
----------
<S> <C>
Robert B. Goode, Jr.................. 1,604
Paul S. Doherty...................... 1,518
David W. Wallace..................... 1,518
Mark L. Lipson....................... 0
John G. Turner....................... 0
Alan L. Gosule....................... 1,677
David W.C. Putnam.................... 1,434
John R. Smith........................ 1,677
Walter H. May........................ 1,677
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET
OPPORTUNITIES(C) HIGH YIELD(C) STRATEGIC INCOME(C)
---------------- ------------- -------------------
<S> <C> <C> <C>
Robert B. Goode, Jr.......................................... 1,193 1,528 1,223
Paul S. Doherty.............................................. 1,052 1,432 1,085
David W. Wallace............................................. 1,052 1,432 1,085
Mark L. Lipson............................................... 0 0 0
John G. Turner............................................... 0 0 0
Alan L. Gosule............................................... 1,211 1,591 1,244
David W.C. Putnam............................................ 1,022 1,357 1,052
John R. Smith................................................ 1,211 1,591 1,244
Walter H. May................................................ 1,211 1,591 1,244
<CAPTION>
GOVERNMENT
SECURITIES(C)
--------------
<S> <C>
Robert B. Goode, Jr.......................................... 1,334
Paul S. Doherty.............................................. 1,212
David W. Wallace............................................. 1,212
Mark L. Lipson............................................... 0
John G. Turner............................................... 0
Alan L. Gosule............................................... 1,371
David W.C. Putnam............................................ 1,164
John R. Smith................................................ 1,371
Walter H. May................................................ 1,371
</TABLE>
OTHER INFORMATION
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P. has been selected as the
independent accountants of the Northstar Trust and each of the remaining
Northstar Funds. Coopers & Lybrand L.L.P. audits the Funds' annual financial
statements and expresses an opinion thereon.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, acts as custodian, and fund accounting agent for
the Funds and the Northstar Trust.
32
<PAGE>
TRANSFER AGENT. Pursuant to a Transfer Agency Agreement with each Fund,
First Data (the "Transfer Agent") acts as the Transfer Agent for each Fund.
REPORTS TO SHAREHOLDERS. The fiscal year of the Northstar Trust ends on
October 31. The fiscal year of each other Fund ends on December 31. Each Fund
will send financial statements to its shareholders at least semiannually. An
annual report containing financial statements audited by the independent
accountants will be sent to shareholders each year.
ORGANIZATIONAL AND RELATED INFORMATION. Growth Fund (formerly The Advantage
Growth Fund) was organized in 1986; Special Fund (formerly The Advantage Special
Fund) was organized in 1986; Balance Sheet Opportunities Fund (formerly The
Advantage Income Fund) was organized in 1986; High Yield Fund (formerly The
Advantage High Yield Bond Fund) was organized 1989, Strategic Income Fund
(formerly The Advantage Strategic Income Fund) was organized in 1994; and
Government Securities Fund (formerly The Advantage Government Securities Fund)
was organized in 1986.
Northstar Trust (formerly Northstar Advantage Trust), and two of its series
Income and Growth Fund (formerly Northstar Advantage Income and Growth Fund) and
High Total Return Fund (formerly Northstar Advantage High Total Return Fund),
were organized in 1993. Growth + Value Fund and High Total Return Fund II were
organized in 1996. The International Value Fund commenced operations on March 6,
1995 as the Brandes International Fund, a series of the Brandes Investment
Trust. It was reorganized on April 21, 1997 as the Northstar International Value
Fund, a series of the Northstar Trust. The Emerging Markets Value Fund, a series
of the Northstar Trust, commenced operations in 1998.
The shares of each Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders will be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares of the affected Fund or class having voting rights. Except as
set forth above and subject to the 1940 Act, the Trustees will continue to hold
office and appoint successor Trustees.
Under Massachusetts law, there is a remote possibility that shareholders of
a business trust could, under certain circumstances, be held personally liable
as partners for the obligations of such trust. The Amended and Restated
Declaration of Trust for each Fund contains provisions intended to limit such
liability and to provide indemnification out of Fund property of any shareholder
charged or held personally liable for obligations or liabilities of a Fund
solely by reason of being or having been a shareholder of a Fund and not because
of such shareholder's acts or omissions or for some other reason. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations.
YEAR 2000 COMPLIANCE. The services provided to the Portfolios by the
Adviser, the Sub-Advisers, the Administrator and the Portfolios' other service
providers are dependent on those service providers' computer systems. Many
computer software and hardware systems in use today cannot distinguish between
the year 2000 and the year 1900 because of the way dates are encoded and
calculated (the "Year 2000 Issue"). The failure to make this distinction could
have a negative implication on handling securities trades, pricing and account
services. The Adviser, the Sub-Advisers, the Administrator and the Portfolios'
other service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems
that they use. Although there can be no assurances, the Portfolios believe these
steps will be sufficient to avoid any material adverse impact on the Portfolios.
The costs or consequences of incomplete or untimely resolution of the Year 2000
Issue are unknown to the Adviser, Sub-Advisers, Administrator and the
Portfolios' other service providers at this time but could have a material
adverse impact on the operations of the Portfolios and the Adviser,
Sub-Advisers, Administrator and the Portfolios' other service providers.
PERFORMANCE INFORMATION
Performance information for the Funds may be compared in reports and
promotional literature to (1) the S&P 500, Dow Jones Industrial Average
("DJIA"), or other unmanaged indices, so that investors may compare each Fund's
results to those of a group of unmanaged securities that are widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm that ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; (iii) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in a Fund; and (iv) well known monitoring
sources
33
<PAGE>
of certificates of deposit performance rates, such as Solomon Brothers, Federal
Reserve Bulletin, American Bankers and Tower Data/The Wall Street Journal.
Unmanaged indices may assume the reinvestment of dividends, but generally do not
reflect deductions for administrative and management costs and expenses.
Performance rankings are based on historical information and are not intended to
indicate future performance.
In addition, the Funds may, from time to time, include various measures of
a Fund's performance, including the current yield, the tax equivalent yield and
the average annual total return of shares of the Funds in advertisements,
promotional literature or reports to shareholders or prospective investors. Such
materials may occasionally cite statistics to reflect a Fund's volatility risk.
AVERAGE ANNUAL TOTAL RETURN. Standardized quotations of average annual
total return ("Standardized Return") for each class of shares will be expressed
in terms of the average annual compounded rate of return for a hypothetical
investment in such class of shares over periods of 1, 5 and 10 years or up to
the life of the class of shares, calculated for each class separately pursuant
to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures reflect the deduction of a proportional share of
each class's expenses (on an annual basis), the deduction of the maximum initial
sales load (in the case of Class A shares) and the maximum contingent deferred
sales charge applicable to a complete redemption of the investment (in the case
of Class B, Class C and Class T shares), and assume that all dividends and
distributions are reinvested when paid.
YIELD. Quotations of yield for a specific class of shares of a Fund will be
based on all investment income attributable to that class earned during a
particular 30-day (or one month) period (including dividends and interest), less
expenses accrued during the period ("net investment income"), and will be
computed by dividing the net investment income per share of that class earned
during the period by the maximum offering price per share on the last day of the
month, according to the following formula:
Yield = 2[(a-b + 1) to the power of 6 -1]
__________________________________
cd
Where:
a = dividends and interest earned during the period attributable to a
specific class of shares
b = expenses accrued for the period attributable to that class (net of
reimbursements)
c = the average daily number of shares of that class outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period
The maximum offering price includes a maximum contingent deferred sales
load of 4%, in the case of Class T shares, 5% for Class B shares, and 1%, for
Class C shares.
All accrued expenses are taken into account as follows. Accrued expenses
include all recurring expenses that are charged to all shareholder accounts in
proportion to the length of the base period, including but not limited to
expenses under the Funds' distribution plans. Except as noted, the performance
results take the contingent deferred sales load into account.
34
<PAGE>
The yield for Class A, B and C of the Growth + Value Fund, Class A, B and C
of the International Value Fund, Class A, B and C of the Income and Growth Fund,
and Class A, B and C of the High Total Return Fund II, and Class A, B, C and T
shares of the Growth, Special, Balance Sheet Opportunities, High Yield,
Strategic Income and Government Securities Funds for the month ended December
31, 1997 was as follows:
YIELD
<TABLE>
<CAPTION>
FUND CLASS A CLASS B CLASS C CLASS T
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Growth + Value Fund......................................................... N/A N/A N/A N/A
International Value Fund.................................................... N/A N/A N/A N/A
Income and Growth........................................................... 2.94% 2.31% 2.36% N/A
High Total Return Fund II................................................... 5.64% 5.30% 5.31% N/A
Growth Fund................................................................. N/A N/A N/A N/A
Special Fund................................................................ N/A N/A N/A N/A
Balance Sheet Opportunities Fund............................................ 3.75% 3.28% 2.96% 3.33%
High Yield Fund............................................................. 6.86% 6.49% 6.49% 6.85%
Strategic Income Fund....................................................... 7.60% 7.19% 7.22% 7.27%
Government Securities Fund.................................................. 7.88% 7.52% 7.52% 7.83%
</TABLE>
NON-STANDARDIZED RETURN. In addition to the performance information
described above, the Funds may provide total return information that is not
calculated according to the formula set forth above ("Non-Standardized Return").
Neither initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return. Excluding a Fund's sales charge from a
total return calculation produces a higher total return figure.
The following tables summarize the calculation of Standardized and
Non-Standardized Return for Class A, B and C shares of the Growth + Value Fund,
Class A, B and C shares of the International Value Fund, Class A, B and C shares
of the Income and Growth Fund and High Total Return Fund II, series of the
Northstar Trust, and for Class A, B, C and T shares of the other Funds for the
periods indicated.
NORTHSTAR TRUST. The following table summarizes the calculation of Total
Return for the periods indicated through October 31, 1997, assuming the maximum
sales charge HAS been assessed:
<TABLE>
<CAPTION>
SINCE
ONE YEAR INCEPTION*
-------- ----------
<S> <C> <C>
GROWTH + VALUE FUND
Class A...................................................................................... N/A 16.61%
Class B...................................................................................... N/A 16.70%
Class C...................................................................................... N/A 20.94%
INTERNATIONAL VALUE FUND
Class A...................................................................................... 18.87% 13.91%
Class B...................................................................................... N/A 6.77%
Class C...................................................................................... 23.18% 15.38%
INCOME AND GROWTH FUND
Class A...................................................................................... 11.32% 10.20%
Class B...................................................................................... 11.15% 9.33%
Class C...................................................................................... 15.12% 10.85%
HIGH TOTAL RETURN FUND II
Class A...................................................................................... N/A 14.62%
Class B...................................................................................... N/A 14.81%
Class C...................................................................................... N/A 20.36%
</TABLE>
35
<PAGE>
The following table summarizes the calculation of Total Return for the
periods indicated through October 31, 1997, assuming the maximum sales charge
HAS NOT been assessed:
<TABLE>
<CAPTION>
SINCE
ONE YEAR(1) INCEPTION(2)
----------- ------------
<S> <C> <C>
GROWTH + VALUE FUND
Class A.................................................................................. 21.50% 22.75%
Class B.................................................................................. 20.80% 22.01%
Class C.................................................................................. 20.80% 22.01%
INTERNATIONAL VALUE FUND
Class A.................................................................................. 27.59% 16.03%
Class B.................................................................................. 8.70% 16.51%
Class C.................................................................................. 25.92% 15.38%
INCOME AND GROWTH FUND
Class A.................................................................................. 17.02% 11.56%
Class B.................................................................................. 15.06% 9.75%
Class C.................................................................................. 15.04% 10.85%
HIGH TOTAL RETURN FUND II
Class A.................................................................................. 16.53% 22.32%
Class B.................................................................................. 15.91% 21.76%
Class C.................................................................................. 16.12% 21.76%
</TABLE>
- ---------------
(1) Annualized.
(2) The inception date for Class A, B and C shares of the Growth + Value Fund is
November 18, 1997. The inception date for Class B shares of the
International Value Fund is April 18, 1997; the inception date for Class A
and C shares of the International Value Fund is March 6, 1995. The inception
date of Class A, B and C shares of the Income and Growth Fund is November 8,
1993, February 9, 1994 and March 21, 1994, respectively. The inception date
for Class A, B and C shares of the High Total Return Fund II is January 31,
1997. The inception date for Class A, B and C shares of the Emerging Markets
Value Fund is January 1, 1998.
THE REMAINING FUNDS. The following table summarizes the calculation of
Total Return for Class T shares of the remaining Funds for the periods indicated
through December 31, 1997, assuming the maximum sales charge HAS been assessed:
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEARS TEN YEARS INCEPTION(3)
-------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Growth Fund......................................................... 18.94% 13.32% 14.38% 12.75%
Special Fund........................................................ 10.29% 11.31% 15.28% 10.47%
Balance Sheet Fund.................................................. 19.91% 13.03% 12.51% 10.84%
High Yield Fund..................................................... 6.86% 10.91% N/A 10.96%
Strategic Income Fund............................................... -1.91% N/A N/A 7.92%
Government Securities Fund.......................................... 3.38% 7.18% 8.33% 7.25%
</TABLE>
The following table summarizes the calculation of Total Return for Class T
shares of the remaining Funds for the periods indicated through December 31,
1997, assuming the maximum sales charge HAS NOT been assessed:
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEARS TEN YEARS INCEPTION(3)
-------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Growth Fund......................................................... 22.94% 13.32% 14.38% 12.75%
Special Fund........................................................ 14.29% 11.31% 15.28% 10.47%
Balance Sheet Fund.................................................. 23.91% 13.03% 12.51% 10.84%
High Yield Fund..................................................... 10.86% 10.91% N/A 10.96%
Strategic Income Fund............................................... 1.89% N/A N/A 8.16%
Government Securities Fund.......................................... 7.38% 7.18% 8.33% 7.25%
</TABLE>
- ---------------
(3) The inception date for Class T shares of Growth, Special, Balance Sheet
Opportunities and Government Securities Funds was February 1, 1986. The
inception date for Class T shares of the High Yield Fund was July 5, 1989.
The inception date for Class T shares of the Strategic Income Fund was July
1, 1994.
36
<PAGE>
The following table summarizes the calculation of Total Return for Class A,
Class B and Class C shares of the remaining Funds for the period from
commencement of operations of such classes (June 5, 1995) through December 31,
1997, assuming the maximum sales charge HAS been assessed:
<TABLE>
<CAPTION>
FUND CLASS OF SHARES ONE YEAR SINCE INCEPTION
- --------------------------------- --------------- -------- ---------------
<S> <C> <C> <C>
Growth Fund Class A 17.74% 19.47%
Class B 17.84% 20.17%
Class C 21.73% 20.96%
Special Fund Class A 9.48% 15.52%
Class B 9.10% 16.02%
Class C 13.06% 16.92%
Balance Sheet Opportunities Fund Class A 18.38% 15.98%
Class B 18.48% 16.51%
Class C 22.41% 17.34%
High Yield Fund Class A 5.84% 9.56%
Class B 5.38% 9.89%
Class C 9.37% 10.88%
Strategic Income Fund Class A -2.36% 5.50%
Class B -3.08% 5.67%
Class C 0.80% 6.68%
Government Securities Fund Class A 2.38% 5.05%
Class B 1.93% 5.30%
Class C 5.93% 6.34%
</TABLE>
The following table summarizes the calculation of Total Return for Class A,
Class B and Class C shares of the remaining Funds for the period from
commencement of operations of such classes (June 5, 1995) through December 31,
1997, assuming the maximum sales charge HAS NOT been assessed:
<TABLE>
<CAPTION>
FUND CLASS OF SHARES ONE YEAR SINCE INCEPTION
- --------------------------------- --------------- -------- ---------------
<S> <C> <C> <C>
Growth Fund Class A 23.59% 21.75%
Class B 22.84% 21.04%
Class C 22.73% 20.96%
Special Fund Class A 14.92% 17.73%
Class B 14.10% 16.93%
Class C 14.06% 16.92%
Balance Sheet Opportunities Fund Class A 24.31% 18.21%
Class B 23.48% 17.41%
Class C 23.41% 17.34%
High Yield Fund Class A 11.18% 11.63%
Class B 10.38% 10.89%
Class C 10.37% 10.88%
Strategic Income Fund Class A 2.50% 7.51%
Class B 1.67% 6.71%
Class C 1.75% 6.68%
Government Securities Fund Class A 7.46% 7.04%
Class B 6.93% 6.37%
Class C 6.93% 6.34%
</TABLE>
A Fund may quote its performance in various ways, using various types of
comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied by
the Funds in advertising is historical and is not intended to indicate future
returns. Each Fund's share prices and total returns fluctuate in response to
market conditions and other factors, and the value of the Fund's shares when
redeemed may be more or less than their original cost.
37
<PAGE>
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Funds, including reprints of, or
selections from, editorials or articles about a Fund. These editorials or
articles may include quotations of performance from other sources, such as
Lipper or Morningstar. Sources for Fund performance information and articles
about the Fund may include the following: BANXQUOTE, BARRON'S, BUSINESS WEEK,
CDA INVESTMENT TECHNOLOGIES, INC., CHANGING TIMES, CONSUMER DIGEST, FINANCIAL
WORLD, FORBES, FORTUNE, IBC/DONOGHUES'S MONEY FUND REPORT, IBBOTSON ASSOCIATES,
INC., INVESTMENT COMPANY DATA, INC., INVESTOR'S DAILY, LIPPER ANALYTICAL
SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, MONEY, MUTUAL FUND VALUES,
THE NEW YORK TIMES, PERSONAL INVESTING NEWS, PERSONAL INVESTOR, SUCCESS, USA
TODAY, U.S. NEWS AND WORLD REPORT, THE WALL STREET JOURNAL and WIESENBERGER
INVESTMENT COMPANIES SERVICES.
When comparing yield, total return and investment risk of shares of a Fund
with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while a Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. government.
Money market mutual funds may seek to offer a fixed price per share.
The performance of a Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of the
Fund for any period in the future. The performance of a Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest, and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
FINANCIAL STATEMENTS
The Northstar Trust's audited financial statements dated October 31, 1997
and the report of the independent accountants, Coopers & Lybrand L.L.P. with
respect to such financial statements, are hereby incorporated herein by
reference to the Annual Report to Shareholders of the Northstar Trust for the
fiscal year ended October 31, 1997.
The audited financial statements of Growth, Special, Balance Sheet
Opportunities, High Yield, Strategic Income and Government Securities Funds as
of and for the year ended December 31, 1997 and the Report of the Independent
Accountants, Coopers & Lybrand L.L.P., with respect to such financial statements
are hereby incorporated herein by reference to the Annual Report to Shareholders
of The Northstar Funds for the year ended December 31, 1997.
38
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND
RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P") CORPORATE DEBT RATINGS
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest
A-1
<PAGE>
degree of speculation and C the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: Included in Part A:
SPECIAL FUND: Financial Highlights for a share outstanding throughout the
period February 3, 1986 (commencement of operations) to December 31, 1997.
Incorporated by reference in Part B: The audited financial statements for
the year ended October 31, 1997 for the Northstar Trust, and for the year ended
December 31, 1997 for the Special, Growth, Balance Sheet Opportunities,
Government Securities, Strategic Income and High Yield, and the report of the
independent accountants with respect to such financial statements are
incorporated in the Statement of Additional Information for the Trust and each
Fund by reference to the Annual Report to Shareholders for the Trust for the
fiscal year ended October 31, 1997, and for each Fund for the fiscal year ended
December 31, 1997. The incorporated financial information for the year ended
October 31, 1997 for the Trust, and for the year ended December 31, 1997 for the
other Funds includes the following: Statement of Investments, Statement of
Assets and Liabilities, Statement of Operations, Statement of Changes in Net
Assets, Financial Highlights, Notes to Financial Statements, and report of
independent accountants.
<PAGE>
(b) EXHIBITS - SPECIAL FUND
(1) Form of Amended and Restated Declaration of Trust (1)
(a) Amendment of Declaration of Trust (5)
(2) By-Laws (1)
(3) N/A
(4) N/A
(5) (a) Form of Investment Advisory Agreement (1)
(b) Subadvisory Agreement for Northstar Advantage Special
Fund (4)
(6) (a)-(d) Form of Underwriting Agreements for Classes A, B,
C and T Shares (1)
(e) Form of Special Dealer Agreement between Northstar
Distributors and Advest, Inc. (1)
(f) Form of Amendment of Underwriting Agreement
for Class B shares.
(7) N/A
(8) Form of Custody Agreement (1)
(a) Amendment of Custody Agreement.
(9) (a) Form of Transfer Agency Agreement (1)
(b) Form of Sub-Transfer Agency Agreement (1)
(c) Form of Administrative Services Agreement (1)
(d) Administration Agreement (3)
(10) Opinion of Counsel
(11) (a) Consent of Independent Public Accountants--Coopers &
Lybrand
(b) Consent of Independent Public Accountants--Ernst & Young
(12) Annual Report to Shareholders
(13) N/A
(14) N/A
(15) Form of Distribution Plan for Classes A, B, C and T
Shares (1)
(a) Form of Amendment of Distribution and Service Plan
(16) Performance Information
(17) Powers of Attorney (2)
(18) Multiple Class Plan pursuant to Rule 18F-3 (5)
(27) Financial Data Schedules (EX-27)
- ----------------------------------
NOTES TO EXHIBIT LISTING
(1). Previously filed as an Exhibit to the Registrant's Post-Effecitve
Amendment as follows and incorporated herein by reference: Government
Securities Fund - PEA No. 16; Income Fund - PEA No. 15; Growth Fund -
PEA No. 15; Special Fund - PEA No. 15; High Yield Fund - PEA No. 11;
Strategic Income Fund - PEA No. 7.
(2). The Power of Attorney executed by Walter May was filed as an Exhibit to
the Registrant's Post-Effective Amendment as follows and is
incorporated herein by reference: Government Securities Fund - PEA No.
18; Balance Sheet Opportunities Fund - PEA No. 17; Growth Fund - PEA
No. 17; Special Fund - PEA No. 17; High Yield Fund - PEA No. 13; and
Strategic Income Fund - PEA No. 9. All other powers of attorney
<PAGE>
were filed as an Exhibit to the Registrant's Post-Effective Amendment
as follows and are incorporated herein by reference: Government
Securities Fund - PEA No. 15; Balance Sheet Opportunities Fund - PEA
No. 14; Growth Fund - PEA No. 14; Special Fund - PEA No. 14; High Yield
Fund - PEA No. 10; and Strategic Income Fund - PEA No. 6.
(3). Previously filed as an Exhibit to the Registrant's Post-Effective
Amendment as follows and incorporated herein by reference: Government
Securities Fund - PEA No. 17; Balance Sheet Opportunities Fund - PEA
No. 16; Growth Fund - PEA No. 16; Special Fund - PEA No. 16; High Yield
Fund - PEA No. 12; and Strategic Income Fund - PEA 8.
(4). Previously filed as an Exhibit to the Special Fund's Post- Effective
Amendment No. 16 and incorporated herein by reference.
(5). Previously filed as an Exhibit to the Registrant's Post-Effective
Amendment No. 20 and incorporated herein by reference.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons controlled by or under common control with Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of Decmeber 31, 1997, the Registrant had the following number of record
security holders:
<TABLE>
<CAPTION>
Title of Class Fund Number of Shareholders
<S> <C> <C> <C> <C> <C>
Shares of Beneficial
Interest Special Fund (A) (B) (C) (T)
5,045 9,084 1,610 3,353
</TABLE>
<PAGE>
ITEM 27. INDEMNIFICATION
Section 5.4 of Registrant's Declaration of Trust provides the following:
(a) Subject to Paragraph (c) hereof every person who is, or has been, a Trustee,
Officer, employee or agent of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee, Officer, employee or agent and against amounts
paid or incurred by him in the settlement thereof in such manner, provided, that
to the extent any claim, action, suit or proceeding involves any particular
Series or Classes of Shares of the Trust or the assets or operations of one or
more Series or Classes of Shares, such indemnification shall be provided only
from the assets (or proceeds thereof or income therefrom of such one or more
Series or Classes of Shares and not from the assets (or proceeds thereof or
income therefrom) of any other Series or Class of Shares of the Trust.
(b) The words "claim", "action", "suit" or "proceeding" shall apply to all
claims, acitons, suits or proceedings ( civil, criminal, or other including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include without limitation, attorneys fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(c) No indemnification shall be provided hereunder to a Trustee or Officer:
(i) against any liability to the Trust, a series thereof, or the
Shareholders by reason of a final adjudication by a court or other body before
which a proceeding was brought or that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in reasonable belief that his action
was in the best interest of the Trust; and
(iii) in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraph (b)(i) or (b)(ii) resulting in a
payment by a Trustee or Officer, unless there has been a determination that such
Trustee or Officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office:
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon the review of readily available facts ( as
opposed to full trial-type inquiry) by (x) vote of a majority
of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office
act on the matter) or (y) written opinion of independent legal
counsel.
<PAGE>
(d) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to shich any Trustee or Officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or Officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and Officers may be entitled by
contract or otherwise under law.
(e) Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in paragraph (a) of this Section
may be advanced by the Trust prior to final disposition therof upon receipt of
an undertaking by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification under this
Section, provided that either;
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section, a "Disinterested Trustee" is one who is not (i) an
Interested Person of the Trust (including anyone who has been exempted from
being an Interested Person by any rule, regulation or order of the Commission),
or (ii) involved in the claim, action, suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Acto of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other that the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy, as expressed in the Act and be governed by final
adjudication of such issue.
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "MANAGEMENT OF THE FUNDS" in the Prospectus and "Services of Northstar,
the Subadviser and The Administrator" and "Trustees and Officers" in the
Statement of Additional Information, each of which is included in the
Registration Statement. Set forth is a list of each officer and director of
the Adviser indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since
January 31, 1994.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL
INVESTMENT BUSINESS, PROFESSION
NAME ADVISER VOCATION OR EMPLOYMENT
- --------- --------------------------- --------------------------------------------
<S> <C> <C>
John Turner Director Chairman and CEO, ReliaStar
Financial Corp. and affiliates;
Director of Northstar Affiliates;
Trustee and Chairman, Northstar
Affiliated Investment Companies.
John Flittie Director President, ReliaStar Financial Corp.
and affiliates; Director, Northstar
Affilates.
Mark L. Lipson Chairman/CEO Director and Officer of Northstar
Director Distributors, Inc., Northstar
Administrators Corp. and Northstar,
Inc. Trustee and President, Northstar
Affiliated Investment Companies.
Robert J. Adler Executive President Northstar Distributors, Inc.
Vice
President,
Sales &
Marketing
Thomas Ole Dial Executive Vice President, Northstar Affiliated
Vice Investment Companies, and
President - Principal, TD Associates Inc.
Chief Investment Officer
Fixed Income
<PAGE>
Geoffrey Wadsworth Vice President/ Vice President - Northstar Affiliated
Investments Investment Companies.
and Portfolio
Manager
Ryan Johanson Vice President - Vice President - Northstar
Investments Affiliated Investment Companies
and Portfolio Manager, Director
of Global Market Risk Management,
and Senior Manager of Banque Indosuez
Jeffrey Aurigemma Vice Vice President - Northstar Affiliated
President - Investment Companies.
Investments
Michael Graves Vice Vice President - Northstar Affiliated
President Investment Companies
Investments
Agnes Mullady Sr. Vice Vice President & Treasurer of
President Northstar Affiliates and the Northstar
and CFO Affiliated Investment Companies
Gertrude Purus Vice Vice President Northstar Distributors
President - and Northstar Administrators Corp.
Operations
Stephen Vondrak Vice Vice President - Northstar
President - Distributors, Inc., Former Regional
Sales & Marketing Marketing Manager with Roger
Engemann and Associates from
` 1991-1994.
Mark Sfarra Vice Vice President - Northstar
President - Distributors, Inc.
Marketing
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) See "HOW THE FUNDS ARE ORGANIZED AND MANAGED" "MEET THE PORTFOLIO MANAGERS"
and "YOUR GUIDE TO BUYING, SELLING AND EXCHANGING SHARES OF NORTHSTAR FUNDS"
in the Prospectus and "Underwriter and Distribution Services" in the Statement
of Additional Information, both of which are included in this Post-Effective
Amendment to the Registration Statement. Unless
<PAGE>
otherwise indicated, the principal business address for each person is c/o
Northstar, Two Pickwick Plaza, Greenwich, CT 06830.
<TABLE>
<CAPTION>
(b) (1) (2) (3)
Name and Principal Position and Offices Position and Offices
Address with Underwriter with Registrant
- ------------------ -------------------- --------------------
<S> <C> <C>
John Turner Director Trustee, Chairman
20 Washington Ave. South
Minneapolis, MN
John Flittie Director None
20 Washington Ave. South
Minneapolis, MN
Mark L. Lipson Chairman & Director Trustee and President
Robert J. Adler President None
Mark Blinder Reg. Vice President None
Michael Brescia Reg. Vice President None
Jennifer Byrne Reg. Vice President None
Eugene Carlin Reg. Vice President None
Charles Dolce Reg. Vice President None
Chris Erbeck Reg. Vice President None
Rick Galloway Reg. Vice President None
Neil Gargiulo Reg. Vice President None
Jim Gordon Reg. Vice President None
Justin Gross Reg. Vice President None
Edward Ittner Reg. Vice President None
Nancy Lavin Reg. Vice President None
Daniel Leonard Reg. Vice President None
David Linton Reg. Vice President None
Stephen O'Brien Reg. Vice President None
Don Rhodes Reg. Vice President None
Lauren Schiano Reg. Vice President None
Gregg Smyth Reg. Vice President None
Rich Westlund Reg. Vice President None
Stephen Vondrak Vice President None
Mark Sfarra Vice President None
Gertrude Purus Vice President None
Agnes Mullady Vice President Vice President
& Treasurer & Treasurer
</TABLE>
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
State Street Bank and Trust Co. maintains such records as Custodian and Fund
Accounting Agent for the Growth, Special, Balance Sheet Opportunities, High
Yield, Strategic Income, and Government Securities Funds and the Northstar
Trust:
(1) Receipts and delivery of securities including certificate numbers;
(2) Receipts and disbursement of cash;
(3) Records of securities in transfer, securities in physical possession,
securities owned and securities loaned.
(4) Fund Accounting Records.
First Data Investor Services Group, ("First Data") maintains the following
records at One Exchange Place, 11th Floor, Boston, Massachusetts, 02109, as
Transfer Agent and Blue Sky Administrator for the Funds and the Northstar
Trust.
(1) Shareholder Records;
(2) Share accumulation accounts: Details as to dates and number of shares
of each accumulation, price of each accumulation.
(3) Fund Accounting Records
(4) State Securities Regisitration Records
All other records required by item 30(a) are maintained at the office of the
Administrator, Two Pickwick Plaza, Greenwich, CT 06830.
ITEM 31. Management Services
Not Applicable.
ITEM 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees when
requested in writing to do so by the holders of at least 10% of the Trusts'
outstanding shares of beneficial interest and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
(b) Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certified that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Greenwich
and the State of Connecticut on the 26th day of February, 1998.
REGISTRANT
By: MARK L. LIPSON
------------------------------
Mark L. Lipson, President
SIGNATURES TITLE DATE
JOHN G. TURNER Chairman and February 26, 1998
John G. Turner* Trustee
MARK L. LIPSON Trustee February 26, 1998
Mark L. Lipson*
JOHN R. SMITH Trustee February 26, 1998
John R. Smith*
PAUL S. DOHERTY Trustee February 26, 1998
Paul S. Doherty*
DAVID W. WALLACE Trustee February 26, 1998
David W. Wallace*
ROBERT B. GOODE, JR. Trustee February 26, 1998
Robert B. Goode, Jr.*
ALAN L. GOSULE Trustee February 26, 1998
Alan L. Gosule*
DAVID W.C. PUTNAM Trustee February 26, 1998
David W.C. Putnam*
WALTER H. MAY, JR. Trustee February 26, 1998
Walter H. May, Jr.**
AGNES MULLADY Principal Financial February 26, 1998
Agnes Mullady and Accounting Officer
<PAGE>
By: AGNES MULLADY*
Agnes Mullady
Attorney-in-fact
* Executed pursuant to powers of attorney filed with Northstar Trust and
Strategic Income Fund - PEA No. 6; Northstar Government Securities Fund - PEA
No. 15; Northstar Balance Sheet Opportunities Fund - PEA No. 14; Northstar
Growth Fund - PEA No. 14; Northstar Special Fund - PEA No. 14; and Northstar
High Yield Fund - PEA No.10.
** Executed pursuant to power of attorney filed with Northstar Trust and
Strategic Income Fund - PEA No. 8; Northstar Government Securities Fund - PEA
No. 17; Northstar Balance Sheet Opportunities Fund - PEA No. 16; Northstar
Growth Fund - PEA No. 16; Northstar Special Fund - PEA No. 16; and Northstar
High Yield Fund - PEA No. 12 .
<PAGE>
- -----------------------
<PAGE>
INDEX TO EXHIBITS
---------------------
SPECIAL FUND
<TABLE>
<CAPTION>
Exhibit No. Under
Part C of Form N1-A Name of Exhibit Page Number Herein
- ----------------- -------------- -----------------
<S> <C> <C>
(6)(f) Amendment of Underwriting Agreement for Class B Shares
(8)(a) Amendment of Custody Agreement
(10) Opinion of Counsel
(11)(a) Consent of Independent Public Accountants--Coopers &
Lybrand, L.L.P.
(b) Consent of Independent Public Accountants--Ernst &
Young, L.L.P.
(12) Actual Report of Shareholders
(15)(a) Amendment of Distribution and Service Plan
(16) Performance Information
(27) Financial Data Schedule (EX-27)
<PAGE>
</TABLE>
UNDERWRITING AGREEMENT FOR
CLASS B SHARES OF
NORTHSTAR SPECIAL FUND
AGREEMENT made and entered into by and between NORTHSTAR SPECIAL FUND (the
"Fund"), a Massachusetts business trust, and NORTHSTAR DISTRIBUTORS, INC., a
Minnesota corporation (the "Underwriter").
1. The Fund hereby appoints the Underwriter as its exclusive agent to
promote the sale and to arrange for the sale of Class B shares of beneficial
interest of the Fund, including both unissued shares and treasury shares,
through broker-dealers or otherwise, in all parts of the United States and
elsewhere throughout the world. The Fund agrees to sell and deliver its Class B
shares, upon the terms hereinafter set forth, as long as it has unissued and/or
treasury Class B shares available for sale.
(a) The Fund hereby authorizes the Underwriter, subject to law
and the Declaration of Trust of the Fund, to accept, for the account of the
Fund, orders for the purchase of its Class B shares, satisfactory to the
Underwriter, as of the time of receipt of such orders by the dealer--or as
otherwise described in the Prospectus of the Fund.
(b) The public offering price of Class B shares shall be the
net asset value per share (as determined by or on behalf of the Fund) of the
outstanding Class B shares of the Fund. The net asset value shall be regularly
determined on every business day as of the time of the regular closing of the
New York Stock Exchange and the public offering price shall become effective as
set forth from time to time in the Fund's Prospectus; such net asset value shall
also be regularly determined, and the public offering price shall become
effective, as of such other times for the regular determination of net asset
value as may be required or permitted by rules of the National Association of
Securities Dealers, Inc. ("NASD") or of the Securities and Exchange Commission
("SEC"). The Fund shall furnish, or cause to be furnished, daily to the
Underwriter, with all possible promptness, a detailed computation of net asset
value of its Class B shares.
(c) (i) In consideration of the Underwriter's services as
principal distributor of the Fund's Class B shares pursuant to this Agreement
and in accordance with the provisions of the Fund's Amended and Restated
Distribution and Service Plan (the "Plan") in respect of such shares the Fund
agrees: (I) to pay to the Underwriter or, at the Underwriter's direction, to a
third party, monthly in arrears on or prior to the 5th business day of the
following calendar month (A) a service fee (the "Service Fee") equal to 0.25 of
1% per annum of the average daily net asset value of the Class B shares of the
Fund outstanding from time to time, and (B) the Underwriter's "Allocable
Portion" (as hereinafter defined) of a fee (the "Distribution Fee") equal to
0.75 of 1% per annum of the average daily net asset value of the Class B shares
of the Fund outstanding from time to time, and (II) to withhold from redemption
proceeds in respect of Class B shares of the Fund the Underwriter's Allocable
Portion of the Contingent Deferred Sales Charges ("CDSCs") payable in respect of
such redemption as provided in the Prospectus of the Fund and to pay the same
over to the Underwriter or, at the Underwriter's direction, to a third
1
<PAGE>
party, at the time the redemption proceeds in respect of such redemption are
payable to the holder of the Class B shares redeemed.
(ii) The Underwriter will be deemed to have
performed all services required to be performed in order to be entitled to
receive its Allocable Portion of the Distribution Fee payable in respect of the
Class B shares of the Fund upon the settlement date of each sale of a
"Commission Share" (as defined in the Allocation Schedule attached hereto as
Schedule B) of the Fund taken into account in determining the Underwriter's
Allocable Portion of such Distribution Fees.
(iii) Notwithstanding anything to the contrary set
forth in this Agreement or (to the extent waiver thereof is permitted thereby)
applicable law, the Fund's obligation to pay the Underwriter's Allocable
Portion of the Distribution Fees payable in respect of the Class B shares of the
Fund shall not be terminated or modified for any reason (including a termination
of this Agreement) except to the extent required by a change in the Investment
Company Act of 1940 (the "Act"), the rules thereunder or the Conduct Rules of
the NASD, in each case enacted or promulgated after December __, 1997, or in
connection with a "Complete Termination" (as hereinafter defined) of the Plan.
(iv) The Fund will not take any action to waive or
change any CDSC in respect of the Class B shares of the Fund, except as
provided in the Fund's Prospectus or statement of additional information as in
effect as of the date hereof, without the consent of the Underwriter and the
permitted assigns of all or any portion of its rights to its Allocable Portion
of the CDSCs.
(v) Notwithstanding anything to the contrary in this
Agreement, neither the termination of the Underwriter's role as principal
distributor of the Class B shares of the Fund, nor the termination of this
Agreement nor the termination of the Plan will terminate the Underwriter's
right to its Allocable Portion of the CDSCs in respect of the Class B shares of
the Fund.
(vi) Notwithstanding anything to the contrary in
this Agreement, the Underwriter may assign, sell or pledge (collectively,
"Transfer") its rights to the Service Fees and its Allocable Portion of the
Distribution Fees and CDSCs (but not its obligations to the Fund under this
Agreement) to raise funds to make the expenditures related to the distribution
of Class B shares of the Fund and in connection therewith, upon receipt of
notice of such Transfer, the Fund shall pay, or cause to be paid, to the
assignee, purchaser or pledgee (collectively with their subsequent
transferees, "Transferees") such portion of the Underwriter's Service Fees,
Allocable Portion of the Distribution Fees and CDSCs in respect of the Class B
shares of the Fund so Transferred. Except as provided in (iii) above and
notwithstanding anything to the contrary set forth elsewhere in this Agreement,
to the extent the Underwriter has Transferred its rights thereto to raise funds
as aforesaid, the Fund's obligation to pay the Underwriter's Allocable Portion
of the Distribution Fees and CDSCs payable in respect of the Class B shares of
the Fund shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever, at law or equity,
including, without limitation, any of the foregoing based on the insolvency or
bankruptcy of the Underwriter (it being understood that such provision is not a
2
<PAGE>
waiver of the Fund's right to pursue the Underwriter and enforce such claims
against the assets of the Underwriter other than the Underwriter's right to the
Distribution Fees and CDSCs in respect of the Class B shares of the Fund, which
have been so transferred in connection with such Transfer). The Fund agrees that
each such Transferee is a third party beneficiary of the provisions of this
clause (vi) but only insofar as those provisions relate to Distribution Fees and
CDSCs transferred to such Transferee.
(vii) For purposes of this Agreement, the term
Allocable Portion of Distribution Fees and CDSCs payable in respect of the Class
B shares of the Fund shall mean the portion of such Distribution Fees and CDSCs
allocated to the Underwriter in accordance with the Allocation Schedule attached
hereto as Schedule B.
(viii) For purposes of this Agreement, the term
"Complete Termination" of the Plan in respect of the Fund means a termination of
the Plan involving the complete cessation of the payment of Distribution Fees
in respect of all Class B shares of the Fund, and the termination of the
distribution plans and the complete cessation of the payment of distribution
fees pursuant to every other Distribution Plan pursuant to Rule 12b-1 under the
Act in respect of the Class B shares of the Fund and any successor fund or any
fund acquiring a substantial portion of the assets of the Fund and for every
future class of shares which has substantially similar characteristics to the
Class B shares of the Fund taking into account the manner of payment and amount
of sales charge, contingent deferred sales charge or other similar charges
borne directly or indirectly by the holders of such shares.
(d) The Underwriter may reallow any or all of the Distribution
and Services Fees and CDSCs which it is paid under this Agreement to such
dealers as the Underwriter may from time to time determine.
(e) The Underwriter may fix quantity discounts and other
similar variances or waivers of the CDSC not inconsistent with the provisions of
the Act; provided however, that the Underwriter shall not impose any commission,
permit any quantity discount, or impose any other similar waiver or variance in
connection with the sale of Class B shares except as disclosed in the Prospectus
of the Fund.
2. The Underwriter agrees to devote reasonable time and effort to
enlist investment dealers to sell Class B shares of the Fund and otherwise
promote the sale and distribution and act as Underwriter for the sale and
distribution of the Class B shares of the Fund as such arrangements may
profitably be made; but so long as its does so, nothing herein contained shall
prevent the Underwriter from entering into similar arrangements with other funds
and to engage in other activities. The Fund reserves the right to issue Class B
shares in connection with any merger or consolidation of the Fund with any other
investment company or any personal holding company or in connection with offers
of exchange exempted from Section 22(d) of the Act.
3. To the extent the Fund shall offer (as set forth in the Fund's
Prospectus) to provide physical certificates evidencing ownership of Class B
shares, upon receipt by the Fund at its principal place of business of a written
order from the Underwriter, together with delivery instructions, the Fund shall,
as promptly as practicable, cause certificates for the Class B shares
3
<PAGE>
called for in such order to be delivered or credited in such amounts and in
such names as shall be specified by the Underwriter, against payment therefor in
such manner as may be acceptable to the Fund.
4. All sales literature and advertisements used by the Underwriter in
connection with sales of the Class B shares of the Fund shall be subject to the
approval of the Fund. The Fund authorizes the Underwriter in connection with the
sale or arranging for the sale of its Class B shares to give only such
information and to make only such statements or representations as are contained
in the Prospectus or in sales literature or advertisements approved by the Fund
or in such financial statements and reports as are furnished to the Underwriter
pursuant to paragraph 6 below. The Fund shall not be responsible in any way for
any information, statements or representations given or made by the Underwriter
or its representatives or agents other than such information, statements and
representations.
5. The Underwriter, as agent of the Fund, is authorized, subject to the
direction of the Fund, to accept Class B shares for redemption at prices
determined as prescribed in the Prospectus of the Fund. Such price shall reflect
the subtraction of the applicable CDSC, if any, computed in accordance with and
in the manner set forth in the Fund's Prospectus. The Fund shall reimburse the
Underwriter monthly for its out-of-pocket expenses reasonably incurred on behalf
of the Fund in carrying out the foregoing authorization. The Underwriter shall
report all redemptions promptly to the Fund.
6. The Fund shall keep the Underwriter fully informed with regard to
its affairs, shall furnish the Underwriter with a certified copy of all
financial statements, and a signed copy of each report, prepared by independent
public accountants and with such reasonable number of printed copies of each
annual and other periodic report of the Fund as the Underwriter may request, and
shall cooperate fully in the efforts of the Underwriter to sell and arrange for
the sale of its Class B shares and in the performance by the Underwriter of all
its duties under this Agreement.
7. The Fund will pay or cause to be paid expenses (including counsel
fees and disbursements) of any registration of its Class B shares of beneficial
interest under, but not limited to, Federal, state or other regulatory
authority, fees of filing periodic reports with regulatory bodies and of
preparing, setting in type and printing the Prospectus and any amendments
thereto prepared for use in connection with the offering of Class B shares of
the Fund, for fees and expenses incident to the issuance of Class B shares of
beneficial interest, such as the cost of stock certificates (if offered),
issuance taxes, fees of the transfer agent, including the cost of preparing and
mailing notices to shareholders pertaining to transactions with respect to
shareholders' accounts, dividend disbursing agent's costs, including the cost
for preparing and mailing notices confirming shares acquired by shareholders
pursuant to the reinvestment of dividends and distributions, and the mailing to
shareholders of prospectuses, and notices and reports as may be required from
time to time by regulatory bodies or for such other purposes, except for
purposes of sales by the Underwriter as outlined in paragraph 8 hereof.
8. The Underwriter shall pay all of its own costs and expenses (other
than expenses and costs heretofore deemed payable by the Fund and other than
expenses which one or more dealers may bear pursuant to any agreement with the
Underwriter) incident to the sale and
4
<PAGE>
distribution of the shares issued or sold hereunder including (a) expenses
of printing copies of the Prospectus to be used in connection with the sale of
Class B shares of the Fund at printer's overrun costs; (b) expenses of printing
and distributing or disseminating any other literature, advertising or selling
aids in connection with the offering of Class B shares for sale (however, the
expenses referred to in (a) and (b) do not include expenses incurred in
connection with the preparation, printing and distribution of the Prospectus or
any report or other communication to shareholders, to the extent that such
expenses are necessarily incurred to effect compliance by the Fund with any
Federal or state law or other regulatory bodies); and (c) expenses of
advertising in connection with such offering; provided, however, that the
Underwriter shall not be required to pay for any such expenses to the extent
that they are paid pursuant to the Fund's distribution plan adopted pursuant to
Rule 12b-1 under the Act.
9. The Fund agrees to register, from time to time as necessary,
additional Class B shares with the SEC, State and other regulatory bodies and to
pay the related filing fees therefor and to file such amendments, reports and
other documents as may be necessary in order that there may be no untrue
statement of a material fact in the Registration Statement or Prospectus or that
their may be no omission to state a material fact therein necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As used in this Agreement, the term "Registration
Statement" shall mean the Registration Statement most recently filed by the Fund
with the SEC and effective under the Securities Act of 1933, as amended, as such
Registration Statement is amended from time to time, and the term "Prospectus"
shall mean the most recent form of prospectus authorized by the Fund for use by
the Underwriter and by dealers.
10. This Agreement may be terminated at any time on not more than 60
days written notice, without payment of a penalty, by the Underwriter, by vote
of a majority of the outstanding voting securities as defined in the Act of the
Class B shares of the Fund or by vote of a majority of the Trustees who are not
"interested persons" of the Fund as defined in the Act and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements.
11. This Agreement shall terminate automatically in the event of its
assignment. The term "assignment" for this purpose shall have the meaning
defined in Section 2(a)(4) of the Act.
12. This Agreement has been approved by the Trustees of the Fund and
shall continue in effect for two years from its effective date. Thereafter, this
Agreement shall continue for successive annual periods, provided that such
continuance is specifically approved annually by a majority of the Trustees of
the Fund who are not interested persons of the parties hereto as defined in the
Act and either (a) by vote of a majority of the Trustees of the Fund or (b) by
vote of a majority of the outstanding voting securities of the Class B shares of
the Fund, as defined in the Act.
13. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of State of The Commonwealth of Massachusetts and notice is hereby
given that this Agreement is executed on behalf of the Trustees of the Fund as
trustees and not individually and that the obligations of this instrument are
not binding upon the Trustees or holders of shares of the Fund individually but
are binding only upon the assets and property of the Fund.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officers thereunto duly authorized and to become effective as of this
____ day of December, 1997.
Attest: NORTHSTAR SPECIAL FUND
By: ____________________________ By: _____________________________________
Attest: NORTHSTAR DISTRIBUTORS, INC.
By: ____________________________ By: _____________________________________
6
AMENDMENT TO CUSTODIAN CONTRACT
This Amendment to the Custodian Contract is made as of February 28,
1998 by and between each entity set forth on Attachment I (as such Attachment I
may be amended from time to time) to the Custodian Contract referred to below
(each such entity shall be referred to as the "Fund") and State Street Bank and
Trust Company (the "Custodian"). Capitalized terms used in this Amendment
without definition shall have the respective meanings given to such terms in the
Custodian Contract referred to below.
WHEREAS, the Fund and the Custodian entered into a Custodian Contract
dated as of June 27, 1994 (as amended and in effect from time to time, the
"Contract"); and
WHEREAS, certain of the Funds may be authorized to issue shares in
separate series, with each such series representing interests in a separate
portfolio of securities and other assets, and the Fund has made the series set
forth on Attachment I to the Custodian Contract from time to time subject to the
Contract (each such series, together with all other series subsequently
established by the Fund and made subject to the Contract in accordance with the
terms thereof, shall be referred to as a "Portfolio", and, collectively, the
"Portfolios"); and
WHEREAS, the terms "Fund" and "Portfolio" will be used interchangeably
for those entities set forth on Attachment I to the Custodian Contract which are
not authorized to issue shares in separate series; and
WHEREAS, the Fund and the Custodian desire to amend certain provisions
of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated
under the Investment Company Act of 1940, as amended; and
WHEREAS, the Fund and the Custodian desire to amend and restate certain
other provisions of the Contract relating to the custody of assets of each of
the Portfolios held outside of the United States.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereby agree to
amend the Contract, pursuant to the terms thereof, as follows:
I. Article 3 of the Contract is hereby deleted, and Articles 4 through 17
of the Contract are hereby renumbered, as of the effective date of this
Amendment, as Articles 5 through 18, respectively.
II. New Articles 3 and 4 of the Contract are hereby added, as of the
effective date of this Amendment, as set forth below.
<PAGE>
3. The Custodian as Foreign Custody Manager.
----------------------------------------
3.1. Definitions.
------------
Capitalized terms in this Article 3 shall have the following meanings:
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
operating in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and recovery
of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, except that the term does not include Mandatory Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Portfolios'
transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of
Rule 17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with prevailing or
developing custodial or market practices.
3.2. Delegation to the Custodian as Foreign Custody Manager.
-------------------------------------------------------
The Fund, by resolution adopted by its Board of Trustees or Directors, as
applicable (the "Board"), hereby delegates to the Custodian, subject to Section
(b) of Rule 17f-5, the responsibilities set forth in this Article 3 with respect
to Foreign Assets held outside the United States, and the Custodian hereby
accepts such delegation, as Foreign Custody Manager of each Portfolio.
3.3. Countries Covered.
------------------
The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
2
<PAGE>
arrangements for each such country listed on Schedule A to this Contract, which
may be amended from time to time by the Foreign Custody Manager. The Foreign
Custody Manager shall list on Schedule A the Eligible Foreign Custodians
selected by the Foreign Custody Manager to maintain the assets of each
Portfolio. Mandatory Securities Depositories are listed on Schedule B to this
Contract, which Schedule B may be amended from time to time by the Foreign
Custody Manager. The Foreign Custody Manager will provide amended versions of
Schedules A and B in accordance with Section 3.7 of this Article 3.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account, or to place or maintain Foreign Assets, in a country listed on
Schedule A, and the fulfillment by the Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by the Board responsibility as Foreign Custody Manager with
respect to that country and to have accepted such delegation. Following the
receipt of Proper Instructions directing the Foreign Custody Manager to close
the account of a Portfolio with the Eligible Foreign Custodian selected by the
Foreign Custody Manager in a designated country, the delegation by the Board to
the Custodian as Foreign Custody Manager for that country shall be deemed to
have been withdrawn and the Custodian shall immediately cease to be the Foreign
Custody Manager of the Portfolio with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to a Portfolio with respect
to the country as to which the Custodian's acceptance of delegation is
withdrawn.
3.4. Scope of Delegated Responsibilities.
------------------------------------
3.4.1. Selection of Eligible Foreign Custodians.
-----------------------------------------
Subject to the provisions of this Article 3, the Foreign Custody Manager may
place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation:
3
<PAGE>
(i) the Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical
protections available for certificated securities (if
applicable), its methods of keeping custodial records, and its
security and data protection practices;
(ii) whether the Eligible Foreign Custodian has the financial
strength to provide reasonable care for Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation and
standing and, in the case of a foreign securities depository
or clearing agency which is not a Mandatory Securities
Depository, the foreign securities depository's or clearing
agency's operating history and the number of participants in
the foreign securities depository or clearing agency; and
(iv) whether the Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian, such
as by virtue of the existence of any offices of the Eligible
Foreign Custodian in the United States or the Eligible Foreign
Custodian's consent to service of process in the United
States.
3.4.2. Contracts With Eligible Foreign Custodians.
-------------------------------------------
The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager will provide reasonable care for the Foreign Assets
held by that Eligible Foreign Custodian based on the standards applicable to
custodians in the particular country. Each such contract shall include
provisions that provide:
(i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Fund will be
adequately protected against the risk of loss of the Foreign
Assets held in accordance with such contract;
(ii) that the Foreign Assets will not be subject to any right,
security interest, or lien or claim of any kind in favor of
the Eligible Foreign Custodian or its creditors except a claim
of payment for their safe custody or administration or, in the
case of cash deposits, liens or rights in favor of creditors
of the Eligible Foreign Custodian arising under bankruptcy,
insolvency, or similar laws;
(iii) that beneficial ownership of the Foreign Assets will be freely
transferable without the payment of money or value other than
for safe custody or administration;
4
<PAGE>
(iv) that adequate records will be maintained identifying the
Foreign Assets as belonging to the Fund or as being held by a
third party for the benefit of the Fund;
(v) that the Fund's independent public accountants will be given
access to those records or confirmation of the contents of
those records; and
(vi) that the Fund will receive periodic reports with respect to
the safekeeping of the Foreign Assets, including, but not
limited to, notification of any transfer of the Foreign Assets
to or from the account of the Portfolio or a third party
account containing the Foreign Assets held for the benefit of
the Portfolio,
or, in lieu of any or all of the provisions set forth in (i) through (vi) above,
such other provisions that the Foreign Custody Manager determines will provide,
in their entirety, the same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through (vi) above in their
entirety.
3.4.3. Monitoring.
-----------
In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event
the Foreign Custody Manager determines that the custody arrangements with an
Eligible Foreign Custodian it has selected are no longer appropriate, the
Foreign Custody Manager shall notify the Board in accordance with Section 3.7
hereunder.
3.5. Guidelines for the Exercise of Delegated Authority.
---------------------------------------------------
For purposes of this Article 3, the Fund shall be deemed to have considered and
determined to accept such Country Risk as is incurred by placing and maintaining
the Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of a Portfolio, and the Fund's investment advisor (or a delegate
thereof) shall be deemed to be monitoring on a continuing basis such Country
Risk to the extent that the Board considers necessary or appropriate. The Fund,
on behalf of the Portfolios, and the Custodian each expressly acknowledge that
the Foreign Custody Manager shall not be delegated any responsibilities under
this Article 3 with respect to Mandatory Securities Depositories.
5
<PAGE>
3.6. Standard of Care as Foreign Custody Manager of a Portfolio.
-----------------------------------------------------------
In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the Investment Company Act of 1940, as amended, would
exercise.
3.7. Reporting Requirements.
-----------------------
The Foreign Custody Manager shall report the withdrawal of the Foreign Assets
from an Eligible Foreign Custodian and the placement of such Foreign Assets with
another Eligible Foreign Custodian by providing to the Board amended Schedules A
or B at the end of the calendar quarter in which an amendment to either Schedule
has occurred. The Foreign Custody Manager shall make written reports notifying
the Board of any other material change in the foreign custody arrangements of a
Portfolio described in this Article 3 after the occurrence of the material
change.
3.8. Representations with Respect to Rule 17f-5.
-------------------------------------------
The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.
The Fund represents to the Custodian that the Board has determined that it is
reasonable for the Board to rely on the Custodian to perform the
responsibilities delegated pursuant to this Contract to the Custodian as the
Foreign Custody Manager of each Portfolio.
3.9. Effective Date and Termination of the Custodian as Foreign Custody
------------------------------------------------------------------
Manager.
--------
The Board's delegation to the Custodian as Foreign Custody Manager of a
Portfolio shall be effective as of the date of execution of this Amendment and
shall remain in effect until terminated at any time, without penalty, by written
notice from the terminating party to the non-terminating party. Termination will
become effective thirty days after receipt by the non-terminating party of such
notice. The provisions of Section 3.3 of this Article 3 shall govern the
delegation to and termination of the Custodian as Foreign Custody Manager of the
Fund with respect to designated countries.
4. Duties of the Custodian with Respect to Property of a Portfolio Held
--------------------------------------------------------------------
Outside the United States.
--------------------------
4.1 Definitions.
------------
Capitalized terms in this Article 4 shall have the following meanings:
6
<PAGE>
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian or a Permissible Foreign Custodian.
"Permissible Foreign Custodian" means any person with whom property of a
Portfolio may be placed and maintained outside of the United States under (i)
section 17(f) or 26(a) of the Investment Company Act of 1940, as amended,
without regard to Rule 17f-5 or (ii) an order of the U.S. Securities and
Exchange Commission.
4.2. Holding Securities.
-------------------
The Custodian shall identify on its books as belonging to a Portfolio the
foreign securities held by each Foreign Sub-Custodian or Foreign Securities
System. The Custodian may hold foreign securities for all of its customers,
including the Portfolio, with any Foreign Sub-Custodian in an account that is
identified as belonging to the Custodian for the benefit of its customers,
provided however, that (i) the records of the Custodian with respect to foreign
securities of the Portfolio which are maintained in such account shall identify
those securities as belonging to the Portfolio and (ii) the Custodian shall
require that securities so held by the Foreign Sub-Custodian be held separately
from any assets of such Foreign Sub-Custodian or of other customers of such
Foreign Sub-Custodian.
4.3. Foreign Securities Systems.
---------------------------
Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.
4.4. Holding of Foreign Assets With Permissible Foreign Custodians.
--------------------------------------------------------------
Subject to the requirements of Sections 17(f) and 26(a) of the Investment
Company Act of 1940, as amended (and any other applicable law or order), the
Custodian may place and maintain Foreign Assets in the care of any Permissible
Foreign Custodian. Article 3 (other than the definitions in Section 3.1) of this
Contract shall not apply to placement of Foreign Assets by the Custodian with a
Permissible Custodian.
4.5. Transactions in Foreign Custody Account.
----------------------------------------
4.5.1. Delivery of Foreign Securities.
-------------------------------
The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of a Portfolio held by such Foreign Sub-Custodian, or in a Foreign
Securities System account,
7
<PAGE>
only upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for the Portfolio in
accordance with reasonable market practice in the country
where such foreign securities are held or traded, including,
without limitation: (A) delivery against expectation of
receiving later payment; or (B) in the case of a sale effected
through a Foreign Securities System, in accordance with the
rules governing the operation of the Foreign Securities
System;
(ii) in connection with any repurchase agreement related to
foreign securities;
(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolio;
(iv) to the issuer thereof or its agent when such foreign
securities are called, redeemed, retired or otherwise become
payable;
(v) to the issuer thereof, or its agent, for transfer into the
name of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such
Foreign Sub-Custodian) or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market
custom; provided that in any such case the Foreign
Sub-Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Foreign Sub- Custodian's own negligence or willful
misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts or
temporary securities for definitive securities;
(ix) for delivery as security in connection with any borrowing by
the Fund requiring a pledge of assets by the Portfolio;
8
<PAGE>
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions, a copy of a resolution of the
Board or of an Executive Committee of the Board so authorized
by the Board, signed by an officer of the Fund and certified
by its Secretary or an Assistant Secretary that the resolution
was duly adopted and is in full force and effect (a "Certified
Resolution"), specifying the foreign securities to be
delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper trust or
corporate purpose, as applicable, and naming the person or
persons to whom delivery of such securities shall be made.
4.5.2. Payment of Portfolio Monies.
----------------------------
Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Portfolio in the following cases only:
(i) upon the purchase of foreign securities for the Portfolio,
unless otherwise directed by Proper Instructions, by (A)
delivering money to the seller thereof or to a dealer therefor
(or an agent for such seller or dealer) against expectation of
receiving later delivery of such foreign securities; or (B) in
the case of a purchase effected through a Foreign Securities
System, in accordance with the rules governing the operation
of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Portfolio;
(iii) for the payment of any expense or liability of the Portfolio
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Contract, legal fees, accounting fees, and other
operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign
exchange contracts for the Portfolio, including transactions
executed with or through the Custodian or its Foreign
Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
9
<PAGE>
(vi) in connection with the borrowing/lending of foreign
securities; and
(vii) for any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a Certified Resolution
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper trust or corporate purpose, as
applicable, and naming the person or persons to whom such
payment is to be made.
4.5.3. Market Conditions.
------------------
Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of a Portfolio and delivery
of Foreign Assets maintained for the account of a Portfolio may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs, including, without limitation, delivering Foreign Assets to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) with the expectation of receiving later payment for such Foreign Assets
from such purchaser or dealer.
4.6. Registration of Foreign Securities.
-----------------------------------
The foreign securities maintained in the custody of a Foreign Custodian (other
than bearer securities) shall be registered in the name of the Fund (on behalf
of the applicable Portfolio) or in the name of the Custodian or in the name of
any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and
the Fund agrees to hold any such nominee harmless from any liability as a holder
of record of such foreign securities. The Custodian or a Foreign Sub-Custodian
shall not be obligated to accept securities on behalf of the Fund (on behalf of
the applicable Portfolio) under the terms of this Contract unless the form of
such securities and the manner in which they are delivered are in accordance
with reasonable market practice.
4.7. Bank Accounts.
--------------
A bank account or bank accounts opened and maintained outside the United States
on behalf of a Portfolio with a Foreign Sub-Custodian shall be subject only to
draft or order by the Custodian or such Foreign Sub-Custodian, acting pursuant
to the terms of this Contract to hold cash received by or from or for the
account of the Portfolio.
4.8. Collection of Income.
---------------------
The Custodian shall use reasonable endeavors to collect all income and other
payments in due course with respect to the Foreign Assets held hereunder to
which a Portfolio shall be entitled and shall credit such income, as collected,
to the Portfolio. In the event that
10
<PAGE>
extraordinary measures are required to collect such income, the Fund and the
Custodian shall consult as to such measures and as to the compensation and
expenses of the Custodian relating to such measures.
4.9. Proxies.
--------
The Custodian will generally with respect to the foreign securities held under
this Article 4 use its reasonable endeavors to facilitate the exercise of voting
and other shareholder proxy rights, subject always to the laws, regulations and
practical constraints that may exist in the country where such securities are
issued. The Fund acknowledges that local conditions, including lack of
regulation, onerous procedural obligations, lack of notice and other factors may
have the effect of severely limiting the ability of the Fund to exercise
shareholder rights.
4.10. Communications Relating to Foreign Securities.
----------------------------------------------
The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub- Custodians from issuers of the foreign securities
being held for the account of a Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. The Custodian shall not be liable for any untimely exercise of
any tender, exchange or other right or power in connection with foreign
securities or other property of the Portfolio at any time held by it unless (i)
the Custodian or the respective Foreign Sub-Custodian is in actual possession of
such foreign securities or property and (ii) the Custodian receives Proper
Instructions with regard to the exercise of any such right or power, and both
(i) and (ii) occur at least three business days prior to the date on which such
right or power is to be exercised.
4.11. Liability of Foreign Sub-Custodians and Foreign Securities Systems.
-------------------------------------------------------------------
Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with such
Foreign Sub-Custodian's performance of such obligations. At the election of the
Fund, the Fund shall be entitled to be subrogated to the rights of the Custodian
with respect to any claims against a Foreign Sub-Custodian as a consequence of
any such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund and any applicable Portfolio has not been made whole for any such
loss, damage, cost, expense, liability or claim.
11
<PAGE>
4.12. Tax Law.
--------
The Custodian shall have no responsibility or liability for any obligations now
or hereafter imposed on the Fund or the Custodian as custodian of the Portfolios
by the tax law of the United States or of any state or political subdivision
thereof. It shall be the responsibility of the Fund to notify the Custodian of
the obligations imposed on the Fund with respect to the Portfolios or the
Custodian as custodian of such Portfolios by the tax law of countries other than
those mentioned in the above sentence, including responsibility for withholding
and other taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with regard to
such tax law shall be to use reasonable efforts to assist the Fund with respect
to any claim for exemption or refund under the tax law of countries for which
the Fund has provided such information.
4.13. Liability of Custodian.
-----------------------
Except as may arise from the Custodian's own negligence or willful misconduct or
the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be
without liability to the Fund for any loss, liability, claim or expense
resulting from or caused by anything which is (A) part of Country Risk or (B)
part of the "prevailing country risk" of the Fund and the Portfolios, as such
term is used in SEC Release Nos. IC-22658; IS-1080 (May 12, 1997) or as such
term or other similar terms are now or in the future interpreted by the U.S.
Securities and Exchange Commission or by the staff of the Division of Investment
Management of such Securities and Exchange Commission.
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities Depository, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.
III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this Amendment
shall prevail. If the Custodian is delegated the responsibilities of
Foreign Custody Manager pursuant to the terms of Article 3 hereof, in
the event of any conflict between the provisions of Articles 3 and 4
hereof, the provisions of Article 3 shall prevail.
12
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.
WITNESSED BY: STATE STREET BANK AND TRUST
COMPANY
(Signature of Glenn Ciotti)
____________________________
Glenn Ciotti By: (Signature of Ronald E. Logue)
______________________________
VP & Assoc. Counsel Name: Ronald E. Logue
Title: Executive Vice President
WITNESSED BY: EACH OF THE ENTITIES SET FORTH ON
ATTACHMENT I TO THE CUSTODIAN
CONTRACT
(Signature of Stephanie L. Beckner)
- ---------------------------------- By: (Signature of Mark L. Lipson)
Stephanie L. Beckner -----------------------------
Name: Mark L. Lipson
Title: Director and President
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
<S> <C> <C>
Country Subcustodian Non-Mandatory Depositories
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria Erste Bank der oesterreichischen --
Sparkasen AG
Bahrain The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale Bank --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Bulgaria ING Bank N.V. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. --
People's Republic The Hongkong and Shanghai --
of China Banking Corporation Limited,
Shanghai and Shenzhen branches
Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Croatia Privredana banka Zagreb d.d --
Cyprus Barclays Bank PLC --
Cyprus Offshore Banking Unit
Czech Republic Ceskoslovenska Obchodni --
Banka A.S.
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Ltd. --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A Bank of Greece
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
India Deutsche Bank AG; --
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire
Jamaica Scotiabank Trust and Merchant Bank --
Japan The Daiwa Bank, Limited; Japan Securities Depository
The Fuji Bank, Limited Center;
Jordan The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
Republic of Korea The Hongkong and Shanghai Banking --
Corporation Limited
Latvia Hansabank --
Lebanon The British Bank of the Middle East Custodian and Clearing Center of Financial
(as delegate of the Hongkong and Instruments for Lebanon (MIDCLEAR) S.A.L.;
Shanghai Banking Corporation Limited)
Lithuania Vilniaus Bankas AB --
Malaysia Standard Chartered Bank --
Malaysia Berhad
Mauritius The Hongkong and Shanghai --
Banking Corporation Limited
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa -
The Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group --
(New Zealand) Limited
Norway Christiania Bank og --
Kreditkasse
Oman The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
Poland Citibank Poland S.A. --
Portugal Banco Comercial Portugues --
Romania ING Bank, N.V. --
Russia Credit Suisse First Boston, Zurich --
via Credit Suisse First Boston
Limited, Moscow
Singapore The Development Bank --
of Singapore Ltd.
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Slovak Republic Ceskoslovenska Obchodna --
Banka A.S.
Slovenia Banka Creditanstalt d.d. --
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited
Swaziland Barclays Bank of Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland Union Bank of Switzerland --
Taiwan - R.O.C. Central Trust of China --
Thailand Standard Chartered Bank --
Trinidad & Tobago Republic Bank Ltd. --
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
United Kingdom State Street Bank and Trust --
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)
Cedel (Cedel Bank, societe anonyme)
INTERSETTLE (for EASDAQ Securities)
</TABLE>
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
<TABLE>
<CAPTION>
<S> <C>
Country Mandatory Depositories
Argentina -Caja de Valores S.A.;
-CRYL
Australia -Austraclear Limited;
-Reserve Bank Information and
Transfer System
Austria -Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)
Belgium -Caisse Interprofessionnelle de Depots et
de Virements de Titres S.A.;
-Banque Nationale de Belgique
Brazil - Camara de Liquidacao de Sao Paulo, (Calispa);
-Bolsa de Valores de Rio de Janeiro
- All SSB clients presently use Calispa
-Central de Custodia e de Liquidacao Financeira
de Titulos
-Banco Central do Brasil,
Systema Especial de Liquidacao e
Custodia
Bulgaria - Central Depository AD
Canada -The Canadian Depository
for Securities Limited; West Canada
Depository Trust Company [depositories
linked]
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
People's Republic -Shanghai Securities Central Clearing and
of China Registration Corporation;
-Shenzhen Securities Central Clearing
Co., Ltd.
Croatia Ministry of Finance
Czech Republic --Stredisko cennych
papiru(degree) ;
-Czech National Bank
Denmark -Vaerdipapircentralen - The Danish
Securities Center
Egypt -Misr Company for Clearing, Settlement,
and Central Depository
Estonia - Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities
Depository
France -Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres;
-Banque de France,
Saturne System
Germany -The Deutscher Kassenverein AG
Greece -The Central Securities Depository
(Apothetirion Titlon A.E.);
Hong Kong -The Central Clearing and
Settlement System;
-The Central Money Markets Unit
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Hungary -The Central Depository and Clearing
House (Budapest) Ltd.
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]
India The National Securities Depository Limited
Indonesia -Bank of Indonesia
Ireland -The Central Bank of Ireland,
The Gilt Settlement Office
Israel -The Clearing House of the
Tel Aviv Stock Exchange;
-Bank of Israel
Italy -Monte Titoli S.p.A.;
-Banca d'Italia
Japan -Bank of Japan Net System
Republic of Korea -Korea Securities Depository Corporation
Latvia - The Latvian Central Depository
Lebanon -The Central Bank of Lebanon
Lithuania - The Central Securities Depository of Lithuania
Malaysia -Malaysian Central Depository Sdn.
Bhd.;
-Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping
Systems
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Mauritius -The Central Depository & Settlement
Co. Ltd.
Mexico -S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores);
The Netherlands -Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. ("NECIGEF");
New Zealand -New Zealand Central Securities
Depository Limited
Norway -Verdipapirsentralen - The Norwegian
Registry of Securities
Oman -Muscat Securities Market
Peru -Caja de Valores y Liquidaciones
(CAVALI, S.A.)
Philippines -The Philippines Central Depository Inc.
-The Book-Entry-System of Bangko
Sentral ng Pilipinas;
-The Registry of Scripless Securities of the
Bureau of the Treasury
Poland -The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych);
-National Bank of Poland
Portugal -Central de Valores Mobiliarios
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Romania -National Securities Clearing, Settlement an
Depository Co.;
-Bucharest Stock Exchange;
-National Bank of Romania
Singapore -The Central Depository (Pvt.)
Limited;
-Monetary Authority of Singapore
Slovak Republic -Stredisko Cennych Papierov;
-National Bank of Slovakia
Slovenia - Klirinsko Depotna Bruzba
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y
Liquidacion de Valores, S.A.;
-Banco de Espana,
Anotaciones en Cuenta
Sri Lanka -Central Depository System
(Pvt) Limited
Sweden -Vardepapperscentralen VPC AB -
The Swedish Central Securities Depository
Switzerland -Schweizerische Effekten - Giro AG;
Taiwan - R.O.C. -The Taiwan Securities Central
Depository Company, Ltd.
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Thailand -Thailand Securities Depository
Company Limited
Tunisia -STICODEVAM;
-Central Bank of Tunisia;
-Tunisian Treasury
Turkey -Takas ve Saklama Bankasi A.S.;
-Central Bank of Turkey
United Kingdom -The Bank of England,
The Central Gilts Office;
The Central Moneymarkets Office
Uruguay -Central Bank of Uruguay
Zambia -Lusaka Central Depository
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
</TABLE>
<PAGE>
<PAGE>
LAW OFFICES OF
DECHERT PRICE & RHOADS
1775 EYE STREET, N.W.
WASHINGTON, D.C. 20006-2401
TELEPHONE: (202) 261-3300
FAX: (202) 261-3333
Exhibit 10
February 24, 1998
Northstar Special Fund
Two Pickwick Plaza
Greenwich, Connecticut 06830
Ladies and Gentlemen:
As counsel to the Northstar Special Fund (the "Fund"), we are familiar
with the Fund's registration under the Investment Company Act of 1940 and
with the registration statement relating to its shares of beneficial interest
under the Securities Act of 1933 (File No. 33-847) (the "Registration
Statement"). We have also examined such other corporate records, agreements,
documents and instruments as we deemed appropriate.
On the basis of the foregoing, we are of the opinion that the shares of
beneficial interest of the Fund being registered under the Securities Act of
1933 in Post-Effective Amendment No. 22 to the Registration Statement will be
legally and validly issued, fully paid and non-assessable by the Fund.
We hereby consent to the filing of this opinion with and as part of
Post-Effective Amendment No. 22 to the Registration Statement.
Very truly yours,
/s/ Dechert Price & Rhoads
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 22 to the Registration Statement of Northstar Special Fund on Form
N-1A (File No. 33-847) of our report dated February 12, 1998, on our
audit of the financial statements and financial highlights of Northstar
Special Fund, which report is included in the Annual Report to
Shareholders of The Northstar Funds for the year ended December 31,
1997, which is also incorporated by reference in this Post-Effective
Amendment to the Registration Statement.
We also consent to the references to our firm under the caption
"Financial Highlights" in the Prospectus and under the captions "Other
Information" and "Financial Highlights" in the Statement of Additional
Information.
COOPERS & LYBRAND L.L.P.
New York, New York
February 25, 1998
Exhibit 11(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial
Highlights" in Post-Effective Amendment No. 23 to the Registration Statement
on Form N-1A and related Prospectus and Statement of Additional Information
of Northstar Special Fund.
ERNST & YOUNG LLP
Los Angeles, California
February 27, 1998
[Logo appears here]
ANNUAL REPORT TO SHAREHOLDERS
December 31, 1997
[Graphic appears here]
<PAGE>
NORTHSTAR FUNDS
ANNUAL REPORT
DECEMBER 31, 1997
MARK L. LIPSON
Dear Shareholders:
We are pleased to provide you with the annual report of the Northstar Funds for
the year ended December 31, 1997. We are gratified with your decision to entrust
your assets to the Northstar Funds and are confident that we can assist you in
reaching your financial objectives. Our goal is to provide you with long term
consistent and superior results through fundamental research, analysis, and
traditional investment disciplines. Following this letter is a summary of the
results of each Fund by their respective portfolio manager. We hope you will
find this informative.
During the past year the U.S. financial markets remained quite strong despite
several temporary corrections. The favorable investment returns for both stocks
and bonds were supported by continued growth in the economy, strong gains in
corporate profits, and a reduction in the inflation rate.
As the U.S. economy advanced at a 3.8% rate in real GDP growth, it generated
more jobs, reducing the unemployment rate to an historically low level of 4.7%.
This raised concerns that rising wage pressures would begin to impact and
reverse the favorable trends in both corporate profitability and the inflation
rate. However, despite growing demand, the productive capacity of the
increasingly global economy increased even more due to capital investments and
improved efficiency. There are few, if any, shortages today impacting inflation
and rising employment costs are being more than offset by productivity gains
allowing corporate profit margins to remain at historically high levels.
During the year, intermediate and long term treasury bonds appreciated as the
yields declined about 70 basis points (0.7% points). The total return for 10
year U.S. Treasury bonds was about 11.1%. Stock market returns were stronger,
with the Dow Industrials up 24.9%, benefiting from both higher earnings and
higher valuations due to lower interest rates. High yield bonds also had a very
good year benefiting from both a narrowing in interest rate differentials
compared to treasury bonds and from increases in the underlying equity values.
Going into 1998 the investment environment is more volatile and difficult to
predict, but continues to appear favorable. While the current financial crisis
in Asia has introduced a new major uncertainty which we are monitoring closely,
its dampening effect on global growth and inflation may actually prove to be
positive for U.S. bond and stock prices. Growth in the U.S. economy and
corporate profits should continue in 1998, but at a slower rate. With inflation
remaining low, some further declines in interest rates may be possible as the
expected domestic slowdown is confirmed.
We note with great conviction that attempts to "time" the market often prove
counterproductive. Investors are strongly urged to focus on the long term.
Consistent disciplined investing is the proven method of achieving attractive
returns and meeting your financial objectives. We continue to support the
philosophy and look forward to serving your investment needs in the future.
Sincerely,
/s/ Mark L. Lipson
Mark L. Lipson
President
Jan. 30, 1998
<PAGE>
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
(Bullet) Performance figures are historical and reflect reinvestment of all
distributions and changes in net asset value. Unless otherwise
indicated, the Fund's performance is computed without a sales
charge. When sales charges are included, Fund performance reflects
the maximum sales charge for each class of shares.
(Bullet) Class T shares of each Fund are no longer available for purchase by
new investors and may be purchased only under limited circumstances
by existing Class T shareholders. Since June 5, 1995, each Fund
began offering three new classes of shares (Class A, B, and C),
each representing a unique pricing structure for purchasing shares
of the Funds. Performance information relating to each Class of
share of each Fund is contained in the performance graph for each
Fund.
(Bullet) Each Fund's investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less
than their original cost.
(Bullet) Each Fund's portfolio composition may change and there is no
assurance the Fund will continue to hold any particular securities.
(Bullet) Past performance is not indicative of future results.
ABOUT INDICES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
(Bullet) Standard & Poor's Corporation (S&P) is a credit-rating agency. The
unmanaged Standard & Poor's Composite Index of 500 Stocks is widely
regarded by investors as representative of the stock market in
general.
(Bullet) The CPI is an index of the prices paid by consumers for consumer
goods and services. The index is prepared by the Bureau of Labor
Statistics. The index is widely regarded by investors as the key
measure of inflation in the U.S. economy.
(Bullet) The unmanaged Russell 2000 Index is generally representative of the
performance of the stocks of small-capitalization companies.
(Bullet) Lehman Brothers, Inc. is the principal subsidiary of publicly-held
Lehman Brothers Holdings, Inc. It is engaged primarily in raising
and managing funds in capital markets worldwide. Lehman Brothers
indices measure the performance of fixed income securities over
various time periods and in various groupings. The indices are
unmanaged, but exclude small, illiquid and /or esoteric bonds from
the indices. We believe that about two-thirds of fixed income index
users rely on one or more of Lehman Brothers Fixed Income Indices.
(Bullet) An investment cannot be made in any indices listed. Unless
otherwise indicated, index results include reinvested dividends and
interest and do not reflect sales charges.
<PAGE>
NORTHSTAR GROWTH FUND
GEOFFREY WADSWORTH
THE MARKETS
(Bullet) The U.S. financial markets experienced another year of strong
gains. The Dow Industrials had a total return of 24.9%. the S&P 500
posted a 33.4% gain as relatively few large cap growth stocks such
as General Electric dominated the index. Smaller cap stocks in the
Russell 2000 were up 22.2%.
(Bullet) These favorable returns were driven by a combination of
surprisingly strong economic growth of 3.8% and even more
surprisingly, a reduced level of inflation, down towards 2%.
Despite growing global competition, strong productivity gains
allowed corporations to maintain high profit margins and produce
earnings increases of better than 10% for the S&P 500. After mid-
October the growing crisis in Asia had a dramatic impact causing a
flight to quality within both the bond and stock markets as the
U.S. dollar appreciated, and expectations for inflation and
economic growth fell. Investors anticipating problems with demand,
prices, defaults, and profit margins sold off many cyclical,
technology, commodity, and global financial stocks and bid up many
domestic or consistent growth stocks.
THE FUND
(Bullet) The Growth Fund A, B, C, T, and I shares had a total return of
23.59%, 22.84%, 22.73%, 22.94% and 24.29%, respectively, for the
year. This compares to the average growth fund in Lipper which was
up 25.3%. The average mid-cap growth fund was up less at 19.6%. The
Fund's relative performance had been much stonger up until
November. However, it was well positioned for the economic and
financial market environment preceding the Asian crisis, and not
the dramatic change in stock market leadership which quickly
resulted.
(Bullet) Large holdings which did well were domestic or consistent growth
stocks including Home Depot, Procter & Gamble, Capital One
Financial, Cendant (formerly CUC Intl), and Bristol-Myers. This was
offset by sharp corrections in November and December of globally
oriented financial, energy, and technology stocks such as Compaq,
Global Marine, Amp and Citibank.
(Bullet) Adjustments were made which increased holdings in domestic
financial companies (Nationwide Financial, Nationsbank, Conseco)
while some holdings in retailing (Federated, Pep Boys) and
semiconductors (Texas Instruments) were reduced. The risks
associated with the still unfolding situation in Asia have
certainly been increasing, however, business trends to date and
projected earnings remain strong for a number of holdings that are
sharply off their 1997 highs. These stocks are being retained as
the stock prices appear to more than discount the risks of reduced
estimates.
CURRENT STRATEGY
(Bullet) Asian problems are expected to reduce U.S. GDP growth closer to 2%
and hold inflation under 2%. This should result in lower but
positive investment returns in the U.S. Global developments will be
monitored closely and markets are likely to remain volatile, at
least until the crisis appears contained and a workout strategy is
in place.
(Bullet) The Fund remains invested in large and mid-cap good quality
industry or market niche leaders. New purchases have emphasized
domestic companies with strong earnings outlooks. Important sectors
which remain are technology, consumer services, financial, energy,
and health.
(Bullet) More facts will become available concerning the new global
environment as companies report recent operations. Research efforts
will focus on companies with strong fundamentals in beaten down
sectors where exaggerated conceptual fears may have made the stocks
true bargains.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $206,504,403
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Compaq Computer Corp. 4.6%
2 Cendant Corp. 4.2%
3 Global Marine, Inc. 3.4%
4 Merck & Co., Inc. 3.4%
5 Bristol-Myers Squibb Co. 3.1%
6 Capital One Financial Corp. 3.1%
7 Citicorp 3.1%
8 Schlumberger, Ltd. 3.1%
9 Home Depot, Inc. 3.0%
10 WorldCom, Inc. 3.0%
-------
34.0%
=======
TOP 5 INDUSTRIES
(by percentage of net assets)
Oil & Gas 6.4%
Computer 5.4%
Software/
Service
Consumer 5.4%
Products
Computer 4.6%
Consumer 4.2%
Service
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- ----------------------------------------
Inception 5 years 1 year
- ----------------------------------------
Class A 19.47% N/A 17.74 %
- ----------------------------------------
Class B 20.17% N/A 17.84 %
- ----------------------------------------
Class C 20.96% N/A 21.73 %
- ----------------------------------------
Class T 12.75% 13.32% 18.94 %
- ----------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- ----------------------------------------
Inception 5 years 1 year
- ----------------------------------------
Class A 66.17% N/A 23.59 %
- ----------------------------------------
Class B 63.66% N/A 22.84 %
- ----------------------------------------
Class C 63.38% N/A 22.73 %
- ----------------------------------------
Class T 317.76% 70.88% 22.94 %
- ----------------------------------------
Class I 24.29% N/A N/A
- ----------------------------------------
3
<PAGE>
NORTHSTAR GROWTH FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
GROWTH FUND AND COMPARATIVE INDICES FROM INCEPTION OF EACH CLASS OF
SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and
Exchange Commission, the following data is supplied for the fiscal year ended
December 31, 1997, with all distributions reinvested in shares. The average
annualized total return for Class A shares of 19.47% for the period since the
classes' inception on June 5, 1995 reflects payment of the maximum sales charge
of 4.75%. Average annualized total returns of 20.17% and 20.96% since inception
on June 5, 1995 for Class B and Class C shares, respectively, total returns
since inception on February 3, 1986 for Class T shares of 12.75%, and total
returns since inception on March 31, 1997 of 24.29% for Class I shares, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown represents
past performance, and should not be considered indicative of future performance.
[Graphs appear below with the following plot points:]
NORTHSTAR GROWTH FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 17.74%
SINCE INCEPTION 19.47%
"Class A" "S&P 500" "CPI"
(6/95 through 12/97)
9524.00 10000.00 10000.00
9864.00 10280.00 10010.00
10331.00 10606.90 10030.00
10320.00 10603.70 10040.00
10554.00 11094.70 10050.10
10310.00 11039.20 10080.20
10635.00 11492.90 10090.30
10623.00 11760.70 10110.50
10691.00 12144.10 10150.90
10739.00 12228.40 10171.20
10930.00 12325.00 10211.90
11327.00 12490.70 10252.80
11696.00 12776.10 10283.50
11676.00 12805.50 10293.80
10985.00 12219.00 10324.70
11361.00 12448.80 10335.00
12134.00 13123.50 10366.00
12168.00 13466.10 10397.10
13044.00 14454.30 10428.30
12805.00 14143.60 10460.00
13669.00 15010.60 10470.10
13376.00 15099.10 10501.50
12790.00 14455.90 10512.00
13183.00 15300.10 10522.50
14084.00 16196.70 10533.00
14612.00 16901.30 10543.60
16113.00 18221.30 10564.70
15634.00 17173.50 10585.80
16763.00 18087.20 10607.00
15934.00 17463.20 10628.20
15799.00 18242.00 10638.80
15825.00 18528.40 10649.40
NORTHSTAR GROWTH FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 17.84%
SINCE INCEPTION 20.17%
Class B S&P 500 CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
10350.00 10280.00 10010.00
10840.00 10606.90 10030.00
10823.00 10603.70 10040.00
11056.00 11094.70 10050.10
10799.00 11039.20 10080.20
11136.00 11492.90 10090.30
11127.00 11760.70 10110.50
11191.00 12144.10 10150.90
11241.00 12228.40 10171.20
11435.00 12325.00 10211.90
11844.00 12490.70 10252.80
12225.00 12776.10 10283.50
12189.00 12805.50 10293.80
11464.00 12219.00 10324.70
11852.00 12448.80 10335.00
12648.00 13123.50 10366.00
12634.00 13466.10 10397.10
13582.00 14454.30 10428.30
13323.00 14143.60 10460.00
14216.00 15010.60 10470.10
13901.00 15099.10 10501.50
13278.00 14455.90 10512.00
13683.00 15300.10 10522.50
14606.00 16196.70 10533.00
15154.00 16901.30 10543.60
16699.00 18221.30 10564.70
16204.00 17173.50 10585.80
17367.00 18087.20 10607.00
16504.00 17463.20 10628.20
16354.00 18242.00 10638.80
16367.00 18528.40 10649.40
NORTHSTAR GROWTH FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 21.73%
SINCE INCEPTION 20.96%
"Class C" "S&P 500" "CPI"
(6/95 through 12/97)
10000.00 10000.00 10000.00
10353.00 10280.00 10010.00
10837.00 10606.90 10030.00
10820.00 10603.70 10040.00
10987.00 11094.70 10050.10
10799.00 11039.20 10080.20
11136.00 11492.90 10090.30
11117.00 11760.70 10110.50
11182.00 12144.10 10150.90
11232.00 12228.40 10171.20
11426.00 12325.00 10211.90
11827.00 12490.70 10252.80
12215.00 12776.10 10283.50
12179.00 12805.50 10293.80
11454.00 12219.00 10324.70
11834.00 12448.80 10335.00
12638.00 13123.50 10366.00
12616.00 13466.10 10397.10
13570.00 14454.30 10428.30
13312.00 14143.60 10460.00
14196.00 15010.60 10470.10
13882.00 15099.10 10501.50
13260.00 14455.90 10512.00
13672.00 15300.10 10522.50
14586.00 16196.70 10533.00
15133.00 16901.30 10543.60
16677.00 18221.30 10564.70
16175.00 17173.50 10585.80
17337.00 18087.20 10607.00
16468.00 17463.20 10628.20
16318.00 18242.00 10638.80
16338.00 18528.40 10649.40
NORTHSTAR GROWTH FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 18.94%
5-YEAR 13.32%
SINCE INCEPTION 12.75%
Class T S&P 500 CPI
(1/86 through 12/97)
11110.00 11922.00 9950.00
10895.00 11713.00 10090.00
13345.00 14918.00 10355.00
10904.00 12320.00 10564.00
12052.00 13883.00 10777.00
12725.00 14351.00 11005.00
14343.00 16721.00 11294.00
15813.00 18885.00 11499.00
16270.00 19462.00 11825.00
14984.00 18297.00 12220.00
17339.00 20899.00 12380.00
20692.00 23849.00 12592.00
19952.00 23693.00 12769.00
22357.00 25664.00 12962.00
22885.00 26907.00 13144.00
24671.00 28238.00 13316.00
22524.00 27291.00 13476.00
22782.00 28622.00 13652.00
26385.00 34386.00 13872.00
28343.00 39338.00 14012.00
31061.00 42833.00 14266.00
33981.00 47309.00 14495.00
38672.00 56533.00 14612.00
41775.00 61976.00 14758.00
NORTHSTAR GROWTH FUND -- CLASS I
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION 24.29%
Class I S&P 500 CPI
10000.00 10000.00 10000.00
3/31/97 10313.00 10584.00 10010.00
11017.40 11204.20 10020.00
6/30/97 11441.50 11691.60 10030.00
12620.00 12604.70 10050.10
8/31/97 12256.60 11880.00 10070.20
13145.20 12512.00 10090.30
10/31/97 12502.40 12080.30 10110.50
12402.40 12619.10 10120.60
12/31/97 12428.40 12817.20 10130.70
4
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 99.69%
AEROSPACE & DEFENSE -- 1.66%
Boeing Co. 70,000 $ 3,425,625
------------
ALUMINUM -- 2.00%
Alumax, Inc. @ 35,000 1,190,000
Aluminum Co. 35,000 2,463,125
Century Aluminum Co. 35,000 472,500
------------
4,125,625
------------
AUTO PARTS & EQUIPMENT -- 2.45%
Magna International, Inc. @@ 80,500 5,056,406
------------
BANKING -- 3.94%
Citicorp 49,800 6,296,588
City National Corp. 50,000 1,846,875
------------
8,143,463
------------
BIOTECHNOLOGY -- 1.21%
Genzyme Corp. @ 90,000 2,497,500
------------
CAPITAL GOODS -- 2.16%
Corning, Inc. 120,000 4,455,000
------------
COMPUTERS -- 4.61%
Compaq Computer Corp. 168,500 9,509,719
------------
COMPUTER NETWORKING -- 2.83%
Cisco Systems, Inc. @ 105,000 5,853,750
------------
COMPUTER SOFTWARE/SERVICES -- 5.40%
Ceridian Corp. @ 114,200 5,231,787
Microsoft Corp. @ 10,000 1,292,500
Parametric Technology Corp. 60,000 2,842,500
Synopsys, Inc. @ 50,000 1,787,500
------------
11,154,287
------------
CONSUMER PRODUCTS -- 5.43%
Kimberly-Clark Corp. 89,632 4,419,978
Philip Morris Cos., Inc. 97,000 4,395,312
Procter & Gamble Co. 30,000 2,394,375
------------
11,209,665
------------
CONSUMER SERVICES -- 4.16%
Cendant Corp. @ 249,961 8,592,416
------------
ELECTRICAL EQUIPMENT -- 2.57%
AMP, Inc. 126,400 5,308,800
------------
FINANCE & BANKING -- 3.81%
Mellon Bank Corp. 62,600 3,795,125
NationsBank Corp. 67,000 4,074,438
------------
7,869,563
------------
FINANCIAL SERVICES -- 5.90%
Associates First Capital Corp. 35,000 2,489,375
Capital One Financial Corp. 117,000 6,339,937
Fannie Mae 58,800 3,355,275
------------
12,184,587
------------
</TABLE>
5
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE -- 1.20%
Healthsouth Corp. @ 89,200 $ 2,475,300
------------
INSURANCE -- 2.84%
Conseco, Inc. 98,000 4,452,875
Nationwide Financial Services, Inc. 39,200 1,416,100
------------
5,868,975
------------
LODGING -- 2.79%
La Quinta Inns, Inc. 190,000 3,669,375
Promus Hotel Corp. @ 50,000 2,100,000
------------
5,769,375
------------
MACHINERY -- 2.73%
Deere & Co. 96,600 5,632,988
------------
OFFICE EQUIPMENT/SUPPLIES -- 2.13%
Xerox Corp. 59,700 4,406,606
------------
OIL & GAS -- 3.75%
El Paso Natural Gas Co. 64,300 4,275,950
Enron Oil & Gas Co. 68,900 1,459,819
Sonat, Inc. 44,100 2,017,575
------------
7,753,344
------------
OIL & GAS DRILLING -- 6.93%
Baker Hughes, Inc. 113,500 4,951,437
Global Marine, Inc. @ 284,000 6,958,000
Parker Drilling Co. @ 197,300 2,404,594
------------
14,314,031
------------
PETROLEUM SERVICES -- 3.95%
Schlumberger, Ltd. 78,200 6,295,100
Seitel, Inc. @ 80,000 1,370,000
Stolt Comex Seaway S.A. @ 10,000 500,000
------------
8,165,100
------------
PHARMACEUTICAL -- 6.47%
Bristol-Myers Squibb Co. 67,000 6,339,875
Merck & Co., Inc. 66,000 7,012,500
------------
13,352,375
------------
PRINTING & PUBLISHING -- 1.73%
Meredith Corp. 100,000 3,568,750
------------
</TABLE>
6
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
RETAILING -- 5.82%
AutoZone, Inc. @ 138,000 $ 4,002,000
Home Depot, Inc. 105,000 6,181,875
Office Max, Inc. @ 128,600 1,832,550
-------------
12,016,425
-------------
SEMICONDUCTOR -- 4.17%
Intel Corp. 31,600 2,219,900
Millipore Corp. 69,100 2,345,081
National Semiconductor Corp. @ 71,000 1,841,563
Texas Instruments, Inc. 49,000 2,205,000
-------------
8,611,544
-------------
SPECIALTY STORES -- 2.11%
General Nutrition Cos., Inc. @ 128,000 4,352,000
-------------
TELECOMMUNICATIONS -- 4.23%
Paging Network, Inc. @ 250,000 2,687,500
WorldCom, Inc. @ 200,000 6,050,000
-------------
8,737,500
-------------
TRANSPORTATION -- 0.71%
Swift Transportation Co., Inc. @ 45,000 1,456,875
-------------
TOTAL COMMON STOCKS
(cost $156,404,171) 205,867,594
-------------
TOTAL INVESTMENT SECURITIES -- 99.69%
(cost $156,404,171) 205,867,594
REPURCHASE AGREEMENT -- 0.45%
Agreement with State Street Bank and Trust bearing
interest at 5.75% dated 12/31/97, to be repurchased
1/02/98 in the amount of $936,299 and collateralized by
$935,000 U.S. Treasury Bonds, 5.875% due 1/31/99, value
$959,446
(cost $936,000) $ 936,000 936,000
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.14%) (299,191)
-------------
NET ASSETS -- 100.00% $ 206,504,403
-------------
-------------
</TABLE>
@ Non-income producing security.
@@ Foreign security.
See accompanying notes to financial statements.
7
<PAGE>
NORTHSTAR SPECIAL FUND
LOUIS NAVELLIER
THE MARKETS
(Bullet) In 1997, the Russell 2000 was up 22.2%, the S&P 500 rose 33.4%, and
the NASDAQ Composite was up 28.08%.
(Bullet) It was a strong year for large capitalization stocks as evidenced
by a return of 33.4% for the S&P 500 After flirting with small
capitalization stocks in the second and third quarters, the market
once again became a large capitalization dominated and value
oriented market, continuing a trend that has developed over the
last 24 months. A few sobering facts from the fourth quarter
include, a flat Dow Jones, and a 2.5% gain for the S&P 500 compared
to a -6.8% return for the NASDAQ and a -3.3% return for the Russell
2000. The growth vs. value comparison is even more telling as the
Russell 2000 Growth Index lost -8.2% for the fourth quarter while
the Russell 2000 Value Index gained 1.7%. Technology stocks
suffered through an extremely volatile year, with strong second and
third quarters sandwiched between dismal first and fourth quarters.
In December, a few technology stocks disappointed Wall Street with
poor quarterly earnings, so the analyst community immediately
blamed the Southeast Asian crisis as the primary reason that they
had grossly overestimated the latest quarterly earnings. As a
result, the analyst community started to slash their 1998 earnings
estimates on many leading technology stocks. Then another bomb fell
in December when 3M announced that its earnings would be hindered
by the Southeast Asian crisis. All of a sudden, the Southeast Asian
crisis was encompassing more than just technology stocks, so the
entire U.S. stock market sold off because the analyst community
rushed to aggressively cut earnings estimates on many leading
companies. This year the strongest performing stocks were found in
the financial sectors as they continued to benefit from an
excellent interest rate environment.
THE FUND
(Bullet) In 1997, the Northstar Special Fund had total returns of 14.92% for
Class A, 14.10% for Class B, 14.06% for Class C and 14.29% for
Class T, compared to the Lipper Small Company Fund Index which was
up 15.05%.
(Bullet) The top performing stocks in the Fund for this period included:
Mail Well Inc., Southdown Inc., First America Bank Co., Keane Inc.
and Family Dollar Stores. Amongst the underperformers were: Paxar
Corp., Manitowoc Co., Cellstar Corp., Unitrode Corp. and Welsford
Residential.
CURRENT STRATEGY
(Bullet) What the stock market needs is for leading stocks, such as IBM or
Microsoft, to release great fourth quarter earnings to inspire a
little confidence in the overall stock market. Unfortunately, the
year-to-year earnings comparisons make it hard for many stocks,
such as Intel, to report fourth quarter earnings that are higher
than they were one year earlier. Intel's latest quarterly earnings
are estimated to fall compared to the same quarter one year
earlier. Fortunately, most of our stocks have been largely removed
from the recent earnings estimate cuts by the analyst community.
One factor that will eventually cause the stock market to rally is
that the Federal Reserve Board will likely cut key interest rates
at its next Federal Open Market Committee (FOMC) meeting.
Economists now fear that deflation may temporarily appear on the
consumer level, which is one of the main reasons that the Federal
Reserve Board will likely cut key short-term interest rates. The
strong U.S. dollar is now one of the primary reasons that deflation
is rampant. Our models continue to focus on earnings surprise
earnings momentum screens. The Special Fund currently has a 13%
large cap allocation, 41% mid cap allocation and 43% small cap
allocation.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $331,935,606
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Mail-Well, Inc. 2.5%
2 Southdown, Inc. 2.5%
3 Aliant Communications, Inc. 2.4%
4 Keane, Inc. 2.4%
5 Family Dollar Stores, Inc. 2.3%
6 First of America Bank Corp. 2.3%
7 Costco Cos., Inc. 2.2%
8 Suiza Foods Corp. 2.2%
9 CMAC Investment Corp. 2.1%
10 Commerce Bancshares, Inc. 2.1%
------
23.0%
======
TOP 5 INDUSTRIES
(by percentage of net assets)
Banks 15.4 %
Food & Beverage 7.9 %
Retail 6.7 %
Insurance 5.7 %
Telecommunications 4.2 %
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- -----------------------------------------
Inception 5 years 1 year
- -----------------------------------------
Class A 15.52% N/A 9.48%
- -----------------------------------------
Class B 16.02% N/A 9.10%
- -----------------------------------------
Class C 16.92% N/A 13.06%
- -----------------------------------------
Class T 10.47% 11.31% 10.29%
- -----------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- -----------------------------------------
Inception 5 years 1 year
- -----------------------------------------
Class A 52.37% N/A 14.92%
- -----------------------------------------
Class B 49.71% N/A 14.10%
- -----------------------------------------
Class C 49.66% N/A 14.06%
- -----------------------------------------
Class T 227.52% 70.88% 14.29%
- -----------------------------------------
8
<PAGE>
NORTHSTAR SPECIAL FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
SPECIAL FUND AND COMPARATIVE INDICES FROM INCEPTION OF EACH CLASS OF
SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and
Exchange Commission, the following data is supplied for the fiscal year ended
December 31, 1997, with all distributions reinvested in shares. The average
annualized total return for Class A shares of 15.52% for the period since the
classes' inception on June 5, 1995 reflects payment of the maximum sales charge
of 4.75%. Average annualized total returns of 16.02% and 16.92% since inception
on June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on February 3, 1986 for Class T shares of 10.47%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown represents
past performance, and should not be considered indicative of future performance.
[Graphs appear below with the following plot points:]
NORTHSTAR SPECIAL FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 9.48%
SINCE INCEPTION 15.52%
Lehman
Class A Int Gov't CPI
(6/95 through 12/97)
9523.00 10000.00 10000.00
10229.00 10519.00 10010.00
10706.00 11125.00 10030.00
10862.00 11355.00 10040.00
10886.00 11558.00 10050.10
10428.00 11041.00 10080.20
10716.00 11505.00 10090.30
10685.00 11808.00 10110.50
10527.00 11881.00 10150.90
10894.00 12163.00 10171.20
11293.00 12414.00 10211.90
12467.00 13074.00 10252.80
13331.00 13589.00 10283.50
12646.00 13031.00 10293.80
11574.00 11893.00 10324.70
12023.00 12584.00 10335.00
12840.00 13076.00 10366.00
12340.00 12874.00 10397.10
12651.00 13404.00 10428.30
12626.00 13756.00 10460.00
12973.00 14031.00 10470.10
12621.00 13690.00 10501.50
12278.00 13044.00 10512.00
12294.00 13081.00 10522.50
13060.00 14536.00 10533.00
13647.00 15159.00 10543.60
14699.00 15864.00 10564.70
14240.00 16227.00 10585.80
15042.00 17415.00 10607.00
14449.00 16650.00 10628.20
14301.00 16542.00 10638.80
14510.00 16832.00 10649.40
NORTHSTAR SPECIAL FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 9.10%
SINCE INCEPTION 16.02%
Lehman
Class B Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
10746.00 10519.00 10010.00
11232.00 11125.00 10030.00
11385.00 11355.00 10040.00
11411.00 11558.00 10050.10
10920.00 11041.00 10080.20
11212.00 11505.00 10090.30
11179.00 11808.00 10110.50
11002.00 11881.00 10150.90
11383.00 12163.00 10171.20
11802.00 12414.00 10211.90
13019.00 13074.00 10252.80
13915.00 13589.00 10283.50
13196.00 13031.00 10293.80
12064.00 11893.00 10324.70
12526.00 12584.00 10335.00
13368.00 13076.00 10366.00
12842.00 12874.00 10397.10
13159.00 13404.00 10428.30
13121.00 13756.00 10460.00
13475.00 14031.00 10470.10
13105.00 13690.00 10501.50
12740.00 13044.00 10512.00
12751.00 13081.00 10522.50
13534.00 14536.00 10533.00
14135.00 15159.00 10543.60
15219.00 15864.00 10564.70
14730.00 16227.00 10585.80
15551.00 17415.00 10607.00
14929.00 16650.00 10628.20
14768.00 16542.00 10638.80
14971.00 16832.00 10649.40
NORTHSTAR SPECIAL FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 13.06%
SINCE INCEPTION 16.92%
Lehman
Class C Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
10741.00 10519.00 10010.00
11232.00 11125.00 10030.00
11385.00 11355.00 10040.00
11406.00 11558.00 10050.10
10920.00 11041.00 10080.20
11217.00 11505.00 10090.30
11179.00 11808.00 10110.50
11002.00 11881.00 10150.90
11383.00 12163.00 10171.20
11802.00 12414.00 10211.90
13025.00 13074.00 10252.80
13915.00 13589.00 10283.50
13191.00 13031.00 10293.80
12070.00 11893.00 10324.70
12526.00 12584.00 10335.00
13368.00 13076.00 10366.00
12842.00 12874.00 10397.10
13159.00 13404.00 10428.30
13121.00 13756.00 10460.00
13470.00 14031.00 10470.10
13100.00 13690.00 10501.50
12740.00 13044.00 10512.00
12746.00 13081.00 10522.50
13534.00 14536.00 10533.00
14130.00 15159.00 10543.60
15213.00 15864.00 10564.70
14725.00 16227.00 10585.80
15546.00 17415.00 10607.00
14924.00 16650.00 10628.20
14768.00 16542.00 10638.80
14966.00 16832.00 10649.40
NORTHSTAR SPECIAL FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 10.29%
5-YEAR 11.31%
SINCE INCEPTION 10.47%
Lehman
Class T Int Gov't CPI
(1/86 through 12/97)
10000.00 10000.00 10000.00
10119.00 11783.00 9950.00
8920.00 10403.00 10090.00
9850.00 12830.00 10355.00
7899.00 9488.00 10564.00
9599.00 12047.00 10777.00
9550.00 11861.00 11005.00
11050.00 13590.00 11294.00
11670.00 13790.00 11499.00
13099.00 13920.00 11825.00
10639.00 11105.00 12220.00
12970.00 14178.00 12380.00
16733.00 16217.00 12592.00
15490.00 16239.00 12769.00
19167.00 19203.00 12962.00
20026.00 20463.00 13144.00
23031.00 22828.00 13316.00
20881.00 21351.00 13476.00
21910.00 22412.00 13652.00
23439.00 25645.00 12872.00
24396.00 28789.00 14012.00
28797.00 31771.00 14266.00
28656.00 33537.00 14495.00
30904.00 36958.00 14612.00
32752.00 41037.00 14758.00
9
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 96.89%
ADVANCED MEDICAL DEVICES -- 1.25%
Guidant Corp. 66,800 $ 4,158,300
------------
ADVERTISING/MARKETING -- 0.91%
Advo, Inc. @ 154,400 3,010,800
------------
AIR FREIGHT/COURIERS -- 2.29%
Airborne Freight Corp. 58,900 3,659,163
Expeditors International of Washington, Inc. 102,100 3,930,850
------------
7,590,013
------------
AIRLINES -- 1.62%
Alaska Air Group, Inc. @ 139,300 5,397,875
------------
APPAREL/FABRIC -- 0.89%
Kellwood Co. 98,100 2,943,000
------------
AUTO PARTS & EQUIPMENT -- 2.55%
Federal-Mogul Corp. 118,300 4,791,150
Hayes Lemmerz International, Inc. @ 131,000 3,668,000
------------
8,459,150
------------
BANKS -- 15.41%
Amsouth Bancorp. 119,500 6,490,344
Associated Banc-Corp. 82,084 4,524,880
Commerce Bancshares, Inc. 100,973 6,840,921
Dime Bancorp, Inc. 168,000 5,082,000
Fifth Third Bancorp. 59,800 4,888,650
First of America Bank Corp. 100,500 7,751,062
Northern Trust Corp. 49,400 3,445,650
ONBANCorp, Inc. 89,000 6,274,500
Zions Bancorp. 128,800 5,844,300
------------
51,142,307
------------
BUILDING MATERIALS -- 3.80%
Centex Construction Products, Inc. 145,700 4,389,212
Southdown, Inc. 139,700 8,242,300
------------
12,631,512
------------
CATALOGUE/SPECIALTY DISTRIBUTION -- 1.55%
Fingerhut Cos., Inc. 241,100 5,153,513
------------
COMPUTER SOFTWARE/SERVICES -- 5.18%
Keane, Inc. @ 193,800 7,873,125
Microsoft Corp. @ 41,000 5,299,250
Sanctuary Woods Multimedia Corp. @ 3,500 140
Tandy Corp. 104,000 4,010,500
------------
17,183,015
------------
CONSTRUCTION/EQUIPMENT/TRUCKS -- 1.02%
Wabash National Corp. 118,800 3,378,375
------------
CONSTRUCTION MATERIALS -- 1.07%
PACCAR, Inc. 67,900 3,564,750
------------
</TABLE>
10
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONTAINERS AND PACKAGING -- 3.14%
Ball Corp. 108,200 $ 3,820,812
Owens-Illinois, Inc. @ 174,100 6,604,919
------------
10,425,731
------------
DIVERSIFIED COMMERICAL SERVICES -- 0.09%
Nhancement Technologies, Inc. 125,000 308,594
------------
EDP PERIPHERALS -- 1.56%
MTI Technology Corp. @ 391,100 5,182,075
------------
EDP SERVICES -- 1.19%
Systems & Computer Technology Corp. @ 79,800 3,960,075
------------
ELECTRONICS -- 1.89%
Cellstar Corp. @ 150,000 2,981,250
Smart Modular Technologies, Inc. @ 142,600 3,279,800
------------
6,261,050
------------
ENVIRONMENTAL CONTROL -- 3.47%
Catalytica, Inc. @ 292,500 3,473,437
Eastern Environmental Services, Inc. @ 182,200 4,008,400
Newpark Resources, Inc. @ 231,200 4,046,000
------------
11,527,837
------------
FINANCIAL SERVICES -- 1.04%
20th Century Industries 133,100 3,460,600
------------
FOOD & BEVERAGE -- 7.92%
Canandaigua Brands, Inc. @ 90,500 5,011,438
ConAgra, Inc. 174,200 5,715,937
Dean Foods Co. 102,100 6,074,950
Smithfield Foods, Inc. @ 66,400 2,191,200
Suiza Foods Corp. @ 122,300 7,284,494
------------
26,278,019
------------
HEALTHCARE/PHARMACEUTICAL -- 1.76%
ICN Pharmaceuticals, Inc. 119,600 5,837,975
------------
HOME FURNISHINGS -- 1.52%
Ethan Allen Interiors, Inc. 131,300 5,063,256
------------
HOSPITAL /NURSING MANAGEMENT -- 0.48%
Universal Health Services, Inc. @ 31,500 1,586,813
------------
HOTELS/RESORTS -- 0.64%
Carnival Corp. 38,300 2,120,863
------------
INSURANCE -- 5.67%
CMAC Investment Corp. 117,200 7,075,950
Exel Ltd. 88,300 5,596,012
Mercury General Corp. 88,900 4,911,725
Mutual Risk Management Ltd. 41,800 1,251,388
------------
18,835,075
------------
MEDICAL/NURSING SERVICES -- 1.00%
Lincare Holdings, Inc. @ 58,300 3,323,100
------------
MULTI-SECTOR COMPANIES -- 0.99%
McDermott International, Inc. 89,800 3,288,925
------------
</TABLE>
11
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
OFFICE EQUIPMENT/SUPPLIES -- 2.00%
Herman Miller, Inc. 121,600 $ 6,634,800
------------
OIL & GAS EXPLORATION -- 1.47%
Camco International, Inc. 76,600 4,878,463
------------
PAPER -- 1.40%
Buckeye Technologies, Inc. @ 100,500 4,648,125
------------
PRINTING -- 2.51%
Mail-Well, Inc. @ 205,500 8,322,750
------------
PUBLISHING -- 1.63%
Houghton Mifflin Co. 140,800 5,403,200
------------
REAL ESTATE INVESTMENT TRUST -- 1.60%
Mack California Realty Corp. 129,300 5,301,300
------------
RETAIL -- 6.71%
Costco Cos., Inc. @ 169,800 7,577,325
Family Dollar Stores, Inc. 264,000 7,738,500
Funco, Inc. @ 245,300 3,648,837
The Gap, Inc. 93,300 3,306,319
------------
22,270,981
------------
SAVINGS & LOAN -- 1.52%
Great Financial Corp. 98,800 5,038,800
------------
SEMICONDUCTOR -- 1.37%
Dallas Semiconductor Corp. 111,900 4,559,925
------------
SUPERMARKETS -- 0.93%
Dominick's Supermarkets, Inc. @ 84,400 3,080,600
------------
TELECOMMUNICATIONS -- 4.21%
Aliant Communications, Inc. 256,300 8,041,412
Portugal Telecom SA ** 126,000 5,922,000
------------
13,963,412
------------
WHOLESALE DISTRIBUTORS -- 1.64%
VWR Scientific Products Corp. @ 193,100 5,455,075
------------
TOTAL COMMON STOCKS
(cost $274,426,665) 321,630,029
------------
TOTAL INVESTMENT SECURITIES -- 96.89%
(cost $274,426,665) 321,630,029
REPURCHASE AGREEMENT -- 5.56%
Agreement with State Street Bank and Trust bearing
interest at 5.75%
dated 12/31/97 to be repurchased 1/02/98 in the amount of
$18,452,893 and collateralized by $18,800,000 U.S.
Treasury Bonds,
5.75% due 12/31/98, value $18,817,634
(cost $18,447,000) $18,447,000 18,447,000
LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.45%) (8,141,423)
------------
NET ASSETS -- 100.00% $331,935,606
------------
------------
</TABLE>
@ Non-income producing security.
** American Depositary Receipts.
See accompanying notes to financial statements.
12
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
THOMAS OLE DIAL
THE MARKETS
(Bullet) U.S. economic growth slowed from an annual rate of 4.3% in the 4th
quarter of 1996 to an estimated rate of 3.2% in the 4th quarter of
1997. Despite that still unexpectedly high growth, consumer prices
rose only 1.7% in 1997, the smallest increase in 11 years. Low
inflation, a very strong U.S. dollar and foreign turmoil caused our
domestic interest rates to fall. In 1997, yields of 10-year and
30-year Treasury bonds traded in a moderately wide 130 basis points
(bps) range. By December 31, 1997, those yields were down
approximately 70 bps to 5.74% and 5.92%, respectively. Lower
interest rates and strong economic growth combined to propel both
stock and bond prices significantly higher.
(Bullet) The Russell 2000 rose a hefty 22.2% in 1997, the Dow Jones
Industrials rose an even better 24.9%, while the S&P 500 topped
them both, rising 33.4%. Record-high small cap stock prices helped
increase the credit quality and prices of high yield bonds. High
yield bond returns in 1997 were 12.76%, compared to 9.65% for all
domestic bonds, primarily due to strong demand for high coupons,
rising underlying stock valuations and declining credit concerns.
Among high yield bonds, in general, the lower-rated bonds
outperformed the higher-rated bonds (except in the 4th quarter).
(Bullet) Despite recent economic and financial weakness in some foreign
countries, total returns on bonds from smaller foreign markets
still rose 13.18% in 1997. Those returns were based mainly on
overall better political and economic fundamentals in many foreign
countries and a continuing worldwide hunt for yield by investors.
However, increasing economic and financial problems in Asia in the
4th quarter of 1997 caused investors worldwide to reassess the
values of their investments, which interrupted the earlier strong
rise in prices of stocks and bonds here and abroad.
THE FUND
(Bullet) In 1997, the total return of the Fund's Class A shares was 24.31%,
23.48% for Class B, 23.41% for Class C, and 23.91% for Class T; the
Lipper average for equity income funds was 27.5% and for balanced
funds was 19%. Despite this very strong performance, the Fund's net
assets fell almost 8% in 1997, to $60MM from $64MM.
(Bullet) The Fund's performance in 1997 gathered momentum all year until the
4th quarter, when it still performed very well compared to similar
funds. Many of our equity holdings increased their gains even as
the torrid pace of general stock price appreciation cooled. The
Fund's bond positions benefited from the general decline in bond
yields, from its aggressive high yield bond holdings and from
strength in its main investment sectors (telecommunications,
broadcasting and cable).
(Bullet) Continued strength in the stock market caused us to overshoot the
previously targeted 50% allocation to common stocks and convertible
securities. Since equities outperformed fixed income investments,
that overshoot helped the Fund.
CURRENT STRATEGY
(Bullet) Invest in securities of strong small- and mid-cap companies that
can provide income and capital appreciation. Due to the greater
volatility and risk caused by the "Asian Contagion", for the first
quarter of 1998, change the target mix to 40% common stock and
convertible securities and 60% bonds and cash.
(Bullet) Emphasize "bottoms-up" security analysis rather than macroeconomic
analysis in selecting securities. Continue to search the entire
capital structure for opportunities that provide the best
risk-adjusted returns.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $60,206,800
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Intacel Corp. 2.8%
2 Intermedia Communications, Inc. 2.8
3 Iridium Capital Corp. 2.6
4 Star Choice Communications, Inc. 2.6
5 Paxson Communications Corp. 2.4
6 AES Corp. 2.3
7 Chancellor Media Corp. 2.3
8 American Radio Sysems Corp. 2.2
9 Comcast Corp. 2.1
10 Timer Warner, Inc. 2.1
------
24.2%
======
TOP 5 INDUSTRIES
(by percentage of net assets)
Telecommunications 22.2%
Broadcasting 11.8%
Cable 10.6%
Oil & Gas 6.9%
Healthcare 6.0%
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- -----------------------------------------
Inception 5 years 1 year
- -----------------------------------------
Class A 15.98% N/A 18.38%
- -----------------------------------------
Class B 16.51% N/A 18.48%
- -----------------------------------------
Class C 17.34% N/A 22.41%
- -----------------------------------------
Class T 10.84% 13.03% 19.91%
- -----------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- -----------------------------------------
Inception 5 years 1 year
- -----------------------------------------
Class A 53.96% N/A 24.31%
- -----------------------------------------
Class B 51.31% N/A 23.48%
- -----------------------------------------
Class C 51.08% N/A 23.41%
- -----------------------------------------
Class T 240.58% 84.47% 23.91%
- -----------------------------------------
13
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
BALANCE SHEET OPPORTUNITIES FUND AND COMPARATIVE INDICES FROM
INCEPTION OF EACH CLASS OF SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1997, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 15.98% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of 4.75%.
Average annualized total returns of 16.51% and 17.34% since inception on June 5,
1995 for Class B and Class C shares, respectively, and total returns since
inception on February 3, 1986 for Class T shares of 10.84%, reflect applicable
contingent deferred sales charges (maximum contingent deferred sales charge for
Class B shares of 5.00% declines to 0% and Class T shares of 4.00% declines to
0% after five years; and maximum charge for Class C shares is 1.00% during the
first year of investment only). All performance data shown represents past
performance, and should not be considered indicative of future performance.
[Graphs appear below with the following plot points:]
NORTHSTAR BALANCED SHEET OPPORTUNITIES FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 18.38%
SINCE INCEPTION 15.98%
Lehman
Class A S&P 500 Int Gov't CPI
(6/95 through 12/97)
9522.00 10000.00 10000.00 10000.00
9472.00 10280.00 10010.00 10067.00
9767.00 10606.90 10030.00 10068.00
9917.00 10603.70 10040.00 10159.60
10100.00 11094.70 10050.10 10232.80
9993.00 11039.20 10080.20 10346.40
10458.00 11492.90 10090.30 10481.90
10669.00 11760.70 10110.50 10592.00
10830.00 12144.10 10150.90 10683.00
10864.00 12228.40 10171.20 10558.10
11016.00 12325.00 10211.90 10504.20
11119.00 12490.70 10252.80 10467.40
11239.00 12776.10 10283.50 10459.10
11199.00 12805.50 10293.80 10569.90
10678.00 12219.00 10324.70 10601.60
11104.00 12448.80 10335.00 10610.10
11421.00 13123.50 10366.00 10757.60
11412.00 13466.10 10397.10 10948.00
11834.00 14454.30 10428.30 11092.50
11793.00 14143.60 10460.00 11021.50
11973.00 15010.60 10470.10 11063.40
12044.00 15099.10 10501.50 11081.10
11578.00 14455.90 10512.00 11018.00
11710.00 15300.10 10522.50 11142.50
12600.00 16196.70 10533.00 11229.40
13027.00 16901.30 10543.60 11325.90
13609.00 18221.30 10564.70 11534.30
13538.00 17173.50 10585.80 11490.50
14339.00 18087.20 10607.00 11615.80
14112.00 17463.20 10628.20 11751.70
14257.00 18242.00 10638.80 11777.50
14660.00 18528.40 10649.40 11872.90
NORTHSTAR BALANCED SHEET OPPORTUNITIES FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 18.48%
SINCE INCEPTION 16.51%
Lehman
Class B S&P 500 Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00 10000.00
9946.00 10280.00 10010.00 10067.00
10239.00 10606.90 10030.00 10068.00
10397.00 10603.70 10040.00 10159.60
10584.00 11094.70 10050.10 10232.80
10464.00 11039.20 10080.20 10346.40
10952.00 11492.90 10090.30 10481.90
11165.00 11760.70 10110.50 10592.00
11326.00 12144.10 10150.90 10683.00
11352.00 12228.40 10171.20 10558.10
11507.00 12325.00 10211.90 10504.20
11615.00 12490.70 10252.80 10467.40
11732.00 12776.10 10283.50 10459.10
11683.00 12805.50 10293.80 10569.90
11138.00 12219.00 10324.70 10601.60
11574.00 12448.80 10335.00 10610.10
11887.00 13123.50 10366.00 10757.60
11877.00 13466.10 10397.10 10948.00
12308.00 14454.30 10428.30 11092.50
12255.00 14143.60 10460.00 11021.50
12432.00 15010.60 10470.10 11063.40
12505.00 15099.10 10501.50 11081.10
12013.00 14455.90 10512.00 11018.00
12140.00 15300.10 10522.50 11142.50
13056.00 16196.70 10533.00 11229.40
13490.00 16901.30 10543.60 11325.90
14095.00 18221.30 10564.70 11534.30
14010.00 17173.50 10585.80 11490.50
14821.00 18087.20 10607.00 11615.80
14585.00 17463.20 10628.20 11751.70
14724.00 18242.00 10638.80 11777.50
15132.00 18528.40 10649.40 11872.90
NORTHSTAR BALANCED SHEET OPPORTUNITIES FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 22.41%
SINCE INCEPTION 17.34%
Lehman
Class C S&P 500 Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00 10000.00
9943.00 10280.00 10010.00 10067.00
10243.00 10606.90 10030.00 10068.00
10402.00 10603.70 10040.00 10159.60
10581.00 11094.70 10050.10 10232.80
10461.00 11039.20 10080.20 10346.40
10949.00 11492.90 10090.30 10481.90
11158.00 11760.70 10110.50 10592.00
11319.00 12144.10 10150.90 10683.00
11354.00 12228.40 10171.20 10558.10
11504.00 12325.00 10211.90 10504.20
11603.00 12490.70 10252.80 10467.40
11720.00 12776.10 10283.50 10459.10
11673.00 12805.50 10293.80 10569.90
11120.00 12219.00 10324.70 10601.60
11555.00 12448.80 10335.00 10610.10
11872.00 13123.50 10366.00 10757.60
11872.00 13466.10 10397.10 10948.00
12293.00 14454.30 10428.30 11092.50
12242.00 14143.60 10460.00 11021.50
12420.00 15010.60 10470.10 11063.40
12493.00 15099.10 10501.50 11081.10
12007.00 14455.90 10512.00 11018.00
12133.00 15300.10 10522.50 11142.50
13048.00 16196.70 10533.00 11229.40
13481.00 16901.30 10543.60 11325.90
14075.00 18221.30 10564.70 11534.30
13990.00 17173.50 10585.80 11490.50
14807.00 18087.20 10607.00 11615.80
14571.00 17463.20 10628.20 11751.70
14710.00 18242.00 10638.80 11777.50
15108.00 18528.40 10649.40 11872.90
NORTHSTAR BALANCED SHEET OPPORTUNITIES FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 19.91%
5-YEAR 13.03%
SINCE INCEPTION 10.84%
Lehman
Class T S&P 500 CPI Gov't/corp
(1/86 through 12/97)
10000.00 10000.00 10000.00 10000.00
10551.00 11922.00 9950.00 10694.00
11076.00 11713.00 10090.00 11241.00
11725.00 14918.00 10355.00 11289.00
10483.00 12320.00 10564.00 11652.00
11582.00 13883.00 10777.00 12154.00
11887.00 14351.00 11005.00 12431.00
13109.00 16721.00 11294.00 13398.00
13989.00 18885.00 11499.00 14018.00
14072.00 19462.00 11825.00 14447.00
14098.00 18297.00 12220.00 15303.00
15013.00 20899.00 12380.00 15968.00
17084.00 23849.00 12592.00 17541.00
17208.00 23693.00 12769.00 18070.00
1846.00 25664.00 12962.00 18799.00
20225.00 26907.00 13144.00 19966.00
21062.00 28238.00 13316.00 20450.00
20146.00 27291.00 13476.00 19914.00
19939.00 28622.00 13652.00 20055.00
22188.00 34386.00 13872.00 21978.00
24948.00 39338.00 14012.00 23124.00
26139.00 42833.00 14266.00 23076.00
27485.00 47309.00 14495.00 24062.00
14
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 45.84%
AEROSPACE & DEFENSE -- 0.89%
BE Aerospace, Inc. @ 20,000 $ 535,000
------------
BROADCASTING -- 3.92%
Chancellor Media Corp. @ ** 18,182 1,356,832
Unisite 21,600 1,000,361
------------
2,357,193
------------
CABLE TELEVISION -- 4.89%
Comcast Corp. 40,816 1,288,255
EchoStar Communications Corp. @ 30,000 502,500
Tele-Communications, Inc. @ 19,086 533,215
Viacom, Inc. @ 15,000 621,563
------------
2,945,533
------------
CAPITAL GOODS MANUFACTURING -- 2.24%
Bell & Howell Co. @ 20,000 483,750
Flextronics International Ltd. 25,000 862,500
------------
1,346,250
------------
ENERGY -- 4.37%
AES Corp. @ 30,000 1,398,750
CalEnergy Co., Inc. @ 30,000 862,500
Calpine Corp. @ 25,000 371,875
------------
2,633,125
------------
ENTERTAINMENT/FILM -- 3.17%
News Corp. Ltd. ** 30,000 669,375
Time Warner, Inc. 20,000 1,240,000
------------
1,909,375
------------
FOOD & BEVERAGE -- 1.38%
Canandaigua Brands, Inc. @ 15,000 830,625
------------
HEALTHCARE -- 4.19%
Healthsouth Corp. @ 30,000 832,500
Intracel Corp. 111,000 1,692,750
------------
2,525,250
------------
OIL & GAS -- 1.26%
Vintage Petroleum, Inc. 40,000 760,000
------------
OIL & GAS DRILLING -- 1.42%
Global Marine, Inc. @ 20,000 490,000
Parker Drilling Co. @ 30,000 365,625
------------
855,625
------------
</TABLE>
15
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PACKAGING -- 0.95%
U.S. Can Corp. @ 33,700 $ 568,687
------------
PAPER -- 0.50%
Asia Pulp & Paper Ltd. ** 30,000 301,875
------------
PHARMACEUTICAL -- 0.01%
Pharmerica, Inc. @ 445 4,617
------------
SERVICES -- 2.07%
Allied Waste Industries, Inc. @ 50,000 1,165,625
Coinstar, Inc. @ 8,750 79,844
------------
1,245,469
------------
STEEL -- 0.88%
AK Steel Holding Corp. 30,000 530,625
------------
SUPERMARKETS -- 3.09%
Dominick's Supermarkets, Inc. @ 25,000 912,500
Safeway, Inc. @ 15,000 948,750
------------
1,861,250
------------
TELECOMMUNICATIONS -- 8.37%
CommNet Cellular, Inc. @ 25,000 889,062
Globalstar Telecommunications Ltd. 22,262 1,093,621
Intermedia Communications, Inc. @ 125 7,594
Jacor Communications, Inc. @ 20,000 1,062,500
Telecom-TCI Ventures Group @ 10,914 309,003
Telecomunicacoes Brasileiras SA ** 5,000 582,187
Teleport Communications Group, Inc. @ 20,000 1,097,500
------------
5,041,467
------------
TEXTILE/APPAREL -- 0.96%
Interface, Inc. 20,000 580,000
------------
TRANSPORTATION -- 1.28%
Westinghouse Air Brake Co. 30,000 768,750
------------
TOTAL COMMON STOCKS
(cost $19,435,993) 27,600,716
------------
PREFERRED STOCKS -- 4.43%
BROADCASTING -- 4.43%
Chancellor Media Corp., 12.00% & 5,294 606,163
Paxson Communications Corp., 12.50% & 14,227 1,444,028
SFX Broadcasting, Inc., 12.625% & 5,316 615,283
------------
2,665,474
------------
TOTAL PREFERRED STOCKS
(cost $2,449,509) 2,665,474
------------
</TABLE>
16
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares/Principal Amount/Units Value
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 5.60%
BROADCASTING & MEDIA -- 2.15%
American Radio Systems Corp., 7.00% # 20,000 $ 1,295,380
------------
TELECOMMUNICATIONS -- 3.45%
Intermedia Communication, Inc., 7.00% # ** 10,000 414,640
Intermedia Communications, Inc., 7.00% # 40,000 1,658,560
------------
2,073,200
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $2,320,000) 3,368,580
------------
DOMESTIC CORPORATE BONDS -- 23.69%
BROADCASTING -- 1.26%
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes, 7/15/07 $ 750,000 761,250
------------
CABLE TELEVISION -- 1.40%
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Secured Discount Notes, 3/15/04 1,000,000 845,000
------------
CONSUMER PRODUCTS -- 0.85%
Packaged Ice, Inc.
12.00%, Notes, 4/15/04 500,000 512,500
------------
ELECTRONICS -- 1.11%
Electronic Retailing Systems International, Inc. $
0/13.25%, Sr. Discount Notes, 2/01/04 1,000,000 670,000
------------
HEALTHCARE -- 1.75%
Alaris Medical Systems, Inc.
9.75%, Sr. Subordinated Notes, 12/01/06 1,000,000 1,055,000
------------
LEISURE -- 1.71%
Club Regina Resorts, Inc. (1)
13.00%, Units, 12/01/04 1,000 1,027,500
------------
OIL & GAS -- 3.04%
Forman Petroleum Corp.
13.50%, Sr. Secured Subordinated Notes, 6/01/04 1,000,000 1,025,000
Transamerican Energy Corp. # $
0/13.00%, Sr. Secured Discount Notes, 6/15/02 1,000,000 805,000
------------
1,830,000
------------
SERVICES -- 1.85%
Coinstar, Inc. # $
0/13.00%, Sr. Subordinated Notes, 10/01/06 750,000 588,750
ICF Kaiser International, Inc.
13.00%, Sr. Notes, 12/31/03 500,000 522,500
------------
1,111,250
------------
</TABLE>
17
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount/Units Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
SPECIALTY RETAILING -- 0.94%
Pamida, Inc.
11.75%, Sr. Subordinated Notes, 3/15/03 $ 550,000 $ 563,750
------------
SUPERMARKETS -- 1.21%
Food 4 Less Supermarkets, Inc. &
13.625%, Sr. Subordinated Debentures, 6/15/07 570,445 727,317
------------
TELECOMMUNICATIONS -- 8.57%
Globalstar LP
11.375%, Sr. Notes, 2/15/04 500,000 505,000
Iridium Capital Corp.
13.00%, Sr. Notes, 7/15/05 1,500,000 1,578,750
Paging Network, Inc.
10.00%, Sr. Subordinated Notes, 10/15/08 750,000 781,875
Teleport Communications Group, Inc. $
0/11.125%, Sr. Discount Notes, 7/01/07 1,000,000 826,250
UNIFI Communications, Inc.
14.00%, Sr. Notes, 3/01/04 1,000,000 905,000
WinStar Equipment II Corp. #
12.50%, Sr. Secured Notes, 3/15/04 500,000 563,750
------------
5,160,625
------------
TOTAL DOMESTIC CORPORATE BONDS
(cost $13,746,732) 14,264,192
------------
FOREIGN CORPORATE BONDS -- 16.26%
AEROSPACE & DEFENSE -- 1.75%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 1,000,000 1,055,000
------------
CABLE TELEVISION -- 4.31%
Multicanal Participacoes SA
12.625%, Company Guarantee, 6/18/04 1,000,000 1,045,000
Star Choice Communications, Inc. (2)
13.00%, Units, 12/15/05 1,500 1,552,500
------------
2,597,500
------------
FOOD/BEVERAGE/TOBACCO -- 0.81%
Fage Dairy Industry SA
9.00%, Sr. Notes, 2/01/07 500,000 488,750
------------
OIL & GAS -- 1.19%
Hurricane Hydrocarbons #
11.75%, Sr. Notes, 11/01/04 750,000 716,250
------------
PAPER -- 0.79%
APP International Finance Co.
11.75%, Company Guarantee, 10/01/05 500,000 472,500
------------
</TABLE>
18
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount/Units/Shares Value
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 1.12%
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 600,000 $ 676,500
------------
SERVICES -- 1.12%
Guangzhou-Shen Superhighway Holdings Ltd. #
10.25%, Sr. Notes, 8/15/07 750,000 671,250
------------
SHIPPING -- 2.99%
Equimar Shipholdings Ltd. #
9.875%, Company Guarantee, 7/01/07 1,000,000 955,000
Navigator Gas Transport # ** (3)
12.00%, Units, 6/30/07 750 847,500
------------
1,802,500
------------
TELECOMMUNICATIONS -- 0.66%
Ionica PLC $
0/15.00%, Sr. Discount Notes, 5/01/07 1,000,000 395,000
------------
UTILITIES -- 1.52%
Panda Global Energy Co.
12.50%, Sr. Secured, 4/15/04 1,000,000 915,000
------------
TOTAL FOREIGN CORPORATE BONDS
(cost $9,849,822) 9,790,250
------------
CONVERTIBLE BONDS -- 2.81%
FOOD/BEVERAGE/TOBACCO -- 1.81%
International Fast Food Corp. &
11.00%, Sr. Subordinated Notes, 10/31/07 1,500,000 1,091,250
------------
TELECOMMUNICATIONS -- 1.00%
SA Telecommunications, Inc. # *
10.00%, Notes, 8/15/06 2,000,000 600,000
------------
TOTAL CONVERTIBLE BONDS
(cost $3,108,112) 1,691,250
------------
WARRANTS -- 0.31% @
CONSUMER PRODUCTS -- 0.08%
Packaged Ice, Inc. #, (expires 4/15/04) 500 50,000
------------
ELECTRONICS -- 0.03%
Electronic Retailing Systems International #, (expires
2/01/04) 1,000 20,000
------------
OIL & GAS -- 0.02%
Forman Petroleum Corp., (expires 6/01/04) 1,000 10,250
------------
</TABLE>
19
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.00%
ICF Kaiser International, Inc., (expires 12/31/99) 3,500 $ 35
------------
TELECOMMUNICATIONS -- 0.18%
Globalstar Telecommunications Ltd. #, (expires
2/15/04) 500 51,125
Iridium World Communications, Inc. #, (expires
7/25/05) 500 55,000
UNIFI Communications, Inc. #, (expires 2003) 1,000 0
------------
106,125
------------
TOTAL WARRANTS
(cost $50,516) 186,410
------------
TOTAL INVESTMENT SECURITIES -- 98.94%
(cost $50,960,684) 59,566,872
REPURCHASE AGREEMENT -- 0.55%
Agreement with State Street Bank and Trust bearing
interest at 5.75% dated 12/31/97 to be repurchased
1/02/98 in the amount of $334,107 and collateralized
by $340,000 U.S. Treasury Bills 5.875% due 10/31/98,
value $343,844
(cost $334,000) $ 334,000 334,000
OTHER ASSETS LESS LIABILITIES -- 0.51% 305,928
------------
NET ASSETS -- 100.00% $ 60,206,800
------------
------------
</TABLE>
@ Non-Income Producing.
** American Depository Receipts.
& Payment-in-Kind Security.
# Sale restricted to qualified institutional investors.
$ Step Bond.
* Defaulted Security.
(1) A unit consists of $1,000 par value 13.00%, Sr. Notes, 12/01/04 and 1
warrant.
(2) A unit consists of $1,000 par value 13.00%, Sr. Secured Notes, 12/15/05 and
23.16 warrants.
(3) A unit consists of $1,000 par value 12.00%, 2nd Priority Mortgage Notes,
6/30/07 and 7.66 warrants.
See accompanying notes to financial statements.
20
<PAGE>
NORTHSTAR HIGH YIELD FUND
JEFFREY AURIGEMMA
THE MARKETS
(Bullet) U.S. economic growth slowed from an annual rate of 4.3% in the 4th
quarter of 1996 to an estimated rate of 3.2% in the 4th quarter of
1997. Despite that still unexpectedly high growth, consumer prices
rose only 1.7% in 1997, the smallest increase in 11 years. Low
inflation, a very strong U.S. dollar and foreign turmoil caused our
domestic interest rates to fall. In 1997, yields of 10-year and
30-year Treasury bonds traded in a moderately wide 130 basis points
(bps) range. By December 31, 1997, those yields were down
approximately 70 bps to 5.74% and 5.92%, respectively. Lower
interest rates and strong economic growth combined to propel both
stock and bond prices significantly higher.
(Bullet) High yield bond returns in 1997 were 12.76%, compared to 9.65% for
all domestic bonds, primarily due to strong demand for high
coupons, rising underlying stock valuations and declining credit
concerns. Record-high small cap stock prices helped increase the
credit quality and prices of high yield bonds. Among high yield
bonds, in general, the lower-rated bonds outperformed the
higher-rated bonds (except in the 4th quarter).
(Bullet) Despite recent economic and financial weakness in some foreign
countries, total returns on bonds from smaller foreign markets
still rose 13.18% in 1997. Those returns were based mainly on
overall better political and economic fundamentals in many foreign
countries and a continuing worldwide hunt for yield by investors.
However, increasing economic and financial problems in Asia in the
4th quarter of 1997 caused investors worldwide to reassess the
values of their investments, which interrupted the earlier strong
rise in prices of stocks and bonds here and abroad.
THE FUND
(Bullet) In 1997, the total return of the Fund's Class A shares was 11.18%,
10.38% for Class B, 10.37% for Class C, and 10.86% for Class T; the
Lipper average was 12.96%. The Fund's good risk-adjusted returns
helped it increase its net assets from $231MM to $255MM.
(Bullet) We continued to position this Fund on the very low-risk end of the
high yield bond spectrum. We sold almost all zero-coupon bonds and
equities that the Fund previously held, kept the average credit
rating of the Fund's bonds near BB all year and invested in only
the highest-quality high yield emerging market bonds. Therefore,
the Fund's holdings were more conservative than generally desired
by investors during the first 3 quarters of 1997. However, the
increasingly unfavorable economic circumstances related to Asia
during the 4th quarter caused investors to begin to favor safety
over yield for the first time in many quarters. That shift
supported the Fund's total return for the full year of 1997.
(Bullet) The Fund continued to benefit from timely sales of bonds which had
narrow spreads over treasuries that did not correspond with their
risks.
CURRENT STRATEGY
(Bullet) We will continue to position the Fund as a conservative
"all-weather" high yield fund. The Fund still seeks to outperform
when the high-yield market is declining or volatile, while
remaining competitive when that market is rising or stable.
(Bullet) Given the higher probability of lower interest rates, an economic
slowdown due to Asia's problems and continuing investor preferences
for high yields, we will favor domestic issues rated Ba1/BB+.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $255,394,559
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Time Warner, Inc. 2.1%
2 Alaris Medical Systems, Inc. 2.0%
3 AES Corp. 1.7%
4 Americo Life, Inc. 1.7%
5 Dade International, Inc. 1.7%
6 JCAC, Inc. 1.7%
7 SFX Broadcasting, Inc. 1.7%
8 CE Casecnan Water & Energy Co. 1.6%
9 Iowa Select Farms L.P. 1.6%
10 Teleport Communications 1.6%
Group, Inc.
------
17.4%
======
TOP 5 INDUSTRIES
(by percentage of net assets)
Broadcasting 8.6%
Healthcare 8.4%
Food/Beverage/
Tobacco 7.4%
Telecommunications 7.2%
Oil & Gas 6.0%
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- ----------------------------------------
Inception 5 years 1 year
- ----------------------------------------
Class A 9.56% N/A 6.86%
- ----------------------------------------
Class B 9.89% N/A 5.38%
- ----------------------------------------
Class C 10.88% N/A 9.37%
- ----------------------------------------
Class T 10.96% 10.91% 6.86%
- ----------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- ----------------------------------------
Inception 5 years 1 year
- ----------------------------------------
Class A 32.81% N/A 11.18%
- ----------------------------------------
Class B 30.56% N/a 10.38%
- ----------------------------------------
Class C 30.54% N/A 10.37%
- ----------------------------------------
Class T 144.35% 67.85% 10.86%
- ----------------------------------------
21
<PAGE>
NORTHSTAR HIGH YIELD FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
HIGH YIELD FUND AND COMPARATIVE INDICES FROM INCEPTION OF EACH CLASS
OF SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and
Exchange Commission, the following data is supplied for the fiscal year ended
December 31, 1997, with all distributions reinvested in shares. The average
annualized total return for Class A shares of 9.56% for the period since the
classes' inception on June 5, 1995 reflects payment of the maximum sales charge
of 4.75%. Average annualized total returns of 9.89% and 10.88% since inception
on June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on May 30, 1989 for Class T shares of 10.96%, reflect applicable
contingent deferred sales charges (maximum contingent deferred sales charge for
Class B shares of 5.00% declines to 0% and Class T shares of 4.00% declines to
0% after five years; and maximum charge for Class C shares is 1.00% during the
first year of investment only). All performance data shown represents past
performance, and should not be considered indicative of future performance.
[Graphs appear below with the following plot points:]
NORTHSTAR HIGH YIELD FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 6.86%
SINCE INCEPTION 9.56%
Lehman
Class A Int Gov't CPI
(6/95 through 12/97)
9530.00 10000.00 10000.00
9454.00 10064.00 10010.00
9676.00 10190.80 10030.00
9689.00 10222.40 10040.00
9768.00 10348.10 10050.10
9781.00 10412.30 10080.20
9805.00 10503.90 10090.30
9922.00 10668.80 10110.50
10213.00 10856.60 10150.90
10261.00 10865.30 10171.20
10215.00 10857.70 10211.90
10308.00 10881.60 10252.80
10389.00 10946.90 10283.50
10398.00 11037.70 10293.80
10455.00 11088.50 10324.70
10648.00 11208.20 10335.00
10929.00 11478.40 10366.00
11013.00 11566.80 10397.10
11236.00 11794.60 10428.30
11384.00 11879.50 10460.00
11470.00 11996.00 10470.10
11717.00 12193.90 10501.50
11514.00 12012.20 10512.00
11570.00 12138.30 10522.50
11823.00 12398.10 10533.00
11998.00 12570.40 10543.60
12282.00 12916.10 10564.70
12259.00 12886.40 10585.80
12492.00 13141.50 10607.00
12401.00 13153.40 10628.20
12515.00 13279.60 10638.80
12656.00 13396.50 10649.40
NORTHSTAR HIGH YIELD FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5.38%
SINCE INCEPTION 9.89%
Lehman
Class B Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
9915.00 10064.00 10010.00
10142.00 10190.80 10030.00
10149.00 10222.40 10040.00
10227.00 10348.10 10050.10
10233.00 10412.30 10080.20
10265.00 10503.90 10090.30
10381.00 10668.80 10110.50
10679.00 10856.60 10150.90
10711.00 10865.30 10171.20
10657.00 10857.70 10211.90
10760.00 10881.60 10252.80
10826.00 10946.90 10283.50
10842.00 11037.70 10293.80
10883.00 11088.50 10324.70
11090.00 11208.20 10335.00
11375.00 11478.40 10366.00
11456.00 11566.80 10397.10
11680.00 11794.60 10428.30
11827.00 11879.50 10460.00
11896.00 11996.00 10470.10
12159.00 12193.90 10501.50
11927.00 12012.20 10512.00
11992.00 12138.30 10522.50
12247.00 12398.10 10533.00
12408.00 12570.40 10543.60
12707.00 12916.10 10564.70
12662.00 12886.40 10585.80
12909.00 13141.50 10607.00
12807.00 13153.40 10628.20
12916.00 13279.60 10638.80
13055.00 13396.50 10649.40
NORTHSTAR HIGH YIELD FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 9.37%
SINCE INCEPTION 10.88%
Lehman
Class C Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
9915.00 10064.00 10010.00
10142.00 10190.80 10030.00
10149.00 10222.40 10040.00
10227.00 10348.10 10050.10
10233.00 10412.30 10080.20
10265.00 10503.90 10090.30
10381.00 10668.80 10110.50
10667.00 10856.60 10150.90
10711.00 10865.30 10171.20
10657.00 10857.70 10211.90
10748.00 10881.60 10252.80
10826.00 10946.90 10283.50
10843.00 11037.70 10293.80
10883.00 11088.50 10324.70
11090.00 11208.20 10335.00
11376.00 11478.40 10366.00
11456.00 11566.80 10397.10
11680.00 11794.60 10428.30
11827.00 11879.50 10460.00
11896.00 11996.00 10470.10
12145.00 12193.90 10501.50
11927.00 12012.20 10512.00
11978.00 12138.30 10522.50
12247.00 12398.10 10533.00
12407.00 12570.40 10543.60
12706.00 12916.10 10564.70
12661.00 12886.40 10585.80
12894.00 13141.50 10607.00
12806.00 13153.40 10628.20
12901.00 13279.60 10638.80
13054.00 13396.50 10649.40
NORTHSTAR HIGH YIELD FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 6.86%
5-YEAR 10.91%
SINCE INCEPTION 10.96%
Lehman
Class T Int Gov't CPI
(5/89 through 12/97)
10000.00 10000.00 10000.00
9954.00 10124.00 10020.00
9120.00 9734.00 10202.00
8924.00 9977.00 10490.00
7789.00 8796.00 10841.00
9885.00 11400.00 10983.00
11410.00 12858.00 11171.00
13270.00 14188.00 11328.00
14556.00 14883.00 11499.00
16218.00 16452.00 11661.00
17306.00 17430.00 11813.00
17036.00 17035.00 11956.00
16929.00 17254.00 12112.00
18371.00 19396.00 12307.00
19250.00 20562.00 12431.00
20146.00 21273.00 12656.00
22039.00 22895.00 12860.00
23197.00 24227.00 12962.00
24434.00 25819.00 13093.00
22
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
DOMESTIC BONDS & NOTES -- 74.62%
AEROSPACE & DEFENSE -- 2.30%
Alliant Techsystems, Inc.
11.75%, Sr. Subordinated Notes, 3/01/03 $ 1,500,000 $ 1,651,875
L 3 Communications Corp.
10.375%, Sr. Subordinated Notes, 5/01/07 2,000,000 2,175,000
Tracor, Inc.
8.50%, Sr. Subordinated Notes, 3/01/07 2,000,000 2,040,000
------------
5,866,875
------------
AIRLINES -- 1.10%
Atlantic Coast Airlines, Inc. #
8.75%, Pass Thru Certificates, 1/01/07 2,800,000 2,814,000
------------
AUTO PARTS & EQUIPMENT -- 3.00%
Titan Wheel International, Inc.
8.75%, Sr. Subordinated Notes, 4/01/07 3,400,000 3,570,000
Venture Holdings
9.50%, Sr. Notes, 7/01/05 4,000,000 4,080,000
------------
7,650,000
------------
AUTOMOTIVE -- 1.72%
Delco Remy International, Inc.
8.625%, Sr. Notes, 12/15/07 2,000,000 2,035,000
Walbro Corp. #
10.125%, Sr. Notes, 12/15/07 2,300,000 2,369,000
------------
4,404,000
------------
BROADCASTING -- 7.46%
American Radio Systems Corp.
9.00%, Company Guarantee, 2/01/06 1,500,000 1,590,000
Capstar Broadcasting Partners, Inc.
9.25%, Sr. Subordinated Notes, 7/01/07 2,900,000 2,994,250
JCAC, Inc.
10.125%, Sr. Subordinated Notes, 6/15/06 4,000,000 4,410,000
SFX Broadcasting, Inc.
10.75%, Sr. Subordinated Notes, 5/15/06 4,000,000 4,410,000
Sinclair Broadcast Group, Inc.
8.75%, Sr. Subordinated Notes, 12/15/07 2,800,000 2,807,000
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes, 7/15/07 1,500,000 1,522,500
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Subordinated Notes, 9/30/05 1,250,000 1,331,250
------------
19,065,000
------------
CABLE TELEVISION -- 2.07%
EchoStar Communications Corp. $
0/12.875%, Sr. Discount Notes, 6/01/04 3,000,000 2,760,000
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Secured Discount Notes, 3/15/04 3,000,000 2,535,000
------------
5,295,000
------------
</TABLE>
23
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS MANUFACTURING -- 1.53%
Roller Bearing Co. of America, Inc. #
9.625%, Sr. Subordinated Notes, 6/15/07 $ 3,850,000 $ 3,898,125
------------
CHEMICALS -- 1.43%
Hydrochem Industrial Services, Inc.
10.375%, Sr. Subordinated Notes, 8/01/07 3,500,000 3,640,000
------------
COMPUTERS -- 0.72%
Axiohm Transaction, Inc. #
9.75%, Sr. Subordinated Notes, 10/01/07 1,800,000 1,836,000
------------
ENERGY -- 4.53%
AES Corp.
10.25%, Sr. Subordinated Notes, 7/15/06 4,000,000 4,350,000
CalEnergy Co., Inc.
9.50%, Sr. Secured Notes, 9/15/06 1,000,000 1,097,500
California Energy, Inc.
9.875%, Sr. Notes, 6/30/03 1,000,000 1,080,000
California Energy, Inc.
10.25%, Sr. Discount Notes, 1/15/04 2,650,000 2,862,000
Calpine Corp.
10.50%, Sr. Notes, 5/15/06 2,000,000 2,180,000
------------
11,569,500
------------
ENTERTAINMENT/FILM -- 1.32%
Speedway Motorsports, Inc.
8.50%, Sr. Subordinated Notes, 8/15/07 3,300,000 3,382,500
------------
FOOD/BEVERAGE/TOBACCO -- 6.24%
Ameriserve Food Distribution, Inc. #
8.875%, Sr. Notes, 10/15/06 2,750,000 2,791,250
Iowa Select Farms L.P. #
10.75%, Sr. Subordinated Notes, 12/01/05 4,000,000 4,130,000
North Atlantic Trading, Inc.
11.00%, Sr. Notes, 6/15/04 3,500,000 3,675,000
Richmont Marketing Specialists, Inc. #
10.125%, Sr. Subordinated Notes, 12/15/07 2,750,000 2,805,000
Standard Commercial Corp. #
8.875%, Company Guarantee, 8/01/05 2,500,000 2,525,000
------------
15,926,250
------------
HEALTHCARE -- 8.39%
Alaris Medical Systems, Inc.
9.75%, Sr. Subordinated Notes, 12/01/06 4,750,000 5,011,250
Alliance Imaging, Inc.
9.625%, Sr. Subordinated Notes, 12/15/05 2,300,000 2,346,000
Dade International, Inc.
11.125%, Sr. Subordinated Notes, 5/01/06 3,900,000 4,329,000
Kinetic Concepts, Inc. #
9.625%, Sr. Subordinated Notes, 11/01/07 2,500,000 2,540,625
Tenet Healthcare Corp.
8.625%, Sr. Subordinated Notes, 1/15/07 3,000,000 3,105,000
Tenet Healthcare Corp.
10.125%, Sr. Subordinated Notes, 3/01/05 1,000,000 1,095,000
Vencor, Inc.
8.625%, Sr. Subordinated Notes, 7/15/07 3,000,000 3,007,500
------------
21,434,375
------------
</TABLE>
24
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HOTEL & GAMING -- 2.42%
Capital Gaming International, Inc. @*
0%, Promissory Notes, 8/01/95 $ 10,000 $ 0
Courtyard By Marriott Ltd.
10.75%, Sr. Secured Notes, 2/01/08 2,000,000 2,190,000
Grand Casino, Inc. #
9.00%, Sr. Notes, 10/15/04 2,700,000 2,727,000
Sun International Hotels Ltd.
8.625%, Sr. Subordinated Notes, 12/15/07 1,250,000 1,265,625
------------
6,182,625
------------
INDUSTRIAL AND COMMERCIAL SERVICES -- 0.40%
Keystone Consolidated Industries, Inc. #
9.625%, Sr. Secured Notes, 8/01/07 1,000,000 1,010,000
------------
INSURANCE -- 2.62%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 4,250,000 4,366,875
Superior National Insurance Group, Inc. #
10.75%, Company Guarantee, 12/01/17 22,500 2,317,500
------------
6,684,375
------------
MANUFACTURING -- 2.45%
Clark-Schwebel, Inc.
10.50%, Sr. Notes, 4/15/06 2,500,000 2,725,000
Wyman Gordon Co.
8.00%, Sr. Notes, 12/15/07 3,500,000 3,543,750
------------
6,268,750
------------
OIL & GAS -- 5.95%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 2,000,000 2,220,000
Forcenergy, Inc.
9.50%, Sr. Subordinated Notes, 11/01/06 3,000,000 3,202,500
HS Resources, Inc.
9.875%, Sr. Subordinated Notes, 12/01/03 3,500,000 3,640,000
TransAmerican Energy Corp. #
11.50%, Sr.Secured Notes, 6/15/02 3,000,000 2,955,000
Triton Energy Ltd.
9.25%, Sr. Notes, 4/15/05 3,000,000 3,172,500
------------
15,190,000
------------
PAPER -- 3.41%
Buckeye Cellulose Corp.
8.50%, Sr. Subordinated Notes, 12/15/05 2,725,000 2,779,500
SD Warren Co.
12.00%, Sr. Subordinated Notes, 12/15/04 2,500,000 2,800,000
U.S. Timberlands Co.
9.625%, Sr. Notes, 11/15/07 3,000,000 3,135,000
------------
8,714,500
------------
PRINTING & PUBLISHING -- 5.37%
American Lawyer Media, Inc. #
9.75%, Sr. Subordinated Notes, 12/15/07 2,000,000 2,040,000
Big Flower Press Holdings, Inc.
8.875%, Sr. Subordinated Notes, 7/01/07 1,500,000 1,518,750
</TABLE>
25
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRINTING AND PUBLISHING (CONT'D)
Garden State Newspapers, Inc.
12.00%, Sr. Subordinated Notes, 7/01/04 $ 2,000,000 $ 2,250,000
Garden State Newspapers, Inc. #
8.75%, Sr. Subordinated Notes, 10/01/09 2,000,000 2,015,000
Hollinger International Publishing, Inc.
9.25%, Company Guarantee, 3/15/07 3,000,000 3,180,000
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 2,400,000 2,706,000
------------
13,709,750
------------
SERVICES -- 0.65%
Allied Waste North America, Inc.
10.25%, Sr. Subordinated Notes, 12/01/06 1,500,000 1,653,750
------------
TELECOMMUNICATIONS -- 4.57%
Alliant Computer Systems, Inc. @*
7.25%, Subordinated Debentures, 5/15/12 528,000 0
Jordan Telecommunication Products Co.
9.875%, Sr. Notes, 8/01/07 3,000,000 3,105,000
Qwest Communications International, Inc. #
9.47%, Sr. Discount Notes, 10/15/07 2,700,000 1,836,000
RCN Corp. #
10.00%, Sr. Notes, 10/15/07 2,500,000 2,606,250
Teleport Communications Group, Inc. $
0/11.125%, Sr. Discount Notes, 7/01/07 5,000,000 4,131,250
------------
11,678,500
------------
TEXTILE/APPAREL -- 1.83%
Westpoint Stevens, Inc.
9.375%, Sr. Subordinated Debentures, 12/15/05 2,000,000 2,110,000
Worldtex, Inc. #
9.625%, Sr. Notes, 12/15/07 2,500,000 2,575,000
------------
4,685,000
------------
TRANSPORTATION -- 2.14%
Sea Containers Ltd.
12.50%, Sr. Subordinated Debentures, 12/01/04 2,000,000 2,265,000
Westinghouse Air Brake Co.
9.375%, Sr. Notes, 6/15/05 3,000,000 3,209,580
------------
5,474,580
------------
TRUCKING & FREIGHT -- 1.00%
Allied Holdings, Inc.
8.625%, Sr. Notes, 10/01/07 2,500,000 2,550,000
------------
TOTAL DOMESTIC BONDS & NOTES
(cost $181,417,812) 190,583,455
------------
FOREIGN BONDS & NOTES -- 16.35%
AEROSPACE & DEFENSE -- 1.24%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 3,000,000 3,165,000
------------
BROADCASTING -- 1.18%
Antenna TV SA #
9.00%, Sr. Notes, 8/01/07 3,000,000 3,011,250
------------
</TABLE>
26
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount/Shares Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
CABLE TELEVISION -- 1.26%
Rogers Cablesystems Ltd.
9.625%, Notes, 8/01/02 $ 3,000,000 $ 3,210,000
------------
CHEMICALS -- 1.18%
Pharmaceutical Fine Chemicals, Inc. #
9.75%, Sr. Subordinated Notes, 11/15/07 3,000,000 3,030,000
------------
FOOD/BEVERAGE/TOBACCO -- 1.15%
Fage Dairy Industry SA
9.00%, Sr. Notes, 2/01/07 3,000,000 2,932,500
------------
PAPER -- 1.93%
APP International Finance Co.
11.75%, Company Guarantee, 10/01/05 3,900,000 3,685,500
Indah Kiat Finance Mauritius Ltd. #
10.00%, Company Guarantee, 7/01/07 1,500,000 1,252,500
------------
4,938,000
------------
SERVICES -- 2.95%
Autopistas Del Sol SA #
10.25%, Sr. Notes, 8/01/09 3,000,000 2,722,500
Guangzhou-Shen Superhighway Holdings Ltd. #
10.25%, Sr. Notes, 8/15/07 1,950,000 1,745,250
Intertek Finance PLC
10.25%, Sr. Subordinated Notes, 11/01/06 2,900,000 3,059,500
------------
7,527,250
------------
SHIPPING -- 1.19%
Trico Marine Services, Inc. #
8.50%, Notes, 8/01/05 3,000,000 3,030,000
------------
TELECOMMUNICATIONS -- 2.67%
Fonorola, Inc.
12.50%, Sr. Notes, 8/15/02 1,000,000 1,115,000
Rogers Cantel, Inc.
8.80%, Sr. Subordinated Notes, 10/01/07 2,800,000 2,793,000
Telefonica de Argentina SA
11.875%, Notes, 11/01/04 2,500,000 2,912,500
------------
6,820,500
------------
UTILITIES -- 1.60%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 4,000,000 4,080,000
------------
TOTAL FOREIGN BONDS & NOTES
(cost $41,447,848) 41,744,500
------------
PREFERRED STOCKS -- 2.49%
ENTERTAINMENT -- 2.10%
Time Warner, Inc., 10.25% & 47,579 5,364,477
------------
PUBLISHING/PRINTING -- 0.39%
Primedia, Inc. #, 9.20% 10,000 1,005,000
------------
TOTAL PREFERRED STOCKS
(cost $5,393,805) 6,369,477
------------
RIGHTS -- 0.07% @
CAPITAL GOODS MANUFACTURING -- 0.07%
Terex Corp., (expires 2000) 8,000 164,000
------------
</TABLE>
27
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN GOVERNMENT SECURITIES -- 0.00%
United Mexican States 1,500,000 $ 0
------------
TOTAL RIGHTS
(cost $0) 164,000
------------
COMMON STOCKS -- 0.00%@*
GAMING -- 0.00%
Capital Gaming International, Inc. 114 0
------------
TOTAL COMMON STOCKS
(cost $0) 0
------------
WARRANTS -- 0.00%@*
GAMING -- 0.00%
Capital Gaming International, Inc.
(expires 2/01/99) 22,750 0
------------
TOTAL WARRANTS
(cost $0) 0
------------
TOTAL INVESTMENT SECURITIES -- 93.53%
(cost $228,259,465) 238,861,432
REPURCHASE AGREEMENT -- 4.28%
Agreement with State Street Bank and Trust bearing
interest
at 5.75% dates 12/31/97 to be repuchased 1/02/98 in the
amount of
$10,937,493 and collateralized by $11,145,000 U.S.
Treasury Bills
5.75% due 12/31/98 value 11,155,454
(cost $10,934,000) $10,934,000 10,934,000
OTHER ASSETS LESS LIABILITIES -- 2.19% 5,599,127
------------
NET ASSETS -- 100.00% $255,394,559
------------
------------
</TABLE>
# Sale restricted to qualified institutional investors.
$ Step bond.
& Payment-in-kind security.
@ Non-income producing security.
* Bankrupt Issuer.
See accompanying notes to financial statements.
28
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
RYAN R. JOHANSON
THE MARKETS
(Bullet) U.S. economic growth slowed from an annual rate of 4.3% in the 4th
quarter of 1996 to an estimated rate of 3.2% in the 4th quarter of
1997. Despite that still unexpectedly high growth, consumer prices
rose only 1.7% in 1997, the smallest increase in 11 years. Low
inflation, a very strong U.S. dollar and foreign turmoil caused our
domestic interest rates to fall. In 1997, yields of 10-year and
30-year Treasury bonds traded in a moderately wide 130 basis points
(bps) range. By December 31, 1997, those yields were down
approximately 70 bps to 5.74% and 5.92%, respectively. Lower
interest rates and strong economic growth combined to propel both
stock and bond prices significantly higher.
(Bullet) High yield bond returns in 1997 were 12.76%, compared to 9.65% for
all domestic bonds, primarily due to strong demand for high
coupons, rising underlying stock valuations and declining credit
concerns. Record-high small cap stock prices helped increase the
credit quality and prices of high yield bonds. Among high yield
bonds, in general, the lower-rated bonds outperformed the
higher-rated bonds (except in the 4th quarter).
(Bullet) Despite recent economic and financial weakness in some foreign
countries, total returns on bonds from smaller foreign markets
still rose 13.18% in 1997. Those returns were based mainly on
overall better political and economic fundamentals in many foreign
countries and a continuing worldwide hunt for yield by investors.
However, increasing economic and financial problems in Asia in the
4th quarter of 1997 caused investors worldwide to reassess the
values of their investments, which interrupted the earlier strong
rise in prices of stocks and bonds here and abroad.
(Bullet) A strong and rising U.S. dollar made it very difficult to find good
values among bonds denominated in foreign currencies.
THE FUND
(Bullet) In 1997, the total return of the Fund's shares was 2.50% for Class
A, 1.67% for Class B, 1.75% for Class C, and 1.89% for Class T; the
Lipper average was 8.74%. Its net assets declined from $79.6MM to
$67MM during 1997 due to redemptions and Asia-based pressures on
the value of the Fund's holdings.
(Bullet) The Fund was more heavily invested in emerging market names than
its competitors were in 1997. That helped the Fund's total return
for most of the year. However, the spread of the "Asian Contagion"
seriously impaired the values of the Fund's emerging market
positions in the 4th quarter. Since those bonds' yields had been
critical to enabling the Fund to pay its dividend, because most of
them had high credit ratings, and since we did not initially
believe that Asia's ills were as bad as subsequently revealed, we
held our above-average weighting of such bonds longer than others
did. That hurt our Fund more than others. We actively shifted the
Fund's holdings into U.S. agency bonds and cash as the year closed.
CURRENT STRATEGY
(Bullet) Continue to seek attractively-priced U.S. dollar-denominated
investment grade corporate bonds and continue to reduce the amount
of foreign exposure (which fell from 55% to 36% in the 4th quarter
of 1997). We will eliminate virtually all emerging market exposure
until a bottom has clearly occurred, after which we will position
the Fund to participate in the above-average returns that a
recovery in emerging market bond prices should generate.
(Bullet) Due to weak emerging markets, falling interest rates and slowing
growth, we have new, more defensive asset allocation targets: 50%
domestic high yield; 20% domestic and foreign investment grade; 20%
U.S. government; and 10% cash. Keep the Fund's duration at 5-6
years and its credit quality at a minimum of BB+.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $67,012,136
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Fannie Mae, 7.00%, due 6/18/25 5.8%
2 Fannie Mae, 7.50% due 12/18/27 4.4%
3 Statia Terms International, Inc. 3.1%
4 APP Finance II Mauritius Ltd. 3.0%
5 CE Casecnan Water & Energy Co. 3.0%
6 Republic of Poland 2.9%
7 Guangdong Enterprises Holding Ltd. 2.8%
8 Winstar Equipment Corp. 2.7%
9 Road King Infrastructure Ltd. 2.5%
10 Guangzhou-Shen Superhighway Holdings Ltd. 2.4%
------
32.6%
======
TOP 5 SECTORS
(by percentage of net assets)
High Yield 49.2%
U.S. Government 19.5%
Cash 15.4%
Investment Grade 11.9%
Equity 2.0%
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- --------------------------------------------
Inception 5 years 1 year
- --------------------------------------------
Class A 5.50% N/A -2.36 %
- --------------------------------------------
Class B 5.67% N/A -3.08 %
- --------------------------------------------
Class C 6.68% N/A 0.80 %
- --------------------------------------------
Class T 7.92% N/A -1.91 %
- --------------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- --------------------------------------------
Inception 5 years 1 year
- --------------------------------------------
Class A 20.53% N/A 2.50 %
- --------------------------------------------
Class B 18.23% N/A 1.67 %
- --------------------------------------------
Class C 18.16% N/A 1.75 %
- --------------------------------------------
Class T 31.59% N/A 1.89 %
- --------------------------------------------
29
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
STRATEGIC INCOME FUND AND COMPARATIVE INDICES FROM INCEPTION OF EACH
CLASS OF SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and
Exchange Commission, the following data is supplied for the fiscal year ended
December 31, 1997, with all distributions reinvested in shares. The average
annualized total return for Class A shares of 5.50% for the period since the
classes' inception on June 5, 1995 reflects payment of the maximum sales charge
of 4.75%. Average annualized total returns of 5.67% and 6.68% since inception on
June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on February 3, 1986 for Class T shares of 7.92%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown represents
past performance, and should not be considered indicative of future performance.
[Graphs appear below with the following plot points:]
NORTHSTAR STRATEGIC INCOME FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (2.36)%
SINCE INCEPTION 5.50%
Lehman
Class A Int Gov't CPI
(6/95 through 12/96)
9527.00 10000.00 10000.00
9492.00 10073.00 10010.00
9566.00 10050.80 10030.00
9666.00 10172.50 10040.00
9773.00 10271.10 10050.10
9841.00 10404.60 10080.20
9936.00 10560.70 10090.30
10104.00 10708.60 10110.50
10322.00 10779.20 10150.90
10262.00 10591.70 10171.20
10219.00 10517.50 10211.90
10271.00 10458.60 10252.80
10349.00 10437.70 10283.50
10378.00 10577.60 10293.80
10407.00 10606.20 10324.70
10444.00 10588.10 10335.00
10697.00 10772.40 10366.00
10908.00 11011.50 10397.10
11174.00 11199.80 10428.30
11203.00 11095.60 10460.00
11268.00 11130.00 10470.10
11364.00 11157.90 10501.50
10968.00 11034.00 10512.00
11075.00 11199.50 10522.50
11373.00 11305.90 10533.00
11563.00 11440.50 10543.60
11773.00 11749.40 10564.70
11716.00 11649.50 10585.80
11957.00 11821.90 10607.00
11514.00 11993.30 10628.20
11484.00 12048.50 10638.80
11483.00 12170.20 10649.40
NORTHSTAR STRATEGIC INCOME FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (3.08)%
SINCE INCEPTION 5.67%
Lehman
Class B Int Gov't CPI
(6/95 through 12/96)
10000.00 10000.00 10000.00
9958.00 10073.00 10010.00
10030.00 10050.80 10030.00
10128.00 10172.50 10040.00
10243.00 10271.10 10050.10
10291.00 10404.60 10080.20
10392.00 10560.70 10090.30
10554.00 10708.60 10110.50
10776.00 10779.20 10150.90
10716.00 10591.70 10171.20
10665.00 10517.50 10211.90
10714.00 10458.60 10252.80
10780.00 10437.70 10283.50
10812.00 10577.60 10293.80
10826.00 10606.20 10324.70
10867.00 10588.10 10335.00
11115.00 10772.40 10366.00
11337.00 11011.50 10397.10
11606.00 11199.80 10428.30
11629.00 11095.60 10460.00
11690.00 11130.00 10470.10
11773.00 11157.90 10501.50
11366.00 11034.00 10512.00
11461.00 11199.50 10522.50
11763.00 11305.90 10533.00
11961.00 11440.50 10543.60
12171.00 11749.40 10564.70
12105.00 11649.50 10585.80
12336.00 11821.90 10607.00
11871.00 11993.30 10628.20
11833.00 12048.50 10638.80
11823.00 12170.20 10649.40
NORTHSTAR STRATEGIC INCOME FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 0.80%
SINCE INCEPTION 6.68%
Lehman
Class C Int Gov't CPI
(6/95 through 12/96)
10000.00 10000.00 10000.00
9950.00 10073.00 10010.00
10022.00 10050.80 10030.00
10120.00 10172.50 10040.00
10234.00 10271.10 10050.10
10283.00 10404.60 10080.20
10376.00 10560.70 10090.30
10547.00 10708.60 10110.50
10770.00 10779.20 10150.90
10701.00 10591.70 10171.20
10650.00 10517.50 10211.90
10699.00 10458.60 10252.80
10774.00 10437.70 10283.50
10797.00 10577.60 10293.80
10820.00 10606.20 10324.70
10851.00 10588.10 10335.00
11099.00 10772.40 10366.00
11330.00 11011.50 10397.10
11589.00 11199.80 10428.30
11613.00 11095.60 10460.00
11674.00 11130.00 10470.10
11766.00 11157.90 10501.50
11350.00 11034.00 10512.00
11454.00 11199.50 10522.50
11756.00 11305.90 10533.00
11945.00 11440.50 10543.60
12154.00 11749.40 10564.70
12088.00 11649.50 10585.80
12329.00 11821.90 10607.00
11854.00 11993.30 10628.20
11826.00 12048.50 10638.80
11816.00 12170.20 10649.40
NORTHSTAR STRATEGIC INCOME FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (1.91)%
SINCE INCEPTION 7.92%
Lehman
Class T Int Gov't CPI
(6/94 through 12/96)
10000.00 10000.00 10000.00
10058.00 10199.00 10030.00
10259.20 10211.20 10070.10
10242.80 10061.10 10090.30
10183.30 10052.10 10100.40
10140.60 10030.00 10110.50
10213.60 10099.20 10130.70
10283.00 10299.10 10161.10
10573.00 10544.20 10191.50
10607.90 10608.60 10211.90
10848.70 10757.10 10252.80
11019.00 11173.40 10283.50
11027.80 11255.00 10293.80
11109.50 11230.20 10314.40
11219.40 11366.10 10324.70
11339.50 11476.30 10335.00
11404.10 11625.50 10366.00
11519.30 11799.90 10376.40
11699.00 11965.10 10397.20
11947.00 12044.10 10438.80
11882.00 11834.50 10459.60
11827.00 11751.70 10501.50
11883.00 11685.90 10543.50
11958.00 11662.50 10575.10
11996.00 11818.80 10585.70
12013.00 11850.70 10617.40
12060.00 11830.50 10628.10
12337.00 12036.40 10660.00
12586.00 12303.60 10691.90
12866.00 12514.00 10724.00
12915.00 12397.60 10756.00
12984.00 12436.00 10767.00
13079.00 12467.10 10799.30
12628.00 12328.70 10810.10
12735.00 12513.70 10820.90
13072.00 12632.50 10831.70
13294.00 12782.90 10842.50
13528.00 13128.00 10864.20
13455.00 13016.40 10885.90
13724.00 13209.10 10907.70
13198.00 13400.60 10929.50
13167.00 13462.20 10940.50
13158.00 13598.20 10951.40
30
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
INVESTMENT GRADE SECURITIES -- 11.88%
<S> <C> <C>
FOREIGN BONDS & NOTES -- 11.88%
CABLE -- 0.79%
Le Groupe Videotron Ltee.
10.25%, Sr. Subordinated Notes, 10/15/02 $ 500,000 $ 530,625
-----------
DIVERSIFIED FINANCIAL SERVICES -- 2.76%
Guangdong Enterprises Holding Ltd. #
8.875%, Sr. Notes, 5/22/07 2,000,000 1,846,940
-----------
ELECTRIC UTILITIES -- 2.30%
Empresa Electrica Del Norte Grande SA #
7.75%, Notes, 3/15/06 1,550,000 1,538,298
-----------
FOREIGN GOVERNMENT SECURITIES -- 4.42%
Banque Centale De Tunisie
7.50%, Notes, 9/19/07 1,000,000 1,012,960
Republic of Poland $
0/4.00%, Government Guarantee, 10/27/14 2,250,000 1,951,875
-----------
2,964,835
-----------
OIL & GAS -- 1.61%
Bridas Corp.
12.50%, Sr. Notes, 11/15/99 1,000,000 1,077,500
-----------
TOTAL FOREIGN BONDS & NOTES 7,958,198
-----------
TOTAL INVESTMENT GRADE SECURITIES
(cost $ 7,905,619) 7,958,198
-----------
HIGH YIELD SECURITIES -- 49.18%
DOMESTIC BONDS & NOTES -- 22.05%
AIRLINES -- 3.82%
Atlantic Coast Airlines #
7.97%, Pass Thru Certificates, 1/01/00 1,000,000 1,005,000
Atlantic Coast Airlines, Inc. #
8.75%, Pass Thru Certificates, 1/01/07 750,000 753,750
Constellation Finance LLC #
9.80%, Asset Backed Notes, 1/01/01 800,000 800,000
-----------
2,558,750
-----------
CHEMICALS -- 1.55%
Hydrochem Industrial Services, Inc.
10.375%, Sr. Subordinated Notes, 8/01/07 1,000,000 1,040,000
-----------
CONSUMER PRODUCTS -- 2.04%
Shop Vac Corp.
10.625%, Sr. Secured Notes, 9/01/03 1,250,000 1,364,062
-----------
ENERGY -- 1.13%
AES Corp. #
8.50%, Sr. Subordinated Notes, 11/01/07 750,000 754,688
-----------
FOOD/BEVERAGE/TOBACCO -- 0.91%
Richmont Marketing Specialists, Inc. #
10.125%, Sr. Subordinated Notes, 12/15/07 600,000 612,000
-----------
</TABLE>
31
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INSURANCE -- 2.76%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 $ 1,300,000 $ 1,335,750
Superior National Insurance Group, Inc. #
10.75%, Company Guarantee, 12/01/17 5,000 515,000
-----------
1,850,750
-----------
OIL & GAS -- 2.96%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 900,000 999,000
TransAmerican Energy Corp. #
11.50%, Sr. Secured Notes, 6/15/02 1,000,000 985,000
-----------
1,984,000
-----------
TELECOMMUNICATIONS -- 6.88%
RCN Corp. #
10.00%, Sr. Notes, 10/15/07 1,000,000 1,042,500
Transtel Pass-Thru Trust SA #
12.50%, Pass-Thru Trust Certificates, 11/01/07 900,000 859,500
UNIFI Communications, Inc.
14.00%, Sr. Notes, 3/01/04 1,000,000 905,000
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04 1,600,000 1,804,000
-----------
4,611,000
-----------
TOTAL DOMESTIC BONDS & NOTES 14,775,250
-----------
FOREIGN BONDS & NOTES -- 27.13%
FINANCE & BANKING -- 2.49%
Road King Infrastructure Ltd.
9.50%, Company Guarantee, 7/15/07 2,000,000 1,670,000
-----------
FOOD/BEVERAGE/TOBACCO -- 2.19%
Fage Dairy Industry SA
9.00%, Sr. Notes, 2/01/07 1,500,000 1,466,250
-----------
FOREIGN GOVERNMENT SECURITIES -- 1.88%
Republic of Turkey #
10.00%, Notes, 9/19/07 1,250,000 1,264,062
-----------
OIL & GAS -- 1.48%
Pacalta Resources Ltd.
10.75%, Sr. Notes, 6/15/04 1,000,000 991,250
-----------
</TABLE>
32
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Security Principal Amount/Units/Shares Value
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<CAPTION>
PAPER -- 6.06%
<S> <C> <C>
APP Finance II Mauritius Ltd. $
0/12.00%, Notes, 2/15/04 $ 2,500,000 $ 2,025,000
APP International Finance BV Co.
8.867%, Notes, 9/15/99 1,000,000 865,000
Indah Kiat International Finance Corp.
12.50%, Company Guarantee, 6/15/06 500,000 477,500
Pindo Deli Finance Mauritius Ltd. #
10.75%, Sr. Notes, 10/01/07 800,000 692,000
-----------
4,059,500
-----------
SERVICES -- 5.54%
Guangzhou-Shen Superhighway Holdings Ltd. #
10.25%, Sr. Notes, 8/15/07 1,800,000 1,611,000
Statia Terms International, Inc.
11.75%, Mortgage Notes, 11/15/03 2,000,000 2,100,000
-----------
3,711,000
-----------
TELECOMMUNICATIONS -- 4.45%
Colt Telecom Group PLC $ (1)
0/12.00%, Units, 12/15/06 500 390,000
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 2,100,000 1,585,500
Telecom Brazil Funding Corp. #
11.4375%, Guaranteed Notes, 12/09/99 1,000,000 1,005,000
-----------
2,980,500
-----------
UTILITIES -- 3.04%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 2,000,000 2,040,000
-----------
TOTAL FOREIGN BONDS & NOTES 18,182,562
-----------
TOTAL HIGH YIELD SECURITIES
(cost $33,312,220) 32,957,812
-----------
PREFERRED STOCKS -- 2.00%
ENTERTAINMENT -- 2.00%
Time Warner, Inc., 10.25% & 11,887 1,340,252
-----------
TOTAL PREFERRED STOCKS
(cost $1,096,430) 1,340,252
-----------
WARRANTS -- 0.04%@
CONSUMER PRODUCTS -- 0.03%
Chattem, Inc., (expires 6/17/99) 500 21,555
-----------
SUPERMARKETS -- 0.01%
Dairy Mart Convenience Stores, Inc., (expires 12/01/01) 4,999 3,749
-----------
</TABLE>
33
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Security Shares/Principal Amount Value
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<CAPTION>
TELECOMMUNICATIONS -- 0.00%
<S> <C> <C>
Occidente Y Caribe Celular SA #, (expires 3/15/04) 9,400 $ 94
UNIFI Communications, Inc. #, (expires 2003) 1,000 0
-----------
94
-----------
TOTAL WARRANTS
(cost $94) 25,398
-----------
U.S. GOVERNMENT AND AGENCIES -- 19.52%
Fannie Mae, 0%, due 4/25/27 $ 1,732,902 1,602,207
Fannie Mae, 7.00%, due 6/18/25 - 4/18/27 5,351,238 5,267,369
Fannie Mae, 7.50%, due 12/18/27 3,697,790 3,649,044
Fannie Mae, 8.00%, due 3/25/24 1,591,007 1,587,093
Residential Funding Corp., 7.25%, due 9/25/27 997,977 976,147
-----------
TOTAL U.S. GOVERNMENT AND AGENCIES
(cost $13,049,635) 13,081,860
-----------
TOTAL INVESTMENT SECURITIES -- 82.62%
(cost $ 55,363,998) 55,363,520
REPURCHASE AGREEMENT -- 15.44%
Agreement with State Street Bank and Trust bearing interest
at
5.75% dated 12/31/97 to be repurchased 1/02/98 in the amount
of
$10,349,305 and collateralized by $10,545,000 U.S. Treasury
Bills,
5.75% due 12/31/98, value $10,554,891
(cost $10,346,000) 10,346,000 10,346,000
OTHER ASSETS LESS LIABILITIES -- 1.94% 1,302,616
-----------
NET ASSETS -- 100.00% $67,012,136
-----------
-----------
</TABLE>
# Sale restricted to qualified institutional investors.
$ Step bond.
& Payment-in-kind security.
@ Non-income producing security.
(1) A unit consists of $1,000 par value Sr. Discount Notes, 12.00% due 12/15/06,
and 1 Warrant.
See accompanying notes to financial statements.
34
<PAGE>
NORTHSTAR GOVERNMENT SECURITIES FUND
RYAN R. JOHANSON
THE MARKETS
(Bullet) The U.S. economy grew at an estimated annual rate of 3.9% in 1997.
The year ended with a national unemployment rate of 4.7% for
December, and a surprisingly robust 4.4% estimated growth rate of
GDP in the fourth quarter. Despite this continued strong economic
growth, productivity gains and competitive pressures held the
annualized rise in the gross domestic price deflator to less than
1.8%, the lowest level in over a quarter of a century. It was this
low level of price increases that kept the Federal Reserve from
raising rates after an initial increase in March.
(Bullet) As a result of the turmoil in many overseas currency markets, the
U.S. dollar became the safe haven of choice. This helped the dollar
strengthen against virtually every other currency. It also helped
interest rates and securities prices by bringing capital that had
been invested outside the U.S. into the domestic market.
(Bullet) The term structure of interest rates continued to flatten, pivoting
around the one year area of the curve. The spread between the three
month and the thirty year treasuries narrowed 87.3 basis points to
just over a half of a percentage point. At year end the spread
between the three month and thirty year U.S. treasuries stood at
58.2 basis points. To put this into perspective, since the
beginning of the 90's this spread has averaged 230 basis points,
with the widest being 464 and the tightest being 41.
(Bullet) The outlook for the U.S. fixed rate market looks very bright for
1998. The combination of low inflation, steady economic growth and
deflationary events abroad bode well for a continued decline in
domestic interest rates.
THE FUND
(Bullet) For 1997, the total return of the Fund's Class A shares was 7.46%,
6.93% for Class B, 6.93% for Class C, and 7.38% for Class T; versus
a Lipper average of 8.84%. However, the goal of the Fund has been
to target high current income and conservation of principal. In
that light, the Fund's Class A net asset value has gone from $9.48
at the beginning of 1997 to $9.53 at year end. While the yield on
the Fund has gone from 5.65% at the beginning of the year to 7.88%
at the end of 1997. Over this same one year period the yield on the
10 year U.S. treasury fell from 6.42% to 5.74%.
(Bullet) The fund continues to be made up primarily of mortgage based
securities, with about 40% of the Fund invested in straight GNMA
collateral. The bulk of the remaining portion of the portfolio is
in support bonds of U.S. agencies CMO's which have relatively low
price volatility. Given current prepayment speeds, the average life
of the portfolio continues to shorten to under 5 years.
CURRENT STRATEGY
(Bullet) The strategic objectives of the Fund remains to maximize current
income while preserving net asset value.
(Bullet) Our strategy since the second quarter of 1997 has been to buy bonds
that will have limited changes in prices (due to their structures),
but will have rising yields (due to prepayments that are faster
than market consensus). This strategy has been even more successful
than anticipated. As the decline in rates slows, we expect to see
the greater yields in the Fund eventually outpace the change in
market value of its competition.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/97) TOTAL NET ASSETS $105,727,826
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
NAME % FUND
1 Federal Home Loan Mortgage 7.50%, due 7/15/26 6.7%
2 GNMA 7.00%, due 11/15/2027 6.3%
3 Federal Home Loan Mortgage 7.50%, due 12/15/2024 5.8%
4 GNMA 7.00%, due 2/15/2026 4.9%
5 Fannie Mae 7.00%, due 8/18/2025 4.8%
6 GNMA 7.00%, due 6/15/2026 4.6%
7 Fannie Mae 7.00%, due 6/18/2025 4.6%
8 GNMA 7.00%, due 6/18/2026 4.5%
9 GNMA 7.00%, due 3/15/2026 4.5%
10 GNMA 7.00%, due 1/15/2026 4.4%
------
51.1%
======
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- --------------------------------------------
Inception 5 years 1 year
- --------------------------------------------
Class A 5.05% N/A 2.38 %
- --------------------------------------------
Class B 5.30% N/A 1.93 %
- --------------------------------------------
Class C 6.34% N/A 5.93 %
- --------------------------------------------
Class T 7.25% 7.18% 3.38 %
- --------------------------------------------
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
- --------------------------------------------
Inception 5 years 1 year
- --------------------------------------------
Class A 19.18% N/A 7.46 %
- --------------------------------------------
Class B 17.26% N/A 6.93 %
- --------------------------------------------
Class C 17.20% N/A 6.93 %
- --------------------------------------------
Class T 130.05% 7.18% 7.38 %
- --------------------------------------------
35
<PAGE>
NORTHSTAR GOVERNMENT SECURITIES FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
GOVERNMENT SECURITIES FUND AND COMPARATIVE INDICES FROM INCEPTION OF
EACH CLASS OF SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and
Exchange Commission, the following data is supplied for the fiscal year ended
December 31, 1997, with all distributions reinvested in shares. The average
annualized total return for Class A shares of 5.05% for the period since the
classes' inception on June 5, 1995 reflects payment of the maximum sales charge
of 4.75%. Average annualized total returns of 5.30% and 6.34% since inception on
June 5, 1995 for Class B and Class C shares, respectively, and total returns
since inception on February 3, 1986 for Class T shares of 7.25%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown represents
past performance, and should not be considered indicative of future performance.
[Graphs appear below with the following plot points:]
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS A
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 2.38%
SINCE INCEPTION 5.05%
Lehman
Class A Int Gov't CPI
(6/95 through 12/97)
9528.00 10000.00 10000.00
9369.00 10064.00 10010.00
9199.00 10069.00 10030.00
9466.00 10151.60 10040.00
9684.00 10219.60 10050.10
10025.00 10332.00 10080.20
10234.00 10458.10 10090.30
10508.00 10611.80 10110.50
10449.00 10677.60 10150.90
10095.00 10451.20 10171.20
9959.00 10363.50 10211.90
9865.00 10291.90 10252.80
9813.00 10274.50 10283.50
9977.00 10412.10 10293.80
10012.00 10436.10 10324.70
9938.00 10411.00 10335.00
10169.00 10596.30 10366.00
10478.00 10843.20 10397.10
10744.00 11042.80 10428.30
10567.00 10920.20 10460.00
10580.00 10933.30 10470.10
10582.00 10956.20 10501.50
10358.00 10825.90 10512.00
10497.00 10983.90 10522.50
10590.00 11086.10 10533.00
10730.00 11219.10 10543.60
10999.00 11562.40 10564.70
10921.00 11432.90 10585.80
11099.00 11612.40 10607.00
11230.00 11798.20 10628.20
11256.00 11860.70 10638.80
11355.00 11985.30 10649.40
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS B
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 1.93%
SINCE INCEPTION 5.30%
Lehman
Class B Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
9827.00 10064.00 10010.00
9643.00 10069.00 10030.00
9918.00 10151.60 10040.00
10140.00 10219.60 10050.10
10491.00 10332.00 10080.20
10704.00 10458.10 10090.30
10983.00 10611.80 10110.50
10926.00 10677.60 10150.90
10539.00 10451.20 10171.20
10391.00 10363.50 10211.90
10287.00 10291.90 10252.80
10227.00 10274.50 10283.50
10403.00 10412.10 10293.80
10422.00 10436.10 10324.70
10338.00 10411.00 10335.00
10582.00 10596.30 10366.00
10897.00 10843.20 10397.10
11167.00 11042.80 10428.30
10966.00 10920.20 10460.00
10973.00 10933.30 10470.10
10968.00 10956.20 10501.50
10742.00 10825.90 10512.00
10879.00 10983.90 10522.50
10957.00 11086.10 10533.00
11108.00 11219.10 10543.60
11391.00 11562.40 10564.70
11304.00 11432.90 10585.80
11481.00 11612.40 10607.00
11611.00 11798.20 10628.20
11632.00 11860.70 10638.80
11727.00 11985.30 10649.40
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS C
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5.93%
SINCE INCEPTION 6.34%
Lehman
Class C Int Gov't CPI
(6/95 through 12/97)
10000.00 10000.00 10000.00
9827.00 10064.00 10010.00
9643.00 10069.00 10030.00
9918.00 10151.60 10040.00
10140.00 10219.60 10050.10
10491.00 10332.00 10080.20
10693.00 10458.10 10090.30
10983.00 10611.80 10110.50
10926.00 10677.60 10150.90
10538.00 10451.20 10171.20
10389.00 10363.50 10211.90
10284.00 10291.90 10252.80
10223.00 10274.50 10283.50
10397.00 10412.10 10293.80
10417.00 10436.10 10324.70
10335.00 10411.00 10335.00
10571.00 10596.30 10366.00
10888.00 10843.20 10397.10
11160.00 11042.80 10428.30
10960.00 10920.20 10460.00
10968.00 10933.30 10470.10
10963.00 10956.20 10501.50
10737.00 10825.90 10512.00
10874.00 10983.90 10522.50
10953.00 11086.10 10533.00
11104.00 11219.10 10543.60
11387.00 11562.40 10564.70
11300.00 11432.90 10585.80
11477.00 11612.40 10607.00
11594.00 11798.20 10628.20
11614.00 11860.70 10638.80
11720.00 11985.30 10649.40
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS T
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 3.38%
5-YEAR 7.18%
SINCE INCEPTION 7.25%
Lehman
Class T Int Gov't CPI
(1/86 through 12/97)
10000.00 10000.00 10000.00
10309.00 10698.00 9950.00
10849.00 11238.00 10090.00
10480.00 11276.00 10355.00
10337.00 11643.00 10564.00
10663.00 12124.00 10777.00
10644.00 12388.00 11005.00
11371.00 13347.00 11294.00
11894.00 13959.00 11499.00
12176.00 14379.00 11825.00
12914.00 15294.00 12220.00
13506.00 15893.00 12380.00
14815.00 17449.00 12592.00
15134.00 17935.00 12769.00
1626.00 18658.00 12962.00
18307.00 19736.00 13144.00
19269.00 20185.00 13316.00
17246.00 197014.00 13476.00
17378.00 19832.00 13652.00
19068.00 21624.00 13872.00
21356.00 22801.00 14012.00
20248.00 22372.00 14266.00
21424.00 23464.00 14495.00
21755.00 24106.00 14612.00
23006.00 25752.00 14758.00
36
<PAGE>
NORTHSTAR GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.43%
<S> <C> <C>
Countrywide Home Loans
7.25%, 11/25/27 $1,497,933 $ 1,510,126
------------
U.S. GOVERNMENT AND AGENCIES -- 97.23%
Fannie Mae, 0%, due 4/25/27 3,015,249 2,787,839
Fannie Mae, 7.00%, due 7/25/22 593,121 594,865
Fannie Mae, 7.00%, due 6/18/25 4,896,639 4,826,249
Fannie Mae, 7.00%, due 8/18/25 5,000,000 5,090,350
Fannie Mae, 7.00%, due 5/18/26 3,500,000 3,429,180
Fannie Mae, 7.00%, due 4/18/27 694,283 682,567
Fannie Mae, 7.00%, due 7/18/27 3,222,235 3,183,971
Fannie Mae, 7.10%, due 2/28/11 500,000 500,710
Fannie Mae, 7.50%, due 9/18/27 4,125,671 4,118,203
Fannie Mae, 7.50%, due 12/18/27 3,162,360 3,113,937
Fannie Mae, 7.50%, due 12/18/27 2,495,297 2,458,648
Fannie Mae, 8.25%, due 4/18/27 2,742,477 2,804,649
Federal Home Loan Mortgage Corp., 7.00%, due 8/15/23 686,138 685,082
Federal Home Loan Mortgage Corp., 7.50%, due 12/15/24 6,244,899 6,123,904
Federal Home Loan Mortgage Corp., 7.50%, due 7/15/26 7,049,873 7,087,942
Federal Home Loan Mortgage Corp., 7.50%, due 11/15/27 4,322,943 4,209,465
GNMA, 7.00%, due 9/15/23 4,378,167 4,430,180
GNMA, 7.00%, due 1/15/24 3,190,724 3,234,596
GNMA, 7.00%, due 2/16/24 1,870,000 1,891,673
GNMA, 7.00%, due 1/15/26 4,676,261 4,720,125
GNMA, 7.00%, due 2/15/26 5,098,479 5,146,303
GNMA, 7.00%, due 3/15/26 9,305,279 9,392,563
GNMA, 7.00%, due 6/15/26 9,559,523 9,649,191
GNMA, 7.00%, due 11/15/27 6,630,041 6,688,054
GNMA, 7.50%, due 12/20/20 1,000,000 1,024,520
GNMA, 7.50%, due 1/16/23 5,548,066 1,326,931
GNMA, 7.50%, due 1/20/24 2,200,000 2,281,708
GNMA, 8.50%, due 9/15/24 1,245,071 1,314,720
------------
102,798,125
------------
TOTAL INVESTMENT SECURITIES -- 98.66%
(cost $ 101,920,914) 104,308,251
------------
OTHER ASSETS LESS LIABILITIES -- 1.34% 1,419,575
------------
NET ASSETS -- 100.00% $105,727,826
------------
------------
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Northstar Northstar
Balance Sheet Northstar Northstar Government
Northstar Northstar Opportunities High Yield Strategic Securities
Growth Fund Special Fund Fund Fund Income Fund Fund
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value (cost
$156,404,171, $274,426,665, $50,960,684,
$228,259,465, $55,363,998, and
$101,920,914, respectively) $205,867,594 $321,630,029 $ 59,566,872 $238,861,432 $55,363,520 $104,308,251
Repurchase agreements 936,000 18,447,000 334,000 10,934,000 10,346,000 0
Cash 953 700 416 591 546,117 902,742
Receivable for investments sold 0 10,747,181 0 1,348,437 0 0
Dividends and interest receivable 251,437 400,343 542,785 4,603,761 921,411 644,040
Receivable for shares of beneficial
interest sold 40,746 465,963 13,350 371,943 64,384 148,530
Prepaid expenses 4,539 5,257 3,402 1,304 29,896 5,209
---------------------------------------------------------------------------------------
Total Assets 207,101,269 351,696,473 60,460,825 256,121,468 67,271,328 106,008,772
---------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 0 18,418,850 0 0 0 0
Payable for shares of beneficial interest
reacquired 223,947 604,271 109,110 221,943 89,621 80,313
Distribution fee payable 70,059 229,944 38,887 174,034 49,119 61,847
Investment advisory fee payable 130,449 208,091 33,064 129,735 37,323 44,887
Accrued expenses 169,623 299,711 72,964 201,197 83,129 93,899
Tax withholding payable 2,788 0 0 0 0 0
---------------------------------------------------------------------------------------
Total Liabilities 596,866 19,760,867 254,025 726,909 259,192 280,946
---------------------------------------------------------------------------------------
NET ASSETS $206,504,403 $331,935,606 $ 60,206,800 $255,394,559 $67,012,136 $105,727,826
=======================================================================================
NET ASSETS WERE COMPOSED OF:
Capital paid in for shares of beneficial
interest, $0.01 par value outstanding
(unlimited shares authorized) $159,724,799 $278,928,118 $ 50,341,953 $247,252,700 $70,549,044 $123,469,663
Undistributed net investment income 0 0 1,165 0 175,857 390,455
Accumulated net realized gain (loss) on
investments, foreign currency, options,
and futures (2,683,929) 5,804,124 1,257,494 (2,460,108) (3,712,287) (20,519,629)
Net unrealized appreciation(depreciation)
of investments and foreign currency 49,463,533 47,203,364 8,606,188 10,601,967 (478) 2,387,337
---------------------------------------------------------------------------------------
Net Assets $206,504,403 $331,935,606 $ 60,206,800 $255,394,559 $67,012,136 $105,727,826
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
CLASS A:
Net Assets $ 9,334,434 $ 78,159,610 $ 1,280,504 $ 16,212,572 $12,522,673 $ 1,743,825
---------------------------------------------------------------------------------------
Shares outstanding 439,001 2,814,783 98,496 1,773,627 1,039,954 182,979
---------------------------------------------------------------------------------------
Net asset value and redemption value per
share
(net assets / shares outstanding) $ 21.26 $ 27.77 $ 13.00 $ 9.14 $ 12.04 $ 9.53
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Maximum offering price per share (net
asset value plus sales charge of 4.75%
of offering price) $ 22.32 $ 29.15 $ 13.65 $ 9.60 $ 12.64 $ 10.01
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
CLASS B:
Net Assets $ 8,814,752 $169,516,418 $ 4,968,794 $108,469,395 $29,920,546 $ 13,503,159
---------------------------------------------------------------------------------------
Shares outstanding 421,119 6,215,517 384,005 11,856,819 2,486,261 1,413,521
---------------------------------------------------------------------------------------
Net asset value and offering price per
share $ 20.93 $ 27.27 $ 12.94 $ 9.15 $ 12.03 $ 9.55
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
CLASS C:
Net Assets $ 1,151,771 $ 51,459,558 $ 756,436 $ 21,393,015 $ 4,396,571 $ 541,651
---------------------------------------------------------------------------------------
Shares outstanding 55,074 1,887,412 58,425 2,339,129 365,798 56,797
---------------------------------------------------------------------------------------
Net asset value and offering price per
share $ 20.91 $ 27.26 $ 12.95 $ 9.15 $ 12.02 $ 9.54
=======================================================================================
CLASS T:
Net Assets $ 73,674,052 $ 32,800,020 $ 53,201,066 $109,319,577 $20,172,346 $ 89,939,191
---------------------------------------------------------------------------------------
Shares outstanding 3,504,304 1,199,523 4,087,855 11,958,594 1,675,674 9,418,840
---------------------------------------------------------------------------------------
Net asset value and offering price per
share $ 21.02 $ 27.34 $ 13.01 $ 9.14 $ 12.04 $ 9.55
=======================================================================================
CLASS I:
Net Assets $113,529,394
------------
Shares outstanding 5,315,145
------------
Net asset value and offering price per
share $ 21.36
============
</TABLE>
Redemption price per share varies with the length of time Class B, C, and T
shares are held.
See accompanying notes to financial statements.
38
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Northstar Northstar Northstar
Northstar Balance Sheet Northstar Strategic Government
Northstar Special Opportunities High Yield Income Securities
Growth Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of withholding tax of $7,670,
$55,612, $911, $0, $0, and $0,
respectively) $ 1,730,522 $ 3,505,353 $ 507,685 $ 673,084 $ 172,880 $ 0
Interest (net of withholding tax of $0, $0,
$0, $0, $2,503, and $0, respectively) 545,002 748,866 2,877,548 21,922,799 6,509,619 8,741,050
-----------------------------------------------------------------------------------
Total investment income 2,275,524 4,254,219 3,385,233 22,595,883 6,682,499 8,741,050
-----------------------------------------------------------------------------------
EXPENSES:
Investment advisory and management fees 1,412,949 2,341,067 398,127 1,289,419 471,957 762,504
Distribution fees
Class A 108,596 232,469 3,440 43,158 40,631 22,999
Class B 66,765 1,537,323 43,644 951,060 310,321 106,185
Class C 7,319 463,998 6,401 175,716 43,917 8,299
Class T 710,164 327,946 413,243 761,375 224,593 639,583
Transfer agent fees and expenses
Class A 57,189 137,654 2,448 23,832 21,568 13,971
Class B 10,621 296,440 6,983 164,787 54,270 16,657
Class C 1,436 105,379 1,553 31,608 7,322 1,289
Class T 77,866 32,788 63,100 118,873 25,489 101,858
Class I 13,500 0 0 0 0 0
Administrative service fees 136,648 266,145 46,191 180,250 51,242 78,343
Registration fees 94,449 90,453 55,360 78,443 63,526 56,873
Accounting and custodian fees 69,512 99,806 47,174 80,692 46,968 53,791
Audit fees 32,430 34,410 30,181 35,020 30,644 31,369
Printing and postage expenses 63,133 96,918 17,793 69,483 33,823 29,412
Directors 10,450 13,460 9,260 13,540 9,580 11,300
Insurance 5,694 8,237 2,624 8,965 3,022 5,322
Legal fees 8,777 9,670 2,083 7,284 2,450 5,282
Organization 0 0 0 0 21,900 0
Miscellaneous expenses 7,423 8,444 6,062 13,585 6,752 9,875
-----------------------------------------------------------------------------------
2,894,921 6,102,607 1,155,667 4,047,090 1,469,975 1,954,912
Less expenses reimbursed/waived by
management company 10,635 0 20,690 0 21,320 227,803
-----------------------------------------------------------------------------------
Total expenses 2,884,286 6,102,607 1,134,977 4,047,090 1,448,655 1,727,109
-----------------------------------------------------------------------------------
Net investment income(loss) (608,762) (1,848,388) 2,250,256 18,548,793 5,233,844 7,013,941
-----------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments 5,123,066 19,011,083 4,221,598 7,107,354 (432,671) (1,786,143)
Net realized loss on foreign currency (189) 0 0 0 (519,631) 0
Net change in unrealized appreciation
(depreciation) of investments 32,606,026 24,201,023 6,464,152 (977,429) (2,789,807) 2,710,567
Net change in unrealized appreciation of
foreign currency 110 0 0 0 2,508 0
-----------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 37,729,013 43,212,106 10,685,750 6,129,925 (3,739,601) 924,424
-----------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $37,120,251 $41,363,718 $12,936,006 $24,678,718 $1,494,243 $ 7,938,365
===================================================================================
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
Northstar
Balance Sheet
Northstar Northstar Opportunities
Growth Fund Special Fund Fund
-------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1997 1996
--------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ (608,762) $ (236,460) $ (1,848,388) $ (1,247,177) $ 2,250,256 $ 2,838,573
Net realized gain (loss) on investments 5,123,066 4,346,067 19,011,083 (5,942,811) 4,221,598 8,721,311
Net realized gain (loss) on foreign
currency (189) (52) 0 1,712 0 0
Net change in unrealized appreciation
(depreciation) of investments 32,606,026 9,888,907 24,201,023 15,617,585 6,464,152 (4,632,099)
Net change in unrealized appreciation
of foreign currency 110 0 0 0 0 0
--------------------------------------------------------------------------------------
Increase in net assets resulting from
operations 37,120,251 13,998,462 41,363,718 8,429,309 12,936,006 6,927,785
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A 0 0 0 0 (47,893) (46,606)
Class B 0 0 0 0 (159,749) (125,106)
Class C 0 0 0 0 (23,637) (12,103)
Class T 0 0 0 0 (2,022,072) (2,650,498)
Net realized gain from investments (7,933,911) (3,484,245) (7,264,148) 0 (4,444,574) (7,268,332)
Tax return of capital (37,894) 0 0 0 0 0
--------------------------------------------------------------------------------------
Total distributions (7,971,805) (3,484,245) (7,264,148) 0 (6,697,925) (10,102,645)
--------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 196,893,147 8,022,620 112,190,424 263,413,495 1,854,297 3,914,850
Net asset value of shares issued to
shareholders in reinvestment of
distributions 7,655,103 3,217,412 4,759,317 0 5,716,874 8,513,000
--------------------------------------------------------------------------------------
204,548,250 11,240,032 116,949,741 263,413,495 7,571,171 12,427,850
Cost of shares redeemed (107,156,780) (21,542,815) (84,645,169) (43,756,330) (18,329,438) (19,784,271)
--------------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from capital share
transactions 97,391,470 (10,302,783) 32,304,572 219,657,165 (10,758,267) (7,356,421)
--------------------------------------------------------------------------------------
Net increase (decrease) in net assets 126,539,916 211,434 66,404,142 228,086,474 (4,520,186) (10,531,281)
NET ASSETS:
Beginning of year 79,964,487 79,753,053 265,531,464 37,444,990 64,726,986 75,258,267
--------------------------------------------------------------------------------------
End of year $206,504,403 $79,964,487 $331,935,606 $265,531,464 $ 60,206,800 $ 64,726,986
======================================================================================
Undistributed net investment income: $ 0 $ 0 $ 0 $ 0 $ 1,165 $ 4,260
======================================================================================
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
Northstar Northstar
Northstar Strategic Government
High Yield Income Fund Securities Fund
--------------------------- ------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1997 1996
-------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 18,548,793 $ 17,278,818 $ 5,233,844 $ 5,829,223 $ 7,013,941 $ 9,085,300
Net realized gain (loss) on investments 7,107,354 (831,501) (432,671) (250,042) (1,786,143) 932,343
Net realized gain (loss) on foreign
currency 0 18,211 (519,631) 297,066 0 0
Net change in unrealized appreciation
(depreciation) of investments (977,429) 11,649,652 (2,789,807) 2,773,999 2,710,567 (9,831,154)
Net change in unrealized appreciation
(depreciation) of foreign currency 0 0 2,508 (1,117) 0 0
-------------------------------------------------------------------------------------
Increase in net assets resulting from
operations 24,678,718 28,115,180 1,494,243 8,649,129 7,938,365 186,489
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A (1,210,886) (941,693) (994,522) (1,854,931) (485,879) (727,805)
Class B (7,343,871) (4,644,718) (2,119,682) (2,062,659) (636,837) (357,791)
Class C (1,360,819) (796,850) (301,283) (242,856) (46,684) (50,912)
Class T (9,450,916) (10,913,768) (1,622,631) (2,172,688) (6,221,820) (7,862,425)
Tax return of capital 0 (1,706,413) 0 0 0 0
-------------------------------------------------------------------------------------
Total distributions (19,366,492) (19,003,442) (5,038,118) (6,333,134) (7,391,220) (8,998,933)
-------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 56,719,815 73,147,596 13,363,625 21,030,229 7,045,182 19,576,499
Net asset value of shares issued to
shareholders in reinvestment of
distributions 7,905,559 8,526,557 2,272,119 2,480,616 4,869,989 6,013,372
-------------------------------------------------------------------------------------
64,625,374 81,674,153 15,635,744 23,510,845 11,915,171 25,589,871
Cost of shares redeemed (45,594,760) (39,383,908) (24,677,925) (22,562,072) (43,326,996) (37,168,170)
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from capital share
transactions 19,030,614 42,290,245 (9,042,181) 948,773 (31,411,825) (11,578,299)
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets 24,342,840 51,401,983 (12,586,056) 3,264,768 (30,864,680) (20,390,743)
NET ASSETS:
Beginning of year 231,051,719 179,649,736 79,598,192 76,333,424 136,592,506 156,983,249
-------------------------------------------------------------------------------------
End of year $255,394,559 $231,051,719 $67,012,136 $79,598,192 $105,727,826 $136,592,506
=====================================================================================
Undistributed net investment income: $ 0 $ 0 $ 175,857 $ 321,881 $ 390,455 $ 86,367
=====================================================================================
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
NORTHSTAR FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
Net realized Dividends
Net Asset & unrealized declared Distributions
Value, Net gain (loss) Total from from net declared from
Period beginning investment on investment investment net realized Distributions
ended of period income investments operations income gain from Capital
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Growth Fund,
Class A
-------------
12/31/97 $ 17.92 $ 0.03 $ 4.16 $ 4.19 -- ($ 0.85) --
12/31/96 15.53 0.02 3.18 3.20 -- (0.81) --
6/05/95-
12/31/95 17.59 0.08 1.95 2.03 (0.10) (3.99) --
Growth Fund,
Class B
-------------
12/31/97 17.76 (0.15) 4.17 4.02 -- (0.85) --
12/31/96 15.50 (0.06) 3.13 3.07 -- (0.81) --
6/05/95-
12/31/95 17.59 0.06 1.92 1.98 (0.08) (3.99) --
Growth Fund,
Class C
-------------
12/31/97 17.76 (0.13) 4.13 4.00 -- (0.85) --
12/31/96 15.50 (0.05) 3.12 3.07 -- (0.81) --
6/05/95-
12/31/95 17.59 0.04 1.92 1.96 (0.06) (3.99) --
Growth Fund,
Class T
-------------
12/31/97 17.82 (0.17) 4.22 4.05 -- (0.85) --
12/31/96 15.53 (0.06) 3.16 3.10 -- (0.81) --
12/31/95 15.75 0.07 3.77 3.84 (0.07) (3.99) --
12/31/94 17.33 0.08 (1.41) (1.33) (0.08) (0.15) ($ 0.02)
12/31/93 16.36 0.02 1.67 1.69 (0.04) (0.67) (0.01)
12/31/92 16.37 0.02 1.30 1.32 (0.02) (1.31) --
12/31/91 12.49 0.09 4.62 4.71 (0.08) (0.75) --
12/31/90 13.85 0.10 (0.83) (0.73) (0.10) (0.51) (0.02)
Growth Fund,
Class I
-------------
3/31/97-
12/31/97 17.90 0.01 4.30 4.31 -- (0.85) --
Special Fund,
Class A
-------------
12/31/97 24.72 (0.02) 3.68 3.66 -- (0.61) --
12/31/96 20.92 (0.04) 3.84 3.80 -- -- --
6/05/95-
12/31/95 19.56 (0.09) 2.48 2.39 -- (1.03) --
Special Fund,
Class B
-------------
12/31/97 24.46 (0.19) 3.61 3.42 -- (0.61) --
12/31/96 20.84 (0.12) 3.74 3.62 -- -- --
6/05/95-
12/31/95 19.56 (0.12) 2.43 2.31 -- (1.03) --
Special Fund,
Class C
-------------
12/31/97 24.46 (0.20) 3.61 3.41 -- (0.61) --
12/31/96 20.84 (0.13) 3.75 3.62 -- -- --
6/05/95-
12/31/95 19.56 (0.15) 2.46 2.31 -- (1.03) --
Special Fund,
Class T
-------------
12/31/97 24.48 (0.18) 3.65 3.47 -- (0.61) --
12/31/96 20.84 (0.21) 3.85 3.64 -- -- --
12/31/95 19.64 (0.34) 2.57 2.23 -- (1.03) --
12/31/94 20.79 (0.25) (0.76) (1.01) -- (0.14) --
12/31/93 17.40 (0.32) 3.83 3.51 -- (0.12) --
12/31/92 15.74 (0.33) 2.61 2.28 -- (0.62) --
12/31/91 10.64 (0.21) 6.24 6.03 -- (0.93) --
12/31/90 11.67 (0.20) (0.83) (1.03) -- -- --
Balance Sheet Opportunities
Fund, Class A
-------------------------------
12/31/97 11.78 0.52 2.27 2.79 (0.54) (1.03) --
12/31/96 12.53 0.56 0.74 1.30 (0.57) (1.48) --
6/05/95-
12/31/95 12.77 0.43 1.06 1.49 (0.48) (1.25) --
Balance Sheet Opportunities
Fund, Class B
-------------------------------
12/31/97 11.74 0.44 2.25 2.69 (0.46) (1.03) --
12/31/96 12.51 0.50 0.71 1.21 (0.50) (1.48) --
6/05/95-
12/31/95 12.77 0.35 1.09 1.44 (0.45) (1.25) --
Balance Sheet Opportunities
Fund, Class C
-------------------------------
12/31/97 11.75 0.43 2.25 2.68 (0.45) (1.03) --
12/31/96 12.52 0.49 0.70 1.19 (0.48) (1.48) --
6/05/95-
12/31/95 12.77 0.38 1.07 1.45 (0.45) (1.25) --
Balance Sheet Opportunities
Fund, Class T
-------------------------------
12/31/97 11.79 0.50 2.24 2.74 (0.49) (1.03) --
12/31/96 12.54 0.53 0.73 1.26 (0.53) (1.48) --
12/31/95 11.54 0.57 2.27 2.84 (0.59) (1.25) --
12/31/94 12.94 0.57 (1.25) (0.68) (0.54) (0.16) (0.02)
12/31/93 12.05 0.49 1.20 1.69 (0.49) (0.31) --
12/31/92 11.66 0.55 0.36 0.91 (0.52) -- --
12/31/91 10.13 0.57 1.53 2.10 (0.57) -- --
12/31/90 10.71 0.61 (0.54) 0.07 (0.63) -- (0.02)
<CAPTION>
Ratio of
Ratio of net
Net Net expenses Ratio of investment
Asset Assets, to expense income to
Value, end of average reimbursement average
Period Total end of Total period net to average net Portfolio
ended Distributions period Return (000's) assets(1) net assets(1) assets(1) turnover
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
12/31/97 ($ 0.85) $21.26 23.59% $9,334 1.37% 0.03% 0.04% 32%
12/31/96 (0.81) 17.92 20.54 4,750 1.50 0.06 0.11 62
6/05/95-
12/31/95 (4.09) 15.53 11.55 1,355 1.42 -- 0.63 134
12/31/97 (0.85) 20.93 22.84 8,815 2.14 -- (0.95) 32
12/31/96 (0.81) 17.76 19.74 4,444 2.20 0.04 (0.55) 62
6/05/95-
12/31/95 (4.07) 15.50 11.27 1,987 2.07 -- 0.06 134
12/31/97 (0.85) 20.91 22.73 1,152 2.17 -- (1.00) 32
12/31/96 (0.81) 17.76 19.74 365 2.20 0.15 (0.57) 62
6/05/95-
12/31/95 (4.05) 15.50 11.17 69 2.11 -- 0.02 134
12/31/97 (0.85) 21.02 22.94 73,674 2.03 -- (0.81) 32
12/31/96 (0.81) 17.82 19.90 70,406 2.00 0.04 (3.05) 62
12/31/95 (4.06) 15.53 24.40 76,343 2.00 -- 0.37 134
12/31/94 (0.25) 15.75 (7.66) 76,391 2.00 -- 0.49 54
12/31/93 (0.72) 17.33 10.36 80,759 2.04 -- 0.13 42
12/31/92 (1.33) 16.36 8.05 56,759 2.15 -- 0.09 47
12/31/91 (0.83) 16.37 38.10 40,884 2.25 -- 0.66 64
12/31/90 (0.63) 12.49 (5.24) 24,927 2.33 -- 0.80 54
3/31/97-
12/31/97 (0.85) 21.36 24.29 113,529 1.02 -- 0.08 32
12/31/97 (0.61) 27.77 14.92 78,160 1.43 -- (0.07) 175
12/31/96 -- 24.72 18.16 65,660 1.46 0.01 (0.30) 140
6/05/95-
12/31/95 (1.03) 20.92 12.20 2,335 1.50 -- (0.91) 71
12/31/97 (0.61) 27.27 14.10 169,516 2.15 -- (0.78) 175
12/31/96 -- 24.46 17.37 126,859 2.17 0.01 (1.01) 140
6/05/95-
12/31/95 (1.03) 20.84 11.79 1,491 2.20 0.01 (1.64) 71
12/31/97 (0.61) 27.26 14.06 51,460 2.18 -- (0.82) 175
12/31/96 -- 24.46 17.37 37,342 2.20 0.01 (1.03) 140
6/05/95-
12/31/95 (1.03) 20.84 11.79 62 2.20 0.03 (1.60) 71
12/31/97 (0.61) 27.34 14.29 32,800 1.99 -- (0.62) 175
12/31/96 -- 24.48 17.47 35,670 2.07 0.04 (0.89) 140
12/31/95 (1.03) 20.84 11.34 33,557 2.16 -- (1.50) 71
12/31/94 (0.14) 19.64 (4.86) 38,848 2.16 -- (1.25) 39
12/31/93 (0.12) 20.79 20.16 28,838 2.34 -- (1.66) 35
12/31/92 (0.62) 17.40 14.54 11,336 2.84 -- (2.12) 40
12/31/91 (0.93) 15.74 57.27 5,480 2.95 0.74 (1.57) 85
12/31/90 -- 10.64 (8.83) 3,024 2.95 2.03 (0.97) 72
12/31/97 (1.57) 13.00 24.31 1,281 1.50 0.02 4.01 130
12/31/96 (2.05) 11.78 10.54 1,100 1.40 0.09 4.30 107
6/05/95-
12/31/95 (1.73) 12.53 11.95 797 1.27 -- 4.99 131
12/31/97 (1.49) 12.94 23.48 4,969 2.15 0.02 3.37 130
12/31/96 (1.98) 11.74 9.76 3,765 2.10 0.07 3.64 107
6/05/95-
12/31/95 (1.70) 12.51 11.56 1,759 1.95 -- 4.38 131
12/31/97 (1.48) 12.95 23.41 756 2.25 -- 3.30 130
12/31/96 (1.96) 11.75 9.72 372 2.10 0.10 3.61 107
6/05/95-
12/31/95 (1.70) 12.52 11.49 231 1.91 -- 4.49 131
12/31/97 (1.52) 13.01 23.91 53,201 1.83 0.04 3.70 130
12/31/96 (2.01) 11.79 10.18 59,490 1.69 0.06 3.99 107
12/31/95 (1.84) 12.54 25.11 72,472 1.68 -- 4.44 131
12/31/94 (0.72) 11.54 (5.33) 73,764 1.69 -- 4.36 59
12/31/93 (0.80) 12.94 14.08 80,841 1.77 -- 3.99 38
12/31/92 (0.52) 12.05 8.06 56,823 2.02 -- 4.73 59
12/31/91 (0.57) 11.66 21.17 49,367 2.06 -- 5.21 77
12/31/90 (0.65) 10.13 0.78 44,750 2.10 -- 5.73 57
</TABLE>
Average
Commission
Period Per
ended Share(2)
- ------------------------
12/31/97 $0.0609
12/31/96 0.0593
6/05/95-
12/31/95 --
12/31/97 0.0609
12/31/96 0.0593
6/05/95-
12/31/95 --
12/31/97 0.0609
12/31/96 0.0593
6/05/95-
12/31/95 --
12/31/97 0.0609
12/31/96 0.0593
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
3/31/97-
12/31/97 0.0609
12/31/97 0.0383
12/31/96 0.0392
6/05/95-
12/31/95 --
12/31/97 0.0383
12/31/96 0.0392
6/05/95-
12/31/95 --
12/31/97 0.0383
12/31/96 0.0392
6/05/95-
12/31/95 --
12/31/97 0.0383
12/31/96 0.0392
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
12/31/97 0.0629
12/31/96 0.0690
6/05/95-
12/31/95 --
12/31/97 0.0629
12/31/96 0.0690
6/05/95-
12/31/95 --
12/31/97 0.0629
12/31/96 0.0690
6/05/95-
12/31/95 --
12/31/97 0.0629
12/31/96 0.0690
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
(1) Annualized
(2) For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
See accompanying notes to financial statements.
42
<PAGE>
NORTHSTAR FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD -- (CONTINUED)
<TABLE>
<CAPTION>
Net realized Dividends
Net Asset & unrealized declared Distributions
Value, Net gain (loss) Total from from net declared from
Period beginning investment on investment investment net realized Distributions
ended of period income investments operations income gain from Capital
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
High Yield
Fund, Class A
-------------
12/31/97 $ 8.94 $ 0.73 $ 0.23 $ 0.96 ($0.76) -- --
12/31/96 8.56 0.76 0.44 1.20 (0.75) -- ($ 0.07)
12/31/95 8.68 0.48 (0.10) 0.38 (0.50) -- --
High Yield
Fund, Class B
-------------
12/31/97 8.95 0.67 0.23 0.90 (0.70) -- --
12/31/96 8.57 0.71 0.43 1.14 (0.69) -- ($ 0.07)
12/31/95 8.68 0.44 (0.09) 0.35 (0.46) -- --
High Yield
Fund, Class C
-------------
12/31/97 8.95 0.67 0.23 0.90 (0.70) -- --
12/31/96 8.57 0.72 0.42 1.14 (0.69) -- ($ 0.07)
12/31/95 8.68 0.44 (0.09) 0.35 (0.46) -- --
High Yield
Fund, Class T
-------------
12/31/97 8.94 0.71 0.23 0.94 (0.74) -- --
12/31/96 8.56 0.73 0.45 1.18 (0.73) -- ($ 0.07)
12/31/95 8.29 0.84 0.26 1.10 (0.83) -- --
12/31/94 9.31 0.81 (0.99) (0.18) (0.83) ($ 0.01) --
12/31/93 9.09 0.85 0.80 1.65 (0.83) (0.60) --
12/31/92 7.94 0.92 1.19 2.11 (0.94) (0.02) --
12/31/91 6.27 1.08 1.67 2.75 (1.08) -- --
12/31/90 8.55 1.12 (2.30) (1.18) (1.10) -- --
Strategic
Income Fund,
Class A
-------------
12/31/97 12.67 1.00 (0.69) 0.31 (0.94) -- --
12/31/96 12.40 0.93 0.35 1.28 (1.01) -- --
6/05/95-
12/31/95 12.24 0.63 0.13 0.76 (0.60) -- --
Strategic
Income Fund,
Class B
-------------
12/31/97 12.67 0.87 (0.66) 0.21 (0.85) -- --
12/31/96 12.39 0.85 0.36 1.21 (0.93) -- --
6/05/95-
12/31/95 12.24 0.55 0.15 0.70 (0.55) -- --
Strategic
Income Fund,
Class C
-------------
12/31/97 12.65 0.88 (0.65) 0.23 (0.86) -- --
12/31/96 12.38 0.85 0.35 1.20 (0.93) -- --
6/05/95-
12/31/95 12.24 0.55 0.14 0.69 (0.55) -- --
Strategic
Income Fund,
Class T
-------------
12/31/97 12.67 0.94 (0.70) 0.24 (0.87) -- --
12/31/96 12.39 0.88 0.35 1.23 (0.95) -- --
12/31/95 11.71 0.98 0.66 1.64 (0.96) -- --
7/01/94-
12/31/94 12.00 0.51 (0.25) 0.26 (0.49) (0.05) (0.01)
Government Securities Fund,
Class A
-------------------------------
12/31/97 9.48 0.68 -- 0.68 (0.63) -- --
12/31/96 10.07 0.63 (0.60) 0.03 (0.62) -- --
6/05/95-
12/31/95 9.51 0.34 0.59 0.93 (0.37) -- --
Government Securities Fund,
Class B
-------------------------------
12/31/97 9.48 0.52 0.11 0.63 (0.56) -- --
12/31/96 10.07 0.57 (0.60) (0.03) (0.56) -- --
6/05/95-
12/31/95 9.51 0.30 0.59 0.89 (0.33) -- --
Government Securities Fund,
Class C
-------------------------------
12/31/97 9.47 0.59 0.04 0.63 (0.56) -- --
12/31/96 10.07 0.58 (0.62) (0.04) (0.56) -- --
6/05/95-
12/31/95 9.51 0.30 0.59 0.89 (0.33) -- --
Government Securities Fund,
Class T
-------------------------------
12/31/97 9.48 0.57 0.10 0.67 (0.60) -- --
12/31/96 10.07 0.60 (0.59) 0.01 (0.60) -- --
12/31/95 8.74 0.58 1.35 1.93 (0.60) -- --
12/31/94 10.32 0.56 (1.56) (1.00) (0.57) -- (0.01)
12/31/93 9.22 0.59 1.09 1.68 (0.58) -- --
12/31/92 8.99 0.61 0.23 0.84 (0.61) -- --
12/31/91 8.47 0.67 0.52 1.19 (0.67) -- --
12/31/90 8.47 0.68 -- 0.68 (0.68) -- --
<CAPTION>
Ratio of
Ratio of net
Net Net expenses Ratio of investment
Asset Assets, to expense income to
Value, end of average reimbursement average
Period Total end of Total period net to average net Portfolio
ended Distributions period Return (000's) assets(1) net assets(1) assets(1) turnover
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
12/31/97 ($ 0.76) $ 9.14 11.18% $16,213 1.20% -- 8.06% 134%
12/31/96 (0.82) 8.94 14.74 13,146 1.11 -- 8.60 128
12/31/95 (0.50) 8.56 4.48 7,466 1.02 -- 9.83 103
12/31/97 (0.70) 9.15 10.38 108,469 1.91 -- 7.35 134
12/31/96 (0.76) 8.95 13.94 79,199 1.81 -- 7.88 128
12/31/95 (0.46) 8.57 4.17 29,063 1.71 -- 9.18 103
12/31/97 (0.70) 9.15 10.37 21,393 1.92 -- 7.35 134
12/31/96 (0.76) 8.95 13.93 14,275 1.82 -- 7.85 128
12/31/95 (0.46) 8.57 4.17 3,410 1.72 -- 9.29 103
12/31/97 (0.74) 9.14 10.86 109,320 1.47 -- 7.77 134
12/31/96 (0.80) 8.94 14.49 124,431 1.31 -- 8.43 128
12/31/95 (0.83) 8.56 13.71 139,711 1.33 -- 9.69 103
12/31/94 (0.84) 8.29 (2.18) 136,426 1.34 -- 9.08 86
12/31/93 (1.43) 9.31 18.89 125,095 1.40 -- 8.84 176
12/31/92 (0.96) 9.09 27.57 64,063 1.50 0.05% 10.30 122
12/31/91 (1.08) 7.94 46.49 25,651 1.50 0.46 14.84 57
12/31/90 (1.10) 6.27 (14.59) 11,342 1.44 0.81 15.15 156
12/31/97 (0.94) 12.04 2.50 12,523 1.45 0.03 7.75 225
12/31/96 (1.01) 12.67 10.88 17,293 1.40 0.05 7.55 130
6/05/95-
12/31/95 (0.60) 12.40 6.40 21,790 1.36 0.07 7.03 153
12/31/97 (0.85) 12.03 1.67 29,921 2.18 0.02 7.02 225
12/31/96 (0.93) 12.67 10.18 30,733 2.10 0.09 6.82 130
6/05/95-
12/31/95 (0.55) 12.39 5.89 22,143 2.06 0.06 6.47 153
12/31/97 (0.86) 12.02 1.75 4,397 2.17 0.02 7.03 225
12/31/96 (0.93) 12.65 10.11 4,222 2.10 0.11 6.79 130
6/05/95-
12/31/95 (0.55) 12.38 5.81 2,172 2.02 0.06 6.48 153
12/31/97 (0.87) 12.04 1.89 20,172 2.03 0.05 7.17 225
12/31/96 (0.95) 12.67 10.39 27,350 1.90 0.09 7.07 130
12/31/95 (0.96) 12.39 14.54 30,228 1.90 0.28 6.86 153
7/01/94-
12/31/94 (0.55) 11.71 2.14 25,252 1.90 0.63 7.92 156
12/31/97 (0.63) 9.53 7.46 1,744 1.15 0.17 6.44 129
12/31/96 (0.62) 9.48 0.57 14,185 1.09 0.20 6.85 101
6/05/95-
12/31/95 (0.37) 10.07 10.04 3,235 1.02 0.20 6.01 295
12/31/97 (0.56) 9.55 6.93 13,503 1.89 0.17 5.50 129
12/31/96 (0.56) 9.48 (0.15) 9,135 1.80 0.20 6.05 101
6/05/95-
12/31/95 (0.33) 10.07 9.61 2,790 1.70 0.20 5.20 295
12/31/97 (0.56) 9.54 6.93 542 1.85 0.17 5.67 129
12/31/96 (0.56) 9.47 (0.21) 1,147 1.80 0.21 6.22 101
6/05/95-
12/31/95 (0.33) 10.07 9.61 8 1.68 0.20 5.28 295
12/31/97 (0.60) 9.55 7.38 89,939 1.45 0.20 5.99 129
12/31/96 (0.60) 9.48 0.32 112,126 1.30 0.21 6.37 101
12/31/95 (0.60) 10.07 22.90 150,951 1.30 0.20 6.23 295
12/31/94 (0.58) 8.74 (9.82) 152,608 1.29 0.20 6.00 315
12/31/93 (0.58) 10.32 18.48 184,156 1.31 0.20 5.83 81
12/31/92 (0.61) 9.22 9.77 144,144 1.39 0.20 6.81 120
12/31/91 (0.67) 8.99 14.73 121,389 1.44 0.20 7.68 87
12/31/90 (0.68) 8.47 8.57 108,420 1.43 0.20 8.23 17
Average
Commission
Period Per
ended Share(2)
- ------------------------
12/31/97 --
12/31/96 $0.0777
12/31/95 --
12/31/97 --
12/31/96 0.0777
12/31/95 --
12/31/97 --
12/31/96 0.0777
12/31/95 --
12/31/97 --
12/31/96 0.0777
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
12/31/95 --
7/01/94-
12/31/94 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
6/05/95-
12/31/95 --
12/31/97 --
12/31/96 --
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
</TABLE>
(1) Annualized
(2) For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
See accompanying notes to financial statements.
43
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- Northstar Growth Fund, Northstar Special Fund, Northstar
Balance Sheet Opportunities Fund, Northstar High Yield Fund, Northstar Strategic
Income Fund, and Northstar Government Securities Fund (collectively the "Funds")
are organized under the laws of the Commonwealth of Massachusetts and registered
under the Investment Company Act of 1940 as diversified open-end management
investment companies. Each is a separate investment company with its own
investment objective and specific investment goals set forth below:
NORTHSTAR GROWTH FUND ("Growth Fund") seeks to achieve long-term growth of
capital by investing principally in common stocks selected for their prospects
for capital appreciation.
NORTHSTAR SPECIAL FUND ("Special Fund") seeks to achieve capital
appreciation through investment in a diversified portfolio of equity securities
selected for their potential for growth, primarily in small and
mid-capitalization companies.
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND ("Balance Sheet Opportunities
Fund") seeks to realize income and secondarily, capital appreciation through
investments in a balance of debt securities, common and preferred stocks, and
securities convertible into common stock.
NORTHSTAR HIGH YIELD FUND ("High Yield Fund") seeks to achieve high current
income primarily through investments in long and intermediate-term high
yield-high risk, lower-rated and nonrated corporate debt instruments.
NORTHSTAR STRATEGIC INCOME FUND ("Strategic Income Fund") seeks to achieve
high current income by allocating its investments among the following three
sectors of the fixed income securities markets: debt obligations of the U.S.
Government, its agencies and instrumentalities; high yield-high risk,
lower-rated and nonrated U.S. and foreign fixed income securities, and
investment grade debt obligations of foreign governments, their agencies and
instrumentalities and obligations of supranational entities.
NORTHSTAR GOVERNMENT SECURITIES FUND ("Government Securities Fund") seeks to
achieve a high level of current income and to conserve principal by investing in
debt obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
Security Valuation -- Equity securities are valued at the closing sale
prices reported on recognized securities exchanges or lacking any sales, at the
last available bid price. Prices of long-term debt securities are valued on the
basis of last reported sales price, or if no sales are reported, the value is
determined based upon the mean of representative quoted bid or asked prices for
such securities, or, if such prices are not available, at prices provided by
market makers, or at prices for securities of comparable maturity, quality and
type. Short-term debt instruments with remaining maturities of less than 60 days
are valued at amortized cost, unless the Trustees determine that amortized cost
does not reflect the fair value of such obligations. Securities for which market
quotations are not readily available are valued at fair value determined in good
faith by or under direction of the Trustees of the Funds. The books and records
of the Funds are maintained in U.S. dollars. Securities quoted in foreign
currencies are translated into in U.S. dollars based on the prevailing exchange
rates on that day. The Adviser uses independent pricing services to price the
Funds' securities.
Security Transactions, Investment Income and Expenses -- Security
transactions are recorded on the trade date. Realized gains or losses on sales
of investments are calculated on the identified cost basis. Interest income is
recorded on the accrual basis except when collection is not expected; discounts
are accrued, and premiums amortized to par at maturity; dividend income is
recorded on the ex-dividend dates. Income, expenses (except class specific
expenses), and realized/unrealized gains/losses, are allocated proportionately
to each Fund or class of shares based upon the relative net asset value.
Distributions to Shareholders -- Dividends from net investment income are
declared and paid monthly by the Government Securities, Strategic Income and
High Yield Funds, declared and paid quarterly by the Balance Sheet Opportunities
Fund and declared and paid annually by the Growth and Special Funds.
Distributions of net realized capital gains, if any, are declared annually;
however, to the extent that a net realized capital gain can be reduced by a
capital loss carryover, such gain will not be distributed.
The Funds may periodically make reclassifications among certain of their
capital accounts as a result of the timing and characterization of certain
income and capital gains distributions determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to return of capital
distributions received on portfolio securities, and differing treatments of
foreign currency transactions, income earned from limited partnerships, and net
operating losses. As of December 31, 1997, the following amounts have been
reclassified from undistributed net investment income to accumulated net
realized gain(loss) on investments and paid-in-capital:
44
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED NET
NET INVESTMENT REALIZED GAIN
INCOME ON INVESTMENTS PAID-IN- CAPTIAL
-------------- --------------- ---------------
<S> <C> <C> <C>
Growth Fund $ 608,762 $ (696,823) $ 88,061
Special
Fund 1,848,388 0 (1,848,388)
Balance
Sheet
Opportunities
Fund 0 (43,151) 43,151
High Yield
Fund 817,699 0 (817,699)
Strategic
Income
Fund (341,750) 381,210 (39,460)
Government
Securities
Fund 681,367 2,387,010 (3,068,377)
</TABLE>
These restatements did not affect net investment income, net realized gain
on investments, or net assets for the year ended December 31, 1997.
Foreign Currency -- The Funds isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held.
Net realized gain(loss) on foreign currency transactions represent the
foreign exchange:
(1) gains and losses from the sale of holdings of foreign currencies, (2)
gains and losses between trade date and settlement date on investment securities
transactions and forward exchange contracts, and (3) gains and losses from the
difference between amounts of interest and dividends recorded and the amounts
actually received.
Forward Foreign Currency Contracts, Options and Futures -- The Funds may
enter into forward foreign currency contracts ("contracts") to purchase or sell
currencies at a specified rate at a future date. The Funds may enter into these
contracts solely for hedging purposes.
The Funds write and purchase put and call options on foreign currencies. The
premium paid or collected by the Funds for the purchase or sale of a call or put
option is recorded as an investment and subsequently "marked-to-market" to
reflect the current market value of the option. If an option which the Funds
have purchased or sold expires on the stipulated expiration date, the Funds
realize a gain or loss in the amount of the cost of the option.
The amount of potential gain or loss to the Funds upon exercise of a written
call option is the value (in U.S. dollars) of the currency sold, less the value
of the U.S. dollars received in exchange. The amount of potential gain or loss
to the Funds upon exercise of a written put option is the value (in U.S.
dollars) of the currency received, less the value of the U.S. dollars paid in
exchange.
Risks may arise upon entering these contracts from the potential inability
of counterparties to meet the terms of their contract and from unanticipated
movement in the value of a foreign currency relative to the U.S. dollar.
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Fund's agent in acquiring the
futures position). During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
marking to market on a daily basis to reflect the market value of the contract
at the end of each day's trading.
Variation margin payments are received or made, depending upon whether
unrealized gains or losses are incurred. When the contract is closed, the Funds
record a realized gain or loss equal to the difference between the proceeds from
(or cost of) the closing transaction and the Fund's basis in the contract.
Repurchase Agreements -- The Funds' Custodian takes possession of collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to assure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Funds have the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. If the
seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Funds may be delayed or limited.
Federal Income Taxes -- The Funds intend to comply with the special
provisions of the Internal Revenue Code available to investment companies and to
distribute all of the taxable net income to their respective shareholders.
Therefore, no Federal income tax provision or excise tax provision is required.
Organization Expenses -- Organization expenses have been capitalized by the
Funds and amortized on a straight-line basis over a 60 month period from the
commencement of operations of each Fund. Costs incurred by the Strategic Income
Fund in connection with its organization and its original registration amounted
to $105,074.
Management use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date(s) of financial statements and the reported amounts of
45
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
income and expenses during the reporting period(s). Actual results could differ
from those estimates.
NOTE 2. INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
Northstar, Inc. (and its wholly owned operating subsidiaries, Northstar
Investment Management Corp., Northstar Distributors, Inc. and Northstar
Administrator Corp.) is a wholly owned subsidiary of ReliaStar Financial Corp.
Northstar Investment Management Corp. (the "Adviser") serves as each Fund's
investment adviser. Each Fund pays the Adviser an investment advisory fee
calculated at an annual rate of 0.60% of average daily net assets for High Yield
Fund, 0.65% of average daily net assets for the Government Securities, Strategic
Income and Balance Sheet Opportunities Funds, and 0.75% of average daily net
assets for the Growth and Special Funds. The Adviser has agreed to waive 0.20%
of its advisory fee for the Government Securities Fund through June 2, 1997 and
0.15% of its' fee from June 3, 1997 through December 31, 1997 therefore the rate
paid equals 0.45% and 0.50% of average daily net assets, respectively. For the
period ended December 31, 1997, the Adviser waived $201,863 of advisory fees for
the Government Securities Fund. For the period ended December 31, 1997, the
Funds paid advisory fees to Northstar Investment Management Corp. of $6,676,023.
Navellier Fund Management, Inc. ("Navellier"), a registered investment adviser,
serves as subadviser to the Special Fund pursuant to a Subadvisory Agreement
dated February 1, 1996, between the Adviser and Navellier. For its services,
Navellier receives from the adviser, an annual fee equal to 0.48% of the average
daily net assets of the Fund. For the period ended December 31, 1997, Navellier
received $1,498,283 in subadvisory fees from the Adviser.
The Adviser has voluntarily undertaken to limit the expenses through June 2,
1997 of the Growth Fund 1.50%(Class A), 2.20% (Class B & C), 2.00% (Class T),
and 1.20% (Class I); Balance Sheet Opportunities Fund 1.40% (Class A), 2.10%
(Class B & C), and 1.69% (Class T); Strategic Income Fund 1.40% (Class A), 2.10%
(Class B & C), and 1.90% (Class T), and Government Securities Fund 1.20% (Class
A), 1.90% (Class B & C), and 1.30% (Class T) of each respective class's average
net assets. The Adviser will reimburse the Funds for amounts in excess of such
limits, up to the total amount of fees received during the period. At December
31, 1997, the Advisor's reimbursements aggregated $10,655, $20,690, $21,320, and
$25,940 for the Growth, Balance Sheet Opportunities, Strategic Income, and
Government Securities Funds, respectively.
Northstar Administrators Corp.(the "Administrator"), an affiliate of the
Adviser, serves as administrator to the Funds pursuant to an Administrative
Services Agreement. The Funds pay the Administrator a fee calculated at an
annual rate of 0.10% of each Fund's average daily net assets, and an annual
shareholder account servicing fee of $5.00, payable semi-annually, for each
account of benefical owners of shares. For the period ended December 31, 1997,
the Administrator earned $758,819 in administrative and account servicing fees.
Northstar Distributors, Inc. (the "Distributor") an affiliate of the Adviser
and the Administrator, is the distributor of each Fund's shares. Under separate
Plans of Distribution pertaining to Class A, Class B, Class C, Class T and Class
I shares, the Funds pay the Distributor monthly service fees at an annual rate
of 0.25% of the average daily net assets in the case of Class A, Class B, Class
C and Class T shares, and monthly distribution fees at the annual rate of 0.05%
of the average daily net assets of Class A shares and 0.75% of the average daily
net assets of Class B and Class C shares for all Funds. Class T shares pay
monthly distribution fees at an annual rate of 0.40% of average daily net assets
for the Government Securities and High Yield Funds, 0.50% of average daily net
assets for the Balance Sheet Opportunities Fund and 0.70% of average daily net
assets for the Strategic Income, Growth and Special Funds. Class I does not pay
distribution and service fees. At December 31, 1997, the Funds owed the
Distributor $623,890 in service and distribution fees.
The Distributor also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares, and the contingent deferred
sales charge paid by shareholders upon certain redemptions of Class A, Class B,
Class C, and Class T shares. For the year ended December 31, 1997, the
Distributor earned the following amounts in sales charges:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
SHARES SHARES SHARES SHARES
-------- ---------- ------- --------
<S> <C> <C> <C> <C>
Initial sales
charges $168,527 N/A N/A N/A
Contingent deferred
sales charges 19,613 $1,191,059 $76,182 $295,636
</TABLE>
46
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
NOTE 3. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments
(excluding short-term investments) for the period ended December 31, 1997, were
as follows:
<TABLE>
<CAPTION>
BALANCE SHEET GOVERNMENT
OPPORTUNITIES HIGH YIELD STRATEGIC SECURITIES
GROWTH FUND SPECIAL FUND FUND FUND INCOME FUND FUND
------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate purchases $145,656,638 $534,272,587 $73,053,600 $333,208,197 $149,909,671 $143,805,716
Aggregate sales $ 56,187,171 $519,072,484 $73,344,326 $303,449,640 $156,117,414 $154,326,702
</TABLE>
U.S. Government Securities included above were as follows:
<TABLE>
<CAPTION>
BALANCE SHEET STRATEGIC GOVERNMENT
OPPORTUNITIES HIGH YIELD INCOME SECURITIES
GROWTH FUND SPECIAL FUND FUND FUND FUND FUND
----------- ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate purchases $ 0 $ 0 $ 0 $ 0 $27,282,265 $138,357,901
Aggregate sales $ 0 $ 0 $ 0 $ 0 $15,800,159 $154,220,731
</TABLE>
NOTE 4. PORTFOLIO SECURITIES (TAX BASIS)
The cost of securities for federal income tax purposes and the aggregate
appreciation and depreciation of securities at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
BALANCE SHEET GOVERNMENT
OPPORTUNITIES HIGH YIELD STRATEGIC SECURITIES
GROWTH FUND SPECIAL FUND FUND FUND INCOME FUND FUND
------------ ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cost (tax basis) $156,411,258 $274,426,665 $50,986,181 $228,259,465 $55,363,998 $101,920,914
------------ ------------ ------------- ------------ ----------- ------------
Appreciated Securities 53,888,398 56,210,279 11,052,400 11,557,803 1,469,639 2,598,087
Depreciated Securities (4,432,062) (9,006,915) (2,471,709) (955,836) (1,470,117) (210,750)
------------ ------------ ------------- ------------ ----------- ------------
Net Unrealized Appreciation (Depreciation) $ 49,456,336 $ 47,203,364 $ 8,580,691 $ 10,601,967 ($ 478) $ 2,387,337
------------ ------------ ------------- ------------ ----------- ------------
</TABLE>
NOTE 5. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of each Fund for the period ended December
31, 1997, were as follows:
<TABLE>
<CAPTION>
GROWTH FUND
----------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T CLASS I
------------------------ ------------------- ------------------ ---------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ------- ---------- ------- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 4,948,104 $ 90,181,184 196,741 $4,073,833 45,632 $ 942,905 103,219 $ 2,051,076 5,103,096
Reinvested dividends 16,078 328,000 14,024 278,226 1,589 31,885 132,655 2,674,236 212,049
Shares redeemed (4,790,196) (92,183,541) (39,870) (806,346) (12,677) (268,724) (682,339) (13,898,169) 0
---------- ------------ ------- ---------- ------- --------- -------- ------------ ---------
Net increase (decrease) 173,986 ($ 1,674,357) 170,895 $3,545,713 34,544 $ 706,066 (446,465) ($ 9,172,857) 5,315,145
---------- ------------ ------- ---------- ------- --------- -------- ------------ ---------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 99,644,149
Reinvested dividends 4,342,756
Shares redeemed 0
------------
Net increase (decrease) $103,986,905
------------
</TABLE>
<TABLE>
<CAPTION>
SPECIAL FUND
------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ---------------------- --------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 1,364,964 $ 35,499,440 2,018,199 $ 52,638,926 875,397 $ 22,754,897 49,189
Reinvested dividends 50,419 1,341,158 88,461 2,311,517 16,358 427,279 25,930
Shares redeemed (1,257,205) (33,779,086) (1,077,764) (28,194,293) (531,137) (13,917,748) (332,440)
---------- ------------ ---------- ------------ -------- ------------ --------
Net increase (decrease) 158,178 $ 3,061,512 1,028,896 $ 26,756,150 360,618 $ 9,264,428 (257,321)
---------- ------------ ---------- ------------ -------- ------------ --------
<CAPTION>
AMOUNT
-----------
<S> <C>
Shares sold $ 1,297,161
Reinvested dividends 679,363
Shares redeemed (8,754,042)
-----------
Net increase (decrease) ($6,777,518)
-----------
</TABLE>
47
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
BALANCE SHEET OPPORTUNITIES FUND
-------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ----------------------- ---------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 18,655 $ 247,494 80,799 $ 1,029,162 26,217 $ 320,585 19,037
Reinvested dividends 9,094 115,909 34,359 436,019 6,029 76,490 399,395
Shares redeemed (22,622) (289,132) (51,749) (651,384) (5,429) (70,103) (1,374,726)
---------- ------------ ---------- ----------- --------- ----------- ----------
Net increase (decrease) 5,127 $ 74,271 63,409 $ 813,797 26,817 $ 326,972 (956,294)
---------- ------------ ---------- ----------- --------- ----------- ----------
HIGH YIELD FUND
-------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ----------------------- ---------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ----------- --------- ----------- ----------
Shares sold 673,910 $ 6,107,186 4,082,034 $36,992,626 1,196,278 $10,861,847 304,769
Reinvested dividends 68,304 617,643 223,181 2,020,829 30,648 277,663 552,318
Shares redeemed (438,817) (3,958,008) (1,299,119) (11,783,138) (483,573) (4,370,241) (2,811,948)
---------- ------------ ---------- ----------- --------- ----------- ----------
Net increase (decrease) 303,397 $ 2,766,821 3,006,096 $27,230,317 743,353 $ 6,769,269 (1,954,861)
---------- ------------ ---------- ----------- --------- ----------- ----------
STRATEGIC INCOME FUND
-------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ----------------------- ---------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ----------- --------- ----------- ----------
Shares sold 446,966 $ 5,589,832 475,283 $ 5,964,807 118,356 $ 1,483,699 25,790
Reinvested dividends 55,446 690,235 53,638 667,577 7,190 89,264 66,243
Shares redeemed (827,291) (10,431,620) (468,589) (5,851,465) (93,402) (1,163,649) (575,430)
---------- ------------ ---------- ----------- --------- ----------- ----------
Net increase (decrease) (324,879) ($ 4,151,553) 60,332 $ 780,919 32,144 $ 409,314 (483,397)
---------- ------------ ---------- ----------- --------- ----------- ----------
GOVERNMENT SECURITIES FUND
-------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ----------------------- ---------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ----------- --------- ----------- ----------
Shares sold 61,921 $ 582,690 578,504 $ 5,464,770 68,250 $ 644,001 37,047
Reinvested dividends 39,003 361,654 56,149 526,891 700 6,593 424,682
Shares redeemed (1,414,955) (13,335,151) (184,573) (1,732,986) (133,228) (1,259,675) (2,875,090)
---------- ------------ ---------- ----------- --------- ----------- ----------
Net increase (decrease) (1,314,031) ($12,390,807) 450,080 $ 4,258,675 (64,278) ($ 609,081) (2,413,361)
---------- ------------ ---------- ----------- --------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 257,056
Reinvested dividends 5,088,456
Shares redeemed (17,318,819)
------------
Net increase (decrease) ($11,973,307)
------------
AMOUNT
------------
Shares sold $ 2,758,156
Reinvested dividends 4,989,424
Shares redeemed (25,483,373)
------------
Net increase (decrease) ($17,735,793)
------------
AMOUNT
------------
Shares sold $ 325,287
Reinvested dividends 825,043
Shares redeemed (7,231,191)
------------
Net increase (decrease) ($ 6,080,861)
------------
AMOUNT
------------
Shares sold $ 353,721
Reinvested dividends 3,974,851
Shares redeemed (26,999,184)
------------
Net increase (decrease) ($22,670,612)
------------
</TABLE>
Transactions in capital shares of each Fund for the twelve months ended
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
GROWTH FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 215,652 $ 3,898,525 145,699 $ 2,385,877 17,690 $ 291,243 90,737
Reinvested dividends 10,967 198,714 8,536 152,930 723 12,843 158,321
Shares redeemed (48,822) (803,512) (32,185) (531,632) (2,328) (39,672) (1,215,332)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) 177,797 $ 3,293,727 122,050 $ 2,007,175 16,085 $ 264,414 (966,274)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 1,446,975
Reinvested dividends 2,852,925
Shares redeemed (20,167,999)
------------
Net increase (decrease) ($15,868,099)
------------
</TABLE>
<TABLE>
<CAPTION>
SPECIAL FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 3,480,949 $ 84,633,270 5,433,970 $131,453,623 1,739,092 $42,056,956 222,847
Shares redeemed (935,948) (22,565,835) (318,902) (7,614,905) (215,261) (5,187,697) (376,467)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) 2,545,001 $ 62,067,435 5,115,068 $123,838,718 1,523,831 $36,869,259 (153,620)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 5,269,646
Shares redeemed (8,387,893)
------------
Net increase (decrease) ($ 3,118,247)
------------
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET OPPORTUNITIES FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 31,867 $ 409,691 161,646 $ 2,068,438 13,747 $ 174,866 99,979
Reinvested dividends 11,446 136,696 34,438 407,500 4,068 48,215 663,010
Shares redeemed (13,528) (172,359) (16,102) (205,751) (4,631) (59,861) (1,498,511)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) 29,785 $ 374,028 179,982 $ 2,270,187 13,184 $ 163,220 (735,522)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 1,261,855
Reinvested dividends 7,920,589
Shares redeemed (19,346,300)
------------
Net increase (decrease) ($10,163,856)
------------
</TABLE>
48
<PAGE>
NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
HIGH YIELD FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 827,729 $ 7,207,156 5,911,912 $ 51,482,500 1,413,571 $12,306,310 248,508
Reinvested dividends 62,173 539,834 168,302 1,463,685 17,304 150,556 733,966
Shares redeemed (291,691) (2,549,211) (621,900) (5,398,570) (233,244) (2,046,070) (3,384,341)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) 598,211 $ 5,197,779 5,458,314 $ 47,547,615 1,197,631 $10,410,796 (2,401,867)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 2,151,630
Reinvested dividends 6,372,482
Shares redeemed (29,390,057)
------------
Net increase (decrease) ($20,865,945)
------------
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 474,942 $ 5,738,010 1,003,182 $ 12,151,460 212,149 $ 2,571,465 45,952
Reinvested dividends 50,560 625,158 54,402 672,776 5,092 62,954 90,573
Shares redeemed (918,406) (11,512,407) (418,455) (5,172,202) (59,061) (727,367) (416,724)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) (392,904) ($ 5,149,239) 639,129 $ 7,652,034 158,180 $ 1,907,052 (280,199)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 569,294
Reinvested dividends 1,119,728
Shares redeemed (5,150,096)
------------
Net increase (decrease) ($ 3,461,074)
------------
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ ------------------------ ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 1,173,549 $ 10,970,069 741,529 $ 6,986,079 130,474 $ 1,220,625 42,726
Reinvested dividends 69,846 652,825 30,877 290,097 308 2,892 538,420
Shares redeemed (67,570) (639,341) (85,933) (814,043) (10,459) (98,119) (3,742,558)
---------- ------------ ---------- ------------ ---------- ----------- ----------
Net increase (decrease) 1,175,825 $ 10,983,553 686,473 $ 6,462,133 120,323 $ 1,125,398 (3,161,412)
---------- ------------ ---------- ------------ ---------- ----------- ----------
<CAPTION>
AMOUNT
------------
<S> <C>
Shares sold $ 399,726
Reinvested dividends 5,067,558
Shares redeemed (35,616,667)
------------
Net increase (decrease) ($30,149,383)
------------
</TABLE>
NOTE 6. CREDIT RISK AND DEFAULTED SECURITIES
Although the Funds have a diversified portfolio, the High Yield and
Strategic Income Funds had 91.0% and 49.2%, respectively, of their portfolios
invested in lower rated and comparable quality unrated high yield securities.
Investments in higher yield securities are accompanied by a greater degree of
credit risk and such lower rated securities tend to be more sensitive to
economic conditions than higher rated securities. The risk of loss due to
default by the issuer may be significantly greater for the holders of high
yielding securities, because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. At December 31, 1997, the
Balance Sheet Opportunities Fund held SA Telecommunications, Inc., security in
default. In addition, the High Yield Fund held Alliant Computer Systems, Inc.
and Capital Gaming International, Inc., securities in default.
For financial reporting purposes, it is each Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.
NOTE 7. FEDERAL INCOME TAX -- CAPITAL LOSS CARRYFORWARD
At December 31, 1997, the High Yield Fund had capital loss carryforwards
expiring December 31, 2003 and 2004 of $1,889,212 and $570,896, respectively.
The Government Securities Fund had capital loss carryforwards expiring December
31, 1998, 2002, and 2005 of $1,442,754, $16,737,216, and $2,339,660,
respectively. The Strategic Income Fund had capital loss carryforwards expiring
December 31, 2002 and 2003 of $640,074 and $1,301,325, respectively.
NOTE 8. COMPENSATING BALANCE ARRANGEMENT
The Funds have an informal compensating balance with the Custodian whereby
the Funds may have overdrafts in their respective accounts and have no interest
assessed on the overdrafts. In return, the Funds are required to maintain
positive balances to offset negative balances. The required deposits are
calculated by dividing the overdrawn amounts by 0.90. At December 31, 1997, the
Funds did not have any compensating balances.
49
<PAGE>
NORTHSTAR FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Trustees of
the Northstar Funds:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Northstar Funds, comprising Northstar
Growth Fund, Northstar Special Fund, Northstar Balance Sheet Opportunities Fund,
Northstar High Yield Fund, Northstar Strategic Income Fund, and Northstar
Government Securities Fund (collectively the "Funds") as of December 31, 1997,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each period presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective Funds constituting Northstar Funds as of December 31,
1997, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods referred to above, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 12, 1998
50
<PAGE>
[Northstar Funds logo appears here)
NORTHSTAR
FUNDS
NORTHSTAR SPECIAL FUND
AMENDED AND RESTATED DISTRIBUTION AND SERVICE PLAN
This Amended and Restated Plan (the "Plan") constitutes the Distribution and
Service Plan of NORTHSTAR SPECIAL FUND, a Massachusetts business trust (the
"Fund").
SECTION 1. SERVICE FEE. The Fund will pay to NORTHSTAR DISTRIBUTORS,
INC., a Minnesota corporation, and each successor principal distributor of the
Fund's shares pursuant to this Plan (each thereof, a "Distributor"), so long as
it shall be providing shareholder services, as compensation for providing, or
arranging for the provision of, shareholder services in respect of the Fund, a
monthly service fee (the "Service Fee") at the annual rate of 0.25 of 1% of the
average net asset value of the Fund, as determined at the close of each business
day during the month. The Distributor may pay all or any portion of the Service
Fee to securities dealers as service fees pursuant to agreements with such
dealers for providing personal services to investors in shares of the Fund
and/or the maintenance of shareholder accounts, or may use all or any portion of
the Service Fee to pay for expenses of the Distributor (including overhead
expenses) incurred in connection with the provision of personal services
provided to investors in shares of the Fund and/or the maintenance of
shareholder accounts, including without limitation, expenses of personnel and
communications equipment used in servicing shareholder accounts. All payments of
Service Fees under this plan are intended to qualify as "service fees" within
the meaning of the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD"), as in effect from time to time.
SECTION 2. DISTRIBUTION FEE. In addition to the Service Fee, the Fund
will pay to each Distributor, as compensation for acting as principal
distributor in respect of each class of the Fund's shares and as reimbursement
of the distribution expenditures incurred in connection therewith, including
those listed below, its "Allocable Portion" (as hereinafter defined) of a fee
(the "Distribution Fee") computed in respect of such class of shares as follows:
(i) at the annual rate of 0.75 of 1% of the average net asset value of the Fund
attributable to Class B shares and Class C shares; (ii) at the annual rate of
0.70 of 1% (or such lower rate as the Trustees of the Fund may establish from
time to time) of the average net asset value of the Fund attributable to Class T
shares; and (iii) at the annual rate of 0.05 of 1% (or such lower rate as the
Trustees of the Fund may establish from time to time) of the average net asset
value of the Fund attributable to Class A shares, as determined at the close of
each business day during the month. Such expenditures may consist of: (i)
commissions to sales personnel for selling shares of the Fund (including
interest and other financing costs in the case of Class B, Class C and Class T
shares) (ii) compensation, sales incentives and payments to sales, marketing and
service personnel; (iii) payments to broker-dealers and other financial
institutions which have entered into agreements with the Distributor in the form
of the Dealer Agreement for Northstar Affiliated Investment Companies for
distribution services rendered in connection with the sale and distribution of
shares of the Fund; (iv) payment of expenses incurred in sales and promotional
activities, including advertising expenditures related to each class of shares
of the Funds; (v) the costs of preparing and distributing promotional materials;
(vi) the cost of printing the Fund's Prospectus and
1
<PAGE>
Statement of Additional Information for distribution to potential investors; and
(vii) such other similar services that the Trustees determine are reasonably
calculated to result in sales of shares of the Fund.
With respect to that portion of the Distribution Fee derived from Class T
shares, the Distributor may use all or a portion of that amount to compensate
Advest Inc. for services provided to holders of Class T shares, and to
compensate Advest, Inc. for distribution-related expenses previously incurred by
Advest, Inc. together with interest thereon, including but not limited to
commissions paid by Advest, Inc. to selling dealers in connection with the sale
of Class T shares.
Any payment of Distribution Fees under this Plan is intended to constitute an
"asset-based sales charge" within the meaning of the Conduct Rules of the NASD.
The underwriting agreement or distribution contract between the Fund and each
Distributor relating to the Class B shares of the Fund (the "Distributor's
Contract") shall provide that: (I) the Distributor will be deemed to have
performed all services required to be performed in order to be entitled to
receive its Allocable Portion of the Distribution Fee payable in respect of the
Class B shares of the Fund upon the settlement date of each sale of a
"Commission Share" (as defined below) of such class taken into account in
determining such Distributor's Allocable Portion of such Distribution Fee in
respect of such class; (II) the Fund's obligation to pay such Distributor its
Allocable Portion of the Distribution Fee payable in respect of such class shall
not be terminated or modified for any reason (including a termination of the
Distributor's Contract between such Distributor and the Fund) except to the
extent required by a change in the Investment Company Act of 1940 (the "Act"),
the rules thereunder or the Conduct Rules of the NASD, in each case enacted or
promulgated after December __, 1997, or in connection with a "Complete
Termination" (as hereinafter defined) of this Plan in respect of the Class B
shares of the Fund; (III) the Fund will not take any action to waive or change
any contingent deferred sales charge ("CDSC") in respect of the Class B shares
of the Fund, except as provided in the Fund's Prospectus or Statement of
Additional Information without the consent of such Distributor or its assigns;
(IV) neither the termination of such Distributor's role as principal distributor
of the Class B shares of the Fund, nor the termination of such Distributor's
Contract nor the termination of this Plan will terminate such Distributor's
right to its Allocable Portion of the CDSCs; and (V) such Distributor may
assign, sell or pledge (collectively, "Transfer") its rights to the Service Fees
and its Allocable Portion of the Distribution Fees and CDSCs (but not such
Distributor's obligations to the Fund under the Distributor's Contract) to raise
funds to make the expenditures related to the distribution of Class B shares of
the Fund and in connection therewith, upon receipt of notice of such Transfer,
the Fund shall pay to the assignee, purchaser or pledgee (collectively with
their subsequent transferees, "Transferees"), as third party beneficiaries, such
portion of such Distributor's Service Fees, Allocable Portion of the
Distribution Fees or CDSCs in respect of the Class B shares of the Fund so
Transferred and except as provided in (II) above notwithstanding anything to the
contrary set forth in this Plan or in the Distributor's Contract, to the extent
such Distributor has Transferred its rights to its Allocable Portion of the
Distribution Fees and CDSCs, the Fund's obligation to pay such Distributor's
Allocable Portion of the Distribution Fees and
2
<PAGE>
CDSCs payable in respect of the Class B shares of the Fund shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever, at law or equity, including, without limitation, any of the
foregoing based on the insolvency or bankruptcy of such Distributor (it being
understood that such provision is not a waiver of the Fund's right to pursue
such Distributor and enforce such claims against the assets of such Distributor
other than its right to the Distribution Fees and CDSCs in respect of the Class
B shares of the Fund transferred in connection with such Transfer). For purposes
of this Plan, the term "Allocable Portion" of Distribution Fees or CDSCs payable
in respect of the Class B shares of the Fund as applied to any Distributor shall
mean the portion of Distribution Fees or CDSCs payable in respect of the Fund
allocated to such Distributor in accordance with the Allocation Schedule (as
defined in the Distributor's Contract as it relates to the Class B shares of the
Fund). For purposes of this Plan, the term "Complete Termination" of this Plan
in respect of any Class B shares of the Fund means a termination of this Plan
involving the complete cessation of the payment of Distribution Fees in respect
of all Class B shares of the Fund, and the termination of the distribution plans
and the complete cessation of the payment of distribution fees pursuant to every
other Distribution Plan pursuant to Rule 12b-1 in respect of the Class B shares
of the Fund and any successor fund or any fund acquiring a substantial portion
of the assets of the Fund and for every future class of shares which has
substantially similar characteristics to the Class B shares of the Fund taking
into account the manner of payment and amount of sales charge, contingent
deferred sales charge or other similar charges borne directly or indirectly by
the holders of such shares.
SECTION 3. This Plan shall not take effect with respect to any class
until it has been approved by the vote of a majority of the outstanding voting
securities of such class of the Fund.
SECTION 4. This Plan shall not take effect with respect to any class
until it has been approved, together with any related agreements, by votes of
the majority (or whatever greater percentage may, from time to time, be required
by Section 12(b) of the Act or the rules and regulations thereunder) of both (a)
the Trustees of the Fund, and (b) the Qualified Trustees of the Fund, cast in
person at a meeting called for the purpose of voting on this Plan or such
agreement.
SECTION 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4.
SECTION 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trustees of the Fund, and the Trustees shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
SECTION 7. This Plan may be terminated in its entirety or with respect
to any class at any time by vote of a majority of the Qualified Trustees, or,
with respect to any class, by the vote of a majority of the outstanding voting
securities of such class of the Fund.
3
<PAGE>
SECTION 8. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time in its
entirety with respect to a class, without payment of any
penalty, by vote of a majority of the Qualified Trustees or
with respect to any class, by vote of a majority of the
outstanding voting securities of such class of the Fund, on
not more than 60 days' written notice to any other party to
the agreement, and
B. That such agreement shall terminate automatically in the
event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the
amount of distribution fees paid by any class of shares of the Fund pursuant to
Section 1 or Section 2 hereof without the vote of a majority of the outstanding
voting securities of such class of the Fund, and all material amendments to this
Plan shall be approved in the manner provided for approval of this Plan in
Section 4.
SECTION 10. As used in this Plan, (a) the term "Qualified Trustees"
shall mean those Trustees of the Fund who are not interested persons of the Fund
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it, and (b) the terms "assignment", "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
SECTION 11. While this Plan is in effect, the selection and nomination
of Trustees who are not interested persons (as defined in the Act) shall be
committed to the discretion of the Disinterested Trustees then in office.
SECTION 12. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Section 6 hereof, and any
information, estimates, projections and other materials, that serve as a basis
therefor, considered by the Trustees, for a period of not less than six years
from the date of this Plan, or the agreements or reports, as the case may be,
the first two years in an easily accessible place.
SECTION 13. The Declaration of Trust, establishing the Fund, a copy of
which together with all amendments thereto (the "Declaration") is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that the
name "Northstar Advantage Government Securities Fund" refers to the Trustees
under the Declaration collectively as trustees, but not individually or
personally; and no Trustee, shareholder, officer, employee or agent of the Fund
may be held to any personal liability, nor may resort be had to their private
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Fund, but the Fund property only shall be
liable.
4
<PAGE>
SECTION 14. The provisions of this Plan are severable for each Class of
shares of the Fund and if the provisions of the Plan applicable to a particular
class of shares are terminated, the remainder of the Plan provisions application
to the other remaining classes shall not be invalidated thereby and shall be
given full force and effect.
In witness whereof, the Fund has executed this Amended and Restated Plan on
December __, 1997.
NORTHSTAR SPECIAL FUND
By: ________________________________________
Attest:
______________________________
5
<PAGE>
EXHIBIT 16
Northstar Special Fund A
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
Maximum Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 25.9500 38.536 38.536
12/23/97 26.6000 39.422 0.000 0.00 0.612
12/31/97 27.7700 39.422
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/97 952.61
12/23/97 23.58 0.886 1,048.63
12/31/97 1,094.75
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 9.48%
ERV = Ending Redeemable Value: $1,094.75 Overall Total Return: 9.48%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Special Fund A
Total Return Calculation Since 6/5/95
$1,000.00 Investment
Dividends Reinvested
Maximum Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
6/5/95 1,000.00 20.5400 48.685 48.685
12/29/95 20.9200 51.074 0.000 0.00 1.027
12/31/95 20.9200 51.074
12/31/96 24.7200 51.074
12/23/97 26.6000 52.249 0.000 0.00 0.612
12/31/97 27.7700 52.249
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
6/5/95 952.28
12/29/95 49.98 2.389 1,068.47
12/31/95 1,068.47
12/31/96 1,262.55
12/23/97 31.25 1.175 1,389.82
12/31/97 1,450.95
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 15.52%
ERV = Ending Redeemable Value: $1,450.95 Overall Total Return: 45.10%
n = Number of Time Periods: 2.58
</TABLE>
<PAGE>
Northstar Special Fund B
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
Maximum Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 24.4600 40.883 40.883
12/23/97 26.1300 41.841 0.000 0.00 0.612
12/31/97 27.2700 41.841
12/31/97
12/31/97
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/97 1,000.00
12/23/97 25.02 0.958 1,093.31
12/31/97 1,141.00
12/31/97 Less:5.0% Contingent Deferred Sales Charge 50.00
12/31/97 Net Ending Redeemable Value 1,091.00
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 9.10%
ERV = Ending Redeemable Value: $1,091.00 Overall Total Return: 9.10%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Special Fund B
Total Return Calculation Since 6/5/95
$1,000.00 Investment
Dividends Reinvested
Maximum Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
6/5/95 1,000.00 19.5600 51.125 51.125
12/29/95 20.8400 53.644 0.000 0.00 1.027
12/31/95 20.8400 53.644
12/31/96 24.4600 53.644
12/23/97 26.1300 54.900 0.000 0.00 0.612
12/31/97 27.2700 54.900
12/31/97
12/31/97
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
6/5/95 1,000.01
12/29/95 52.49 2.519 1,117.94
12/31/95 1,117.94
12/31/96 1,312.13
12/23/97 32.83 1.256 1,434.54
12/31/97 1,497.12
12/31/97 Less: 3.0% Contingent Deferred Sales Charge 30.00
12/31/97 Net Ending Redeemable Value 1,467.12
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 16.02%
ERV = Ending Redeemable Value: $1,467.12 Overall Total Return: 46.71%
n = Number of Time Periods: 2.58
</TABLE>
<PAGE>
Northstar Special Fund C
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
Maximum Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 24.4600 40.883 40.883
12/23/97 26.1200 41.841 0.000 0.00 0.612
12/31/97 27.2600 41.841
12/31/97
12/31/97
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/97 1,000.00
12/23/97 25.02 0.958 1,092.89
12/31/97 1,140.59
12/31/97 Less: 1.0% Contingent Deferred Sales Charge 10.00
12/31/97 Net Ending Redeemable Value 1,130.59
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 13.06%
ERV = Ending Redeemable Value: $1,130.59 Overall Total Return: 13.06%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Special Fund C
Total Return Calculation Since 6/5/95
$1,000.00 Investment
Dividends Reinvested
Maximum Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
6/5/95 1,000.00 19.5600 51.125 51.125
12/29/95 20.8400 53.644 0.000 0.00 1.027
12/31/95 20.8400 53.644
12/31/96 24.4600 53.644
12/23/97 26.1200 54.901 0.000 0.00 0.612
12/31/97 27.2600 54.901
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
6/5/95 1,000.01
12/29/95 52.49 2.519 1,117.94
12/31/95 1,117.94
12/31/96 1,312.13
12/23/97 32.83 1.257 1,434.01
12/31/97 1,496.60
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 16.92%
ERV = Ending Redeemable Value: $1,496.60 Overall Total Return: 49.66%
n = Number of Time Periods: 2.58
</TABLE>
<PAGE>
Northstar Special Fund T
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
Maximum Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 24.4800 40.850 40.850
12/23/97 26.2000 41.804 0.000 0.00 0.612
12/31/97 27.3400 41.804
12/31/97
12/31/97
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/97 1,000.01
12/23/97 25.00 0.954 1,095.26
12/31/97 1,142.92
12/31/97 Less: 4.0% Contingent Deferred Sales Charge 40.00
12/31/97 Net Ending Redeemable Value 1,102.92
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 10.29%
ERV = Ending Redeemable Value: $1,102.92 Overall Total Return: 10.29%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Special Fund T
Total Return Calculation Since 1/1/93
$1,000.00 Investment
Dividends Reinvested
Maximum Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/93 1.000.00 17.4000 57.471 57.471
12/29/93 20.6400 57.797 0.000 0.00 0.117
12/31/93 20.7900 57.797
12/27/94 19.1300 58.208 0.000 0.00 0.136
12/31/94 19.6400 58.208
12/29/95 20.8400 61.076 0.000 0.00 1.027
12/31/95 20.8400 61.076
12/31/96 24.4800 61.076
12/23/97 26.2000 62.502 0.000 0.00 0.612
12/31/97 27.3400 62.502
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/93 1,000.00
12/29/93 6.72 0.326 1,192.93
12/31/93 1,201.60
12/27/94 7.87 0.411 1,113.52
12/31/94 1,143.21
12/29/95 59.76 2.868 1,272.82
12/31/95 1,272.82
12/31/96 1,495.14
12/23/97 37.37 1.426 1,637.55
12/31/97 1,708.80
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 11.31%
ERV = Ending Redeemable Value: $1,708.80 Overall Total Return: 70.88%
n = Number of Time Periods: 5.00
</TABLE>
<PAGE>
Northstar Special Fund T
Total Return Calculation Since 1/1/88
$1,000.00 Investment
Dividends Reinvested
Maximum Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/88 1,000.00 7.9000 126.582 126.582
12/31/88 9.5500 126.582
12/31/89 11.6700 126.582
12/31/90 10.6400 126.582
12/23/91 14.7100 134.575 0.000 0.00 0.929
12/31/91 15.7400 134.575
12/24/92 17.2000 139.434 0.000 0.00 0.621
12/31/92 17.4000 139.434
12/29/93 20.6400 140.223 0.000 0.00 0.117
12/31/93 20.7900 140.223
12/27/94 19.1300 141.221 0.000 0.00 0.136
12/31/94 19.6400 141.221
12/29/95 20.8400 148.178 0.000 0.00 1.027
12/31/95 20.8400 148.178
12/31/96 24.4800 148.178
12/23/97 26.2000 151.639 0.000 0.00 0.612
12/31/97 27.3400 151.639
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/88 1,000.00
12/31/88 1,208.86
12/31/89 1,477.21
12/31/90 1,346.83
12/23/91 117.57 7.993 1,979.60
12/31/91 2,118.21
12/24/92 83.57 4.859 2,398.26
12/31/92 2,426.15
12/29/93 16.29 0.789 2,894.20
12/31/93 2,915.24
12/27/94 19.09 0.998 2,701.56
12/31/94 2,773.58
12/29/95 144.99 6.957 3,088.03
12/31/95 3,088.03
12/31/96 3,627.40
12/23/97 90.67 3.461 3,972.94
12/31/97 4,145.81
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 15.28%
ERV = Ending Redeemable Value: $4,145.81 Overall Total Return: 314.58%
n = Number of Time Periods: 10.00
</TABLE>
<PAGE>
Northstar Special Fund T
Total Return Calculation Since 2/3/86
$1,000.00 Investment
Dividends Reinvested
Maximum Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
2/3/86 1,000.00 10.0000 100.00 100.000
12/31/86 8.9200 100.000
12/31/87 7.9000 100.000
12/31/88 9.5500 100.000
12/31/89 11.6700 100.000
12/31/90 10.6400 100.000
12/23/91 14.7100 106.314 0.000 0.00 0.929
12/31/91 15.7400 106.314
12/24/92 17.2000 110.152 0.000 0.00 0.621
12/31/92 17.4000 110.152
12/29/93 20.6400 110.776 0.000 0.00 0.117
12/31/93 20.7900 110.776
12/27/94 19.1300 111.564 0.000 0.00 0.136
12/31/94 19.6400 111.564
12/29/95 20.8400 117.060 0.000 0.00 1.027
12/31/95 20.8400 117.060
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
2/3/86 1,000.00
12/31/86 892.00
12/31/87 790.00
12/31/88 955.00
12/31/89 1,167.00
12/31/90 1,064.00
12/23/91 92.88 6.314 1,563.88
12/31/91 1,673.38
12/24/92 66.02 3.838 1,894.61
12/31/92 1,916.64
12/29/93 12.87 0.624 2,286.42
12/31/93 2,303.03
12/27/94 15.08 0.788 2,134.22
12/31/94 2,191.12
12/29/95 114.54 5.496 2,439.53
12/31/95 2,439.53
</TABLE>
Continued on Page 2
<PAGE>
Northstar Special Fund A
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 24.4800 117.060
12/23/97 26.2000 119.794 0.000 0.00 0.612
12/31/97 27.3400 119.794
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
12/31/96 2,865.63
12/23/97 71.63 2.734 3,138.60
12/31/97 3,275.17
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 10.47%
ERV = Ending Redeemable Value: $3,275.17 Overall Total Return: 227.52%
n = Number of Time Periods: 11.91
</TABLE>
<PAGE>
Northstar Special Fund A
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 24.7200 40.453 40.453
12/23/97 26.6000 41.333 0.000 0.00 0.612
12/31/97 27.7700 41.333
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/97 1,000.00
12/23/97 24.75 0.930 1,100.79
12/31/97 1,149.21
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 14.92%
ERV = Ending Redeemable Value: $1,149.21 Overall Total Return: 14.92%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Special Fund A
Total Return Calculation Since 6/5/95
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
6/5/95 1,000.00 19.5600 51.125 51.125
12/29/95 20.9200 53.634 0.000 0.00 1.027
12/31/95 20.9200 53.634
12/31/96 24.7200 53.634
12/23/97 26.6000 54.868 0.000 0 00 0.612
12/31/97 27.7700 54.868
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
6/5/95 1,000.01
12/29/95 52.49 2.509 1,122.02
12/31/95 1,122.02
12/31/96 1,325.83
12/23/97 32.82 1.234 1,459.49
12/31/97 1,523.68
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 17.73%
ERV = Ending Redeemable Value: $1,523.68 Overall Total Return: 52.37%
n = Number of Time Periods: 2.58
</TABLE>
<PAGE>
Northstar Special Fund B
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 24.4600 40.883 40.883
12/23/97 26.1300 41.841 0.000 0.00 0.612
12/31/97 27.2700 41.841
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/97 1,000.00
12/23/97 25.02 0.958 1,093.31
12/31/97 1,141.00
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 14.10%
ERV = Ending Redeemable Value: $1,141.00 Overall Total Return: 14.10%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Special Fund B
Total Return Calculation Since 6/5/95
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
6/5/95 1,000.00 19.5600 51.125 51.125
12/29/95 20.8400 53.644 0.000 0.00 1.027
12/31/95 20.8400 53.644
12/31/96 24.4600 53.644
12/23/97 26.1300 54.900 0.000 0.00 0.612
12/31/97 27.2700 54.900
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
6/5/95 1,000.01
12/29/95 52.49 2.519 1,117.94
12/31/95 1,117.94
12/31/96 1,312.13
12/23/97 32.83 1.256 1,434.54
12/31/97 1,497.12
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 16.93%
ERV = Ending Redeemable Value: $1,497.12 Overall Total Return: 49.71%
n = Number of Time Periods: 2.58
</TABLE>
<PAGE>
Northstar Special Fund C
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 24.4600 40.883 40.883
12/23/97 26.1200 41.841 0.000 0.00 0.612
12/31/97 27.2600 41.841
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/97 1,000.00
12/23/97 25.02 0.958 1,092.89
12/31/97 1,140.59
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 14.06%
ERV = Ending Redeemable Value: $1,140.59 Overall Total Return: 14.06%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Special Fund C
Total Return Calculation Since 6/5/95
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
6/5/95 1,000.00 19.5600 51.125 51.125
12/29/95 20.8400 53.644 0.000 0.00 1.027
12/31/95 20.8400 53.644
12/31/96 24.4600 53.644
12/23/97 26.1200 54.901 0.000 0.00 0.612
12/31/97 27.2600 54.901
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
6/5/95 1,000.01
12/29/95 52.49 2.519 1,117.94
12/31/95 1,117.94
12/31/96 1,312.13
12/23/97 32.83 1.257 1,434.01
12/31/97 1,496.60
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 16.92%
ERV = Ending Redeemable Value: $1,496.60 Overall Total Return: 49.66%
n = Number of Time Periods: 2.58
</TABLE>
<PAGE>
Northstar Special Fund T
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 24.4800 40.850 40.850
12/23/97 26.2000 41.804 0.000 0.00 0.612
12/31/97 27.3400 41.804
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/97 1,000.01
12/23/97 25.00 0.954 1,095.26
12/31/97 1,142.92
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 14.29%
ERV = Ending Redeemable Value: $1,142.92 Overall Total Return: 14.29%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Special Fund T
Total Return Calculation Since 1/1/93
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/93 1,000.00 17.4000 57.471 57.471
12/29/93 20.6400 57.797 0.000 0.00 0.117
12/31/93 20.7900 57.797 .
12/27/94 19.1300 58.208 0.000 0.00 0.136
12/31/94 19.6400 58.208
12/29/95 20.8400 61.076 0.000 0.00 1.027
12/31/95 20.8400 61.076
12/31/96 24.4800 61.076
12/23/97 26.2000 62.502 0.000 0.00 0.612
12/31/97 27.3400 62.502
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/93 1,000.00
12/29/93 6.72 0.326 1,192.93
12/31/93 1,201.60
12/27/94 7.87 0.411 1,113.52
12/31/94 1,143.21
12/29/95 59.76 2.868 1,272.82
12/31/95 1,272.82
12/31/96 1,495.14
12/23/97 37.37 1.426 1,637.55
12/31/97 1,708.80
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 11.31%
ERV = Ending Redeemable Value: $1,708.80 Overall Total Return: 70.88%
n = Number of Time Periods: 5.00
</TABLE>
<PAGE>
Northstar Special Fund T
Total Return Calculation Since 1/1/88
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/88 1,000.00 7.9000 126.582 126.582
12/31/88 9.5500 126.582
12/31/89 11.6700 126.582
12/31/90 10.6400 126.582
12/23/91 14.7100 134.575 0.000 0.00 0.929
12/31/91 15.7400 134.575
12/24/92 17.2000 139.434 0.000 0.00 0.621
12/31/92 17.4000 139.434
12/29/93 20.6400 140.223 0.000 0.00 0.117
12/31/93 20.7900 140.223
12/27/94 19.1300 141.221 0.000 0.00 0.136
12/31/94 19.6400 141.221
12/29/95 20.8400 148.178 0.000 0.00 1.027
12/31/95 20.8400 148.178
12/31/96 24.4800 148.178
12/23/97 26.2000 151.639 0.000 0.00 0.612
12/31/97 27.3400 151.639
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
1/1/88 1,000.00
12/31/88 1,208.86
12/31/89 1,477.21
12/31/90 1,346.83
12/23/91 117.57 7.993 1,979.60
12/31/91 2,118.21
12/24/92 83.57 4.859 2,398.26
12/31/92 2,426.15
12/29/93 16.29 0.789 2,894.20
12/31/93 2,915.24
12/27/94 19.09 0.998 2,701.56
12/31/94 2,773.58
12/29/95 144.99 6.957 3,088.03
12/31/95 3,088.03
12/31/96 3,627.40
12/23/97 90.67 3.461 3,972.94
12/31/97 4,145.81
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 15.28%
ERV = Ending Redeemable Value: $4,145.81 Overall Total Return: 314.58%
n = Number of Time Periods: 10.00
</TABLE>
<PAGE>
Northstar Special Fund T
Total Return Calculation Since 2/3/86
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
2/3/86 1.000.00 10.0000 100.000 100.000
12/31/86 8.9200 100.000
12/31/87 7.9000 100.000
12/31/88 9.5500 100.000
12/31/89 11.6700 100.000
12/31/90 10.6400 100.000
12/23/91 14.7100 106.314 0.000 0.00 0.929
12/31/91 15.7400 106.314
12/24/92 17.2000 110.152 0.000 0.00 0.621
12/31/92 17.4000 110.152
12/29/93 20.6400 110.776 0.000 0.00 0.117
12/31/93 20.7900 110.776
12/27/94 19.1300 111.564 0.000 0.00 0.136
12/31/94 19.6400 111.564
12/29/95 20.8400 117.060 0.000 0.00 1.027
12/31/95 20.8400 117.060
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
2/3/86 1,000.00
12/31/86 892.00
12/31/87 790.00
12/31/88 955.00
12/31/89 1,167.00
12/31/90 1,064.00
12/23/91 92.88 6.314 1,563.88
12/31/91 1,673.38
12/24/92 66.02 3.838 1,894.61
12/31/92 1,916.64
12/29/93 12.87 0.624 2,286.42
12/31/93 2,303.03
12/27/94 15.08 0.788 2,134.22
12/31/94 2,191.12
12/29/95 114.54 5.496 2,439.53
12/31/95 2,439.53
</TABLE>
Continued on Page 2
<PAGE>
Northstar Special Fund T
Total Return Calculation Since 2/3/86
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Price per Shares Cumulative Dividends per Reinvested Capital Gains
Date Amount Share Purchased Shares Share Dividends per Share
---- ------ ----- --------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 24.4800 117.060
12/23/97 26.2000 119.794 0.000 0.00 0.612
12/31/97 27.3400 119.794
<CAPTION>
Reinvested Reinvested Total
Date Capital Gains Shares Market Value
---- ------------- ------ ------------
<S> <C> <C> <C>
12/31/96 2,865.63
12/23/97 71.63 2.734 3,138.60
12/31/97 3,275.17
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 10.47%
ERV = Ending Redeemable Value: $3,275.17 Overall Total Return: 227.52%
n = Number of Time Periods: 11.91
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000779235
<NAME> NORTHSTAR SPECIAL FUND
<SERIES>
<NUMBER> 1
<NAME> NORTHSTAR SPECIAL FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 274426665
<INVESTMENTS-AT-VALUE> 321630029
<RECEIVABLES> 11613487
<ASSETS-OTHER> 18447700
<OTHER-ITEMS-ASSETS> 5257
<TOTAL-ASSETS> 351696473
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19760867
<TOTAL-LIABILITIES> 19760867
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 278928118
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5804124
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47203364
<NET-ASSETS> 331935606
<DIVIDEND-INCOME> 3505353
<INTEREST-INCOME> 748866
<OTHER-INCOME> 0
<EXPENSES-NET> 6102607
<NET-INVESTMENT-INCOME> (1848388)
<REALIZED-GAINS-CURRENT> 19011083
<APPREC-INCREASE-CURRENT> 24201023
<NET-CHANGE-FROM-OPS> 41363718
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (7264148)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 112190424
<NUMBER-OF-SHARES-REDEEMED> (84645169)
<SHARES-REINVESTED> 4759317
<NET-CHANGE-IN-ASSETS> 66404142
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (5942811)
<GROSS-ADVISORY-FEES> 2341067
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6102607
<AVERAGE-NET-ASSETS> 77489536
<PER-SHARE-NAV-BEGIN> 24.72
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 3.68
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.61)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.77
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000779235
<NAME> NORTHSTAR SPECIAL FUND
<SERIES>
<NUMBER> 2
<NAME> NORTHSTAR SPECIAL FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 274426665
<INVESTMENTS-AT-VALUE> 321630029
<RECEIVABLES> 11613487
<ASSETS-OTHER> 18447700
<OTHER-ITEMS-ASSETS> 5257
<TOTAL-ASSETS> 351696473
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19760867
<TOTAL-LIABILITIES> 19760867
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 278928118
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5804124
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47203364
<NET-ASSETS> 331935606
<DIVIDEND-INCOME> 3505353
<INTEREST-INCOME> 748866
<OTHER-INCOME> 0
<EXPENSES-NET> 6102607
<NET-INVESTMENT-INCOME> (1848388)
<REALIZED-GAINS-CURRENT> 19011083
<APPREC-INCREASE-CURRENT> 24201023
<NET-CHANGE-FROM-OPS> 41363718
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (7264148)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 112190424
<NUMBER-OF-SHARES-REDEEMED> (84645169)
<SHARES-REINVESTED> 4759317
<NET-CHANGE-IN-ASSETS> 66404142
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (5942811)
<GROSS-ADVISORY-FEES> 2341067
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6102607
<AVERAGE-NET-ASSETS> 153732311
<PER-SHARE-NAV-BEGIN> 24.46
<PER-SHARE-NII> (.19)
<PER-SHARE-GAIN-APPREC> 3.61
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.61)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.27
<EXPENSE-RATIO> 2.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000779235
<NAME> NORTHSTAR SPECIAL FUND
<SERIES>
<NUMBER> 3
<NAME> NORTHSTAR SPECIAL FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
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