As filed with the Securities and Exchange Commission on December 28, 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. 24
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. No. 25
NORTHSTAR SPECIAL FUND
--------------------------------------------------
(Exact name of Registrant as specified in charter)
300 First Stamford Place, Stamford, CT 06902
--------------------------------------------
(Address of Principal Executive Offices)
(203)602-7881
-------------------------------
(Registrant's telephone number)
Mark L. Lipson
c/o Northstar Investment Management Corporation
300 First Stamford Place, Stamford, CT 06902
--------------------------------------------
(Name and address for agent for service)
Copies of all correspondence to:
Jeffrey L. Steele, Esq.
Dechert, Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
-----------------------------------------------------
X immediately upon filing pursuant to paragraph (b)
- ----
on [date] 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>
NORTHSTAR
SPECIAL
FUND
INSTITUTIONAL CLASS SHARES
PROSPECTUS
December 28, 1998
[Star Graphic]
This prospectus contains important information about investing in the Northstar
Special 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
fund will achieve its objective. 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
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
[LOGO]OBJECTIVE These pages contain a Northstar Special Fund 2
description of the fund, including
its objective, investment strategy, Meet the portfolio manager 3
[LOGO]INVESTMENT types of holdings, risks and
STRATEGY portfolio managers. Your guide to buying and selling
Class I shares of the Northstar
Special Fund -
[LOGO]HOLDINGS You'll also find: Mutual fund earnings and
your taxes -
[LOGO]RISKS What you pay to invest. A list
of the fees and expenses you pay - The business of mutual funds -
both directly and indirectly - when
you invest in the fund. The risks of investing in
[LOGO]WHAT mutual funds -
YOU PAY
TO INVEST Where to go for more
information -
</TABLE>
<PAGE>
NORTHSTAR Registrant
SPECIAL Northstar Special Fund
FUND Portfolio manager
Mary Lisanti
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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 14.
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 14, THE RISKS OF INVESTING IN MUTUAL
FUNDS.
FEES YOU PAY DIRECTLY
CLASS I
-------
Maximum sales charge on your
initial investment (as a % of
offering price) % none
Maximum deferred sales charge % none
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
CLASS I
-------
Management fee % 0.75
12b-1 fee % 0.00
Other expenses % 0.38
TOTAL FUND OPERATING EXPENSES % 1.13
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.
YEAR 1 YEAR 3 YEAR 5 YEAR 10
------ ------ ------ -------
Class I $12 $36 $62 $137
2
<PAGE>
MEET THE
PORTFOLIO
MANAGER
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Mary Lisanti
Mary Lisanti has been the co-manager of the Northstar Mid-Cap Growth Fund since
inception, manager of the Northstar Special Fund since July 1998 and manager of
the Northstar Growth Fund since August 1998. She joined Northstar in May 1998.
Ms. Lisanti has over 20 years of experience in small and mid-cap investments.
Before joining Northstar, Ms. Lisanti was a Portfolio Manager at Strong Capital
Management where she managed the Strong Small Cap Fund and co-managed the Strong
Mid Cap Fund. From 1993 to 1996, Ms. Lisanti was a Managing Director and Head of
Small and Mid-Capitalization Equity Strategies at Bankers Trust Corp. where she
managed the BT Small Cap Fund and the BT Capital Appreciation Fund. Prior to
Bankers Trust, Ms. Lisanti was a Portfolio Manager with the Evergreen Funds. She
began her career as an analyst specializing in emerging growth stocks with
Donaldson, Lufkin & Jenrette and Shearson Lehman Hutton, was ranked number one
Institutional Investor emerging growth stock analyst in 1989 and was named to
that survey two other times.
Ms. Lisanti earned her BA with honors from Princeton University. She is a
Chartered Financial Analyst, member of the New York Society of Security Analysts
and the Financial Analyst Federation.
[ICON] If you have any questions, please call 1-800-595-7827.
3
<PAGE>
YOUR GUIDE TO BUYING AND SELLING
CLASS I SHARES OF THE
NORTHSTAR SPECIAL FUND
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MINIMUM INVESTMENT
The minimum initial investment for Class I shares is $1,000,000. Class I shares
are only available to certain defined benefit plans, insurance companies and
foundations investing for their own account.
- --------------------------------------------------------------------------------
BUYING AND SELLING
Once you've opened an account and made your first investment, you can choose one
of two ways to buy or sell shares of the Northstar Special Fund
o through your financial consultant or
o directly, by mail or over the telephone.
We'll send you a confirmation statement every time you make a transaction that
affects your account balance, except when we pay distributions.
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 8, but here are a few
things you should know before you begin.
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HOW SHARES ARE
PRICED
The price you pay or receive when you buy, sell or exchange shares is determined
by the fund's net asset value (NAV) per share and share class. NAV is calculated
each business day at the close of regular trading on the New York Stock Exchange
(usually 4:00 p.m. Eastern Time) by dividing the net assets of each fund class
by the number of shares outstanding. 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. When you're selling shares, you'll receive
the NAV that is next calculated after we receive your order in proper form.
- --------------------------------------------------------------------------------
SOME RULES FOR
BUYING
o The minimum amount of each Class I investment after your first one is
$100,000.
o We record most shares on our books electronically. We will issue a
certificate if you ask us to in writing, however most of our shareholders
prefer not to have their shares in certificate form because certificated
shares can't be sold or exchanged by telephone.
o We have the right to refuse a request to buy shares.
- --------------------------------------------------------------------------------
SOME RULES FOR
SELLING
o We'll pay you within three days from the time we receive your request to
sell, unless you're selling shares you recently paid for by check. In that
case, we'll pay you when your check has cleared, which may take up to 15
days.
o If you are a corporation, partnership, executor, administrator, trustee,
custodian, guardian or you are selling shares of a retirement plan, you'll
need to complete special documentation and give us your request in
writing. Please call us for information.
4
<PAGE>
YOUR GUIDE TO BUYING AND SELLING
CLASS I SHARES OF THE
NORTHSTAR SPECIAL FUND
- --------------------------------------------------------------------------------
o You won't pay a service charge when you sell your shares, but your dealer
may charge you a fee.
o If selling shares results in the value of your account falling below
$10,000, 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 $10,000, we'll sell your
shares, mail the proceeds to you and close your account. We may also close
your account if you give us an incorrect social security number or
taxpayer identification number.
o In unusual circumstances, we may temporarily suspend the processing of
requests to sell.
- --------------------------------------------------------------------------------
5
<PAGE>
YOUR GUIDE TO BUYING AND SELLING
CLASS I SHARES OF THE
NORTHSTAR SPECIAL FUND
- --------------------------------------------------------------------------------
WAYS TO BUY OR SELL WHEN TO USE THIS OPTION
- -------------------------------------- --------------------------
Through your financial consultant - buy
- sell
- -------------------------------------- -------------------------
By mail - buy
Please call us if you have any questions -- - sell
we can't process your request until we have
all of the documents we need.
- -------------------------------------- --------------------------
By telephone
To sign up for this service, complete - sell
section 9 of the application or call us at
1-800-595-7827.
6
<PAGE>
YOUR GUIDE TO BUYING AND SELLING
CLASS I SHARES OF THE
NORTHSTAR SPECIAL FUND
- --------------------------------------------------------------------------------
HOW TO USE IT
- --------------------------------------------------------------------------------
If you're buying shares, make your check payable to Northstar Funds and give it
to your financial consultant, who will forward it to us. When you're selling,
give your written request to your financial consultant, who may charge you a fee
for this service.
- --------------------------------------------------------------------------------
Send your request to buy or sell in writing to:
Northstar Funds
c/o First Data Investor Services Group,
Inc.
P.O. Box 5131
Westborough, MA 01581-5131
Your letter should tell us:
o your account number
o your social security number or taxpayer identification number
o the name the account is registered in
o the fund name and share class you're buying or selling
o the dollar value or number of shares you want to buy or sell.
If you're buying include a check payable to Northstar Funds with your request.
If you're selling, your request must be signed by all registered owners of the
account.
We'll ask you to guarantee the signatures if:
o you are selling more than $50,000 worth of shares
o your address of record has changed in the past 30 days
o you want us to send the payment to someone other than the registered
owner, to an address other than the address of record, or in any form
other than by check.
Signatures can be guaranteed by a bank, a member of the national stock exchange
or another eligible institution.
- --------------------------------------------------------------------------------
You can sell up to $50,000 of your shares by telephone.
Call us at 1-800-595-7827 between 8:30 a.m. and 4:00 p.m. Eastern Time.
When you're calling with your request, we'll ask you for your name, social
security number, broker of record or other identification. If we don't ask for
these things and process an unauthorized telephone transaction, we are
responsible for any losses to your account. Otherwise you are responsible for
any unauthorized use of the telephone transaction service.
We'll mail the proceeds of the sale to the address of record or wire $1,000 or
more to any commercial bank in the U.S. that is a member of the Federal Reserve
System. Northstar does not charge a fee for this service, but your bank may
charge you a fee for receiving a wire transfer.
7
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
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HOW THE FUND
PAYS DISTRIBUTIONS
The fund distributes virtually all of its net investment income and net capital
gains to shareholders once a year in the form of dividends.
As a shareholder, you are entitled to a share of the income and capital gains
the fund distributes. The amount you receive is based on the number of shares
you own.
DISTRIBUTION OPTIONS
You can take your distributions as cash or reinvest them in the same class of
shares of any of our funds. You specify your preference when you open your
account. Distribution options vary by share class, as follows.
You can choose to reinvest your distributions in one of three ways:
o reinvest both income dividends and capital gain distributions to buy
additional Class I shares of either the Northstar Special Fund, Northstar
Mid-Cap Growth Fund or Northstar Growth Fund
o receive income dividends in cash and reinvest capital gain distributions
to buy additional Class I shares of either the Northstar Special Fund,
Northstar Mid-Cap Growth Fund or Northstar Growth Fund
o 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 Class I shares of the Northstar Special Fund.
[ICON] If you have any questions, please call 1-800-595-7827.
---
8
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW YOUR
DISTRIBUTIONS
ARE TAXED
The fund intends to meet the requirements for being a tax-qualified regulated
investment company, which means it generally does not pay federal income tax on
the earnings it distributes to shareholders.
As a result, distributions that you receive will generally be considered to be
taxable in your hands. Income distributions, whether you take them as cash or
reinvest them, are taxable as ordinary income. Capital gain distributions are
taxable as long-term capital gains, regardless of how long you've held the
shares.
Distributions may also be subject to state, local or foreign taxes.
If income distributed to you includes dividends paid by U.S. corporations, part
of the dividends the fund pays may be eligible for the corporate
dividends-received deduction.
TIMING YOUR PURCHASE
If you buy shares of a fund just before it makes a distribution, you will pay
the full price but part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax- deferred account, such as an
IRA, this is not to your advantage because you'll pay tax on the dividend but
will not have shared in the increase in the net asset value of the fund.
WHEN DISTRIBUTIONS ARE DECLARED
For tax purposes, distributions declared by the fund in October, November or
December and paid to you in January are taxable in the calendar year in which
they were declared.
BACKUP WITHHOLDING TAX
We'll notify you each year of the tax status of dividends and distributions. If
we don't have your tax identification number, or if you have been told by the
IRS that you are subject to backup withholding tax, we may be required to
withhold U.S. federal income tax on any distributions at the rate of 31%.
WHEN YOU SELL YOUR SHARES
When you sell or exchange shares you will realize a capital gain or loss,
depending on the difference between what your shares cost you and what you
receive for them. A capital gain or loss will be long-term or short-term,
depending on the length of time you held the shares.
In your federal income tax return you report a capital gain as income and a
capital loss as a deduction.
CONSULT YOUR TAX ADVISER
The information above is general in nature. You should consult your tax adviser
to discuss how investing in the Northstar Special Fund affects your
personal tax situation.
9
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
- --------------------------------------------------------------------------------
HOW THE FUND
IS ORGANIZED
AND MANAGED
The Northstar Special Fund is a diversified mutual fund which is registered as
an investment company with the SEC.
The trustees of the trust oversee the business affairs of the fund and are
responsible for major decisions about the fund's investment objective and
policies.
The fund does 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 the fund request it. Certain objectives and policies of
the fund may only be changed by shareholder vote. A shareholder vote is required
to change the investment objective of the fund.
The day-to-day management of the fund is handled by the following companies and
advisers appointed by the trustees:
INVESTMENT ADVISER
Oversees the investment management of the fund and provides advice and
recommendations about investments made by the fund. The investment adviser is
paid out of the fund's management fee, which is 0.75% of average daily net
assets.
Northstar Investment Management Corporation
300 First Stamford Place
Stamford, CT 06902
ADMINISTRATOR
Provides administrative, compliance and accounting services to the fund. The
administrator receives an annual administrative services fee from the fund of
0.10% of the fund's average daily net assets, plus $5 per account per year.
Northstar Administrators Corporation
300 First Stamford Place
Stamford, CT 06902
DISTRIBUTOR
Markets the fund and distributes shares through financial consultants and other
financial representatives.
Northstar Distributors, Inc.
300 First Stamford Place
Stamford, CT 06902
CUSTODIAN
Holds all the funds' assets.
Custodian and fund accounting agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
10
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
- --------------------------------------------------------------------------------
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
You'll find profiles of the fund's portfolio manager on page 3.
[ICON] If you have any questions, please call 1-800-595-7827.
---
11
<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 the fund will achieve its
investment objective.
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
o 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.
o 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.
o 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:
o be in a relatively early stage of development, but will usually have
consistent or accelerating earnings growth
o occupy a profitable market niche
o have products or technologies that are new, unique or proprietary
o be in an industry that has a favorable long-term growth outlook.
- --------------------------------------------------------------------------------
FOREIGN
INVESTMENTS
o Securities issued by companies or governments of foreign countries. May
include equities and debt securities including sovereign debt obligations,
and also including securities issued to refinance foreign government bank
loans and other debt also known as Brady Bonds.
o 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.
o foreign markets may be less regulated, may have less volume and be
less liquid
o foreign securities may be less liquid and more volatile
o the value of foreign securities may be affected by adverse political
and economic developments, seizure or nationalization of foreign
deposits, and government restrictions
o 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.
12
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
DEPOSITORY RECEIPTS
o 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.
- --------------------------------------------------------------------------------
OTHER, HIGHER
RISK SECURITIES
ILLIQUID SECURITIES -- FUND IS LIMITED TO 15% OF NET ASSET VALUE
o 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.
o Used to realize higher profits.
o There may be fewer market players which can result in lower prices, and
sales can take longer to complete.
o Following guidelines established by the trustees of the 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.
13
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
DERIVATIVE SECURITIES
o 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.
o 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.
o In addition to the risks associated with equities and debt securities,
there are several special risks associated with the use of derivatives:
o changes in the value of the derivative may not match changes in the
value of its underlying asset
o hedging may not be successful, and may prevent the fund from making
other gains
o derivatives used for speculative purposes can result in gains or
losses that are substantially greater than the derivative's original
cost.
- --------------------------------------------------------------------------------
INVESTMENT
PRACTICES
REPURCHASE AGREEMENTS
o 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 15% of a fund's net asset
value.
o Used for temporary and defensive purposes or to generate income from cash
balances.
o The bank or dealer may not be able to buy back the security.
SHORT-TERM TRADING -- NO LIMIT
o Selling a security soon after you buy it.
o 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.
o 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
o 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.
o Used for temporary defensive purposes in periods of unusual market
conditions.
o Provides lower returns.
14
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS -- NO LIMIT
o A commitment to buy a security on a specific day in the future at a
specified price.
o Used to realize short-term profits.
o 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.
o 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.
15
<PAGE>
WHERE TO GO
FOR MORE
INFORMATION
- --------------------------------------------------------------------------------
You'll find more information about the Northstar Special Fund in our:
ANNUAL REPORT
The Annual report contains information about fund performance, the financial
statements and the auditor's reports.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains complete information about the Northstar Special Fund.
The SAI is legally part of this prospectus (it is incorporated by reference). A
copy has been filed with the Securities and Exchange Commission.
Please write or call for a free copy of the Annual report or the current SAI:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
1-800-595-7827
PROSPECTUS FOR CLASS A, B AND C
Class A, B and C shares of the Northstar Special Fund are discussed in a
separate prospectus. Class A, B and C shares have sales charges and other
expenses that may affect performance. You may obtain a prospectus for Class A, B
and C shares of the fund by calling 1-800-595-7827 or writing:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
16
<PAGE>
[LOGO]
NORTHSTAR
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 28, 1998
*NORTHSTAR SPECIAL FUND
Institutional Class Shares
300 First Stamford Place
Stamford, Connecticut 06902
(203) 602-7950
(800) 595-7827
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of the
Institutional Class Shares of the Fund dated December 28, 1998, as each may be
revised from time to time. To obtain a copy of the Fund's Prospectus, please
contact Northstar Investment Management Corporation at the address or phone
number listed above.
Northstar Investment Management Corporation ("Northstar" or the "Adviser")
serves as the Fund's investment adviser. Northstar Distributors, Inc. (the
"Underwriter") is the underwriter to the Fund. Northstar Administrators
Corporation (the "Administrator") is the Fund's administrator. The Underwriter
and the Administrator are affiliates of Northstar.
--------------
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS ................................................... 2
INVESTMENT TECHNIQUES ..................................................... 3
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION ........................... 9
SERVICES OF NORTHSTAR AND THE ADMINISTRATOR ............................... 10
NET ASSET VALUE ........................................................... 11
PURCHASES AND REDEMPTIONS ................................................. 12
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................ 12
UNDERWRITER AND DISTRIBUTION SERVICES ..................................... 15
TRUSTEES AND OFFICERS ..................................................... 16
OTHER INFORMATION ......................................................... 18
PERFORMANCE INFORMATION ................................................... 19
FINANCIAL STATEMENTS ......................................................
APPENDIX .................................................................. A-1
<PAGE>
INVESTMENT RESTRICTIONS
Northstar Special Fund. The Fund has adopted investment restrictions
numbered 1 through 12 as fundamental policies. These restrictions cannot be
changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund's
outstanding voting shares. Investment restrictions numbered 13 through 21 are
not fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Fund may not:
1. Borrow money, except from a bank and as a temporary measure for
extraordinary or emergency purposes, provided the Fund maintains asset coverage
of 300% for all borrowings;
2. Purchase securities of any one issuer (except Government securities)
if, as a result, more than 5% of the Fund's total assets would be invested in
that issuer, or the Fund would own or hold more than 10% of the outstanding
voting securities of the issuer; provided, however, that up to 25% of the Fund's
total assets may be invested without regard to these limitations;
3. Underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter;
4. Concentrate its assets in the securities of issuers all of which
conduct their principal business activities in the same industry (this
restriction does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities);
5. Make any investment in real estate, commodities or commodities
contracts, except that these Funds may: (a) purchase or sell readily marketable
securities that are secured by interest in real estate or issued by companies
that deal in real estate, including real estate investment and mortgage
investment trusts; and (b) engage in financial futures contracts and related
options, as described herein and in the Fund's Prospectus;
6. Make loans, except that these Funds may: (a) invest in repurchase
agreements, and (b) loan its portfolio securities in amounts up to one-third of
the market or other fair value of its total assets;
7. Issue senior securities, except as appropriate to evidence indebtedness
that it is permitted to incur, provided that the deposit or payment by the Fund
of initial or maintenance margin in connection with futures contracts and
related options is not considered the issuance of senior securities;
8. Borrow money in excess of 5% of its total assets (taken at market
value);
9. Pledge, mortgage or hypothecate in excess of 5% of its total assets
(the deposit or payment by a Fund of initial or maintenance margin in connection
with futures contracts and related options is not considered a pledge or
hypothecation of assets);
10. Purchase more than 10% of the voting securities of any one issuer,
except U.S. Government Securities;
11. Invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than 7 days, that cannot be
disposed of within the normal course of business at approximately the amount at
which the Fund has valued the securities, excluding restricted securities that
have been determined by the Trustees of the Fund (or the persons designated by
them to make such determinations) to be readily marketable;
12. Purchase securities of any issuer with a record of less than 3 years
of continuous operations, including predecessors, except U.S. Government
Securities and obligations issued or guaranteed by any foreign government or its
agencies or instrumentalities, if such purchase would cause the investments of a
Fund in all such issuers to exceed 5% of the total assets of the Fund taken at
market value;
13. Purchase securities on margin, except these Funds may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities (the deposit or payment by a Fund of initial or maintenance margin
in connection with futures contracts or related options is not considered the
purchase of a security on margin);
14. Write put and call options, unless the options are covered and the
Fund invests through premium payments no more than 5% of its total assets in
options transactions, other than options on futures contracts;
15. Purchase and sell futures contracts and options on futures contracts,
unless the sum of margin deposits on all futures contracts held by the Fund, and
premiums paid on related options held by the Fund, does not exceed more than 5%
of the Fund's total assets, unless the transaction meets certain "bona fide
hedging" criteria (in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing the 5%);
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16. Invest in securities of any issuer if any officer or trustee of the
Fund or any officer or director of Northstar owns more than 1/2 of 1% of the
outstanding securities of the issuer, and such officers, directors and trustees
own in the aggregate more than 5% of the securities of such issuer;
17. Invest in interests in oil, gas or other mineral exploration or
development programs (although it may invest in issuers that own or invest in
such interests);
18. Purchase securities of any investment company, except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase, or except when such purchase, though not made in the open
market, is part of a plan of merger, consolidation, reorganization or
acquisition of assets;
19. Purchase more than 3% of the outstanding voting securities of another
investment company, invest more than 5% of its total assets in another
investment company, or invest more than 10% of its total assets in other
investment companies;
20. Purchase warrants if, as a result, warrants taken at the lower of cost
or market value would represent more than 5% of the value of the Fund's net
assets or if warrants that are not listed on the New York or American Stock
Exchanges or on an exchange with comparable listing requirements, taken at the
lower of cost or market value, would represent more than 2% of the value of the
Fund's net assets (for this purpose, warrants attached to securities will be
deemed to have no value); or
21. Make short sales, unless, by virtue of its ownership of other
securities, the Fund has the right to obtain securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is made
upon the same conditions, except in connection with arbitrage transactions. The
Strategic Income Fund, additionally, may not invest in interests of real estate
limited partnerships.
In addition to the restrictions described above, the Fund may, from time
to time, agree to additional investment restrictions for purposes of compliance
with the securities laws of those state and foreign jurisdictions where the Fund
intends to offer or sell its shares.
INVESTMENT TECHNIQUES
Derivative Instruments. The Fund may invest in Derivative Instruments (as
defined in the Fund's Prospectus) for a variety of reasons, including to 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 will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it would
review the credit quality of a security to be purchased by 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.
Firm Commitments and When-Issued Securities. The Fund may enter into firm
commitment agreements to purchase securities at an agreed-upon price on a
specified future date. An amount of cash or short-term U.S. Government
Securities equal to the Fund's commitment will be deposited in a segregated
account at the Fund's custodian bank to secure the Fund's obligation. Although a
Fund will generally enter into firm commitments to purchase securities with the
intention of actually acquiring the securities for its portfolio (or for
delivery pursuant to options contracts it has entered into), the Fund may
dispose of a security prior to settlement if Northstar deems it advisable to do
so. A Fund entering into the forward commitment may realize short-term gains or
losses in connection with such sales.
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The Fund may enter into To Be Announced ("TBA") sale commitments wherein
the unit price and the estimated principal amount are established upon entering
into the contract, with the actual principal amount being within a specified
range of the estimate. 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.
The Fund may also purchase securities on a when-issued or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date, normally within one month. The value of the security on the
settlement date may be more or less than the price paid as a result of, among
other things, changes in the level of interest rates or other market factors.
Accordingly, there is a risk of loss, which is in addition to the risk of
decline in the value of the Fund's other assets. The Fund will establish a
segregated account with its custodian in which it will maintain cash and
marketable securities equal in value to commitments for when-issued or delayed
delivery securities. While when-issued or delayed delivery securities may be
sold prior to the settlement date, it is intended that 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 Fund may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Such bonds are
frequently secured by letters of credit or other credit support arrangements
provided by banks. Floating or variable rate instruments provide for adjustments
in the interest rate at specified intervals (weekly, monthly, semiannually,
etc.). 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 the Fund.
These bonds are more defensive than conventional long-term bonds (protecting to
some degree against a rise in interest rates), while providing greater
opportunity than comparable intermediate term bonds since the Fund may retain
the bond if interest rates decline. By acquiring these kinds of bonds, 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.
Futures Transactions -- In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the United States, such as the London International
Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may
have greater risk potential than domestic markets. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. In
addition, any profits that the Fund might realize in trading could be eliminated
by adverse changes in the exchange rate, or the Fund could incur losses as a
result of those changes. Transactions on foreign exchanges 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.
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Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant market,
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged and
the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission (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 Fund may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
The Fund may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
The Fund may purchase and sell currency futures. A foreign currency future
obligates the Fund to purchase or sell an amount of a specific currency at a
future date at a specific price.
GNMAS. The Fund may invest in U.S. Government Securities, which are
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Obligations of the Government National Mortgage Association
(popularly called GNMAs or Ginnie Maes) are mortgage backed securities
representing part ownership of a pool of mortgage loans, in which the timely
payment of principal and interest is guaranteed by the full faith and credit of
the U.S. Government. GNMA may borrow U.S. Treasury funds to the extent needed to
make payments under the guarantee. The Fund may 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 Fund also may purchase "variable rate" GNMA Certificates and
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 the 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.
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Index Warrants. The 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 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 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.
International Investing. The Fund may invest up to 20% of its net assets
in foreign securities, of which 10% of its net assets may be invested in foreign
securities that are not listed on a U.S. securities exchange. Investments in
foreign securities involve special risks, including currency fluctuations,
political or economic instability in the country of issue and the possible
imposition of exchange controls or other laws or restrictions. In addition,
securities prices in foreign markets are generally subject to different
economic, financial, political and social factors than are the prices of
securities in U.S. markets. With respect to some foreign countries there may be
the possibility of expropriation or confiscatory taxation, limitations on
liquidity of securities or political or economic developments which could affect
the foreign investments of the 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.
Lending Portfolio Securities. The Fund may lend portfolio securities to
broker-dealers and other financial institutions in an amount up to one-third of
the value of its total assets, provided that such loans are callable at any time
by the Fund and are at all times secured by collateral held by the Fund at least
equal to the market value, determined daily, of the loaned securities. The Fund
will continue to receive any income on the loaned securities, while
simultaneously earning interest on cash collateral (which will be invested in
short-term debt obligations) or a securities lending fee (in the case of
collateral in the form of U.S. Government Securities).
There may be risks of delay in recovery of the loaned securities and, in
some cases, loss of rights in the collateral should the borrower of the
securities fail financially. Loans of portfolio securities will only be made to
firms considered by Northstar to be creditworthy under guidelines adopted by the
Trustees.
Loan Participations and Assignments. The Fund may invest in loan
participations and loan assignments. A Fund's investment in loan participations
typically will result in the Fund having a contractual relationship only with
the Lender and not with the borrower. The Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participations and only upon receipt by the Lender of the
payments from the borrower. In 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
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be subject to the credit risk of both the borrower and the Lender that is
selling the Participation. In the event of the insolvency of the Lender selling
a Participation, the Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower.
When a Fund purchases a loan assignment from Lenders, it will acquire
direct rights against the borrowers on the Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Fund anticipates that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular assignments or participations when necessary to meet redemptions
of Fund shares, to meet the Fund's liquidity needs or when necessary in response
to a specific economic event, such as deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for assignments and
participations also may make it more difficult for a Fund to value these
securities for purposes of calculating its net asset value.
Options -- In General. The Fund may purchase and write (i.e., sell) call
or put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period.
A covered call option written by 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 Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or traded
in the over-the-counter market. An option on a stock index is similar to an
option in respect of specific securities, except that settlement does not occur
by delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
The Fund may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a price
which is expected to be lower or higher than the spot price of the currency at
the time the option is exercised or expires.
The Fund may purchase cash-settlement options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps in
pursuit of its investment objective. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating-rate payments for fixed-rate
payments) denominated in U.S. dollars or foreign currency. Equity index swaps
involve the exchange by the Fund with another party of cash flows based upon the
performance of an index or a portion of an index of securities which usually
includes dividends. A cash-settled option on a swap gives the purchaser the
right, but not the obligation, in
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return for the premium paid, to receive an amount of cash equal to the value of
the underlying swap as of the exercise date. These options typically are
purchased in privately negotiated transactions from financial institutions,
including securities brokerage firms.
Successful use by the Fund of options will be subject to the ability of
Northstar to predict correctly movements in the prices of individual stocks, the
stock market generally, foreign currencies or interest rates. To the extent the
Manager's predictions are incorrect, the Fund may incur losses.
Repurchase Agreements. Repurchase agreements are agreements under which a
Fund buys a money market instrument and obtains a simultaneous commitment from
the seller to repurchase the instrument at a specified time and at an agreed
upon yield. Northstar will use standards set by the Fund's Trustees in reviewing
the creditworthiness of parties to repurchase agreements with such Fund. In
addition, no more than an aggregate of 15% of the Fund's net assets, at the time
of investment, will be invested in illiquid investments, including repurchase
agreements having maturities longer than seven days. In the event of failure of
the executing bank or broker-dealer, the Fund could experience some delay in
obtaining direct ownership of the underlying collateral and might incur a loss
if the value of the security should decline, as well as costs in disposing of
the security.
As an alternative to using repurchase agreements, the Fund may, from time
to time, invest up to 5% of its assets in money market investment companies
sponsored by a third party for short-term liquidity purposes. Such investments
are subject to the non-fundamental investment limitations described herein.
Reverse Repurchase Agreements and Dollar Roll Agreements. The Fund may
enter into reverse repurchase agreements and dollar roll agreements. Under a
reverse repurchase agreement or a dollar roll agreement, a Fund sells securities
and agrees to repurchase them, or substantially similar securities in the case
of a dollar roll agreement, at a mutually agreed upon date and price. At the
time the Fund enters into a reverse repurchase or dollar roll agreement, it will
establish and maintain a segregated account with its custodian, containing cash,
U.S. Government Securities, or other liquid assets from its portfolio, having a
value not less than the repurchase price (including accrued interest). The Fund
does not account for dollar rolls as a borrowing.
These agreements may involve the risk that the market value of the
securities to be repurchased by the Fund may decline below the price at which
the Fund is obligated to repurchase. Also, in the event the buyer of securities
under a reverse repurchase agreement or a dollar roll agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement or the dollar roll agreement may effectively be
restricted pending such a decision.
Short Sales. The Fund may make short sales "against the box." A short-sale
is a transaction in which a party sells a security it does not own in
anticipation of decline in the market value of that security. A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain securities identical to those sold short. When the Fund makes a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities, and is often obligated to pay
over any accrued interest on such borrowed securities.
Small and Medium Companies. The Fund may invest a substantial portion of
its assets in small and medium companies. While small and medium companies
generally have the potential for rapid growth, investments in small and medium
companies often involve greater risks than investments in larger, more
established companies because small and medium companies may lack the management
experience, financial resources, product diversification, and competitive
strengths of larger companies. In addition, in many instances the securities of
small and medium companies are traded only OTC or on a regional securities
exchange, and the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, the securities of small and
medium companies may be subject to greater and more abrupt price fluctuations.
When making large sales, the Fund may have to sell portfolio holdings at
discounts from quoted prices or may have to make a series of small sales over an
extended period of time due to the trading volume of small and medium company
securities. Investors should be aware that, based on the foregoing factors, an
investment in the Fund may be subject to greater price fluctuations than an
investment in a Fund that invests primarily in larger, more established
companies. Northstar's research efforts may also play a greater role in
selecting securities for the Fund than in a Fund that invests in larger, more
established companies.
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PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Northstar places orders for the purchase and sale of the Fund's
securities, supervises their execution and negotiates brokerage commissions on
behalf of the Fund. It is the practice of Northstar to seek the best prices and
best execution of orders and to negotiate brokerage commissions that in the
Adviser's opinion, are reasonable in relation to the value of the brokerage and
research services provided by the executing broker. Northstar seeks to obtain
fair commission rates from brokers. If the execution is satisfactory and if the
requested rate charged by a broker approximates rates currently being quoted by
the other brokers selected by Northstar, the rate is generally deemed by
Northstar to be reasonable. Some brokers may be paid higher rates of commission
if all or a portion of the securities involved in the transaction are positioned
by the broker, if the broker believes it has brought the Fund an unusually
favorable trading opportunity, or if the broker's research services have special
value and payment of such commissions is authorized by Northstar after the
transaction has been consummated. If Northstar more than occasionally differs
with the broker's appraisal of opportunity or value, the broker would not be
selected to execute trades in the future. Northstar believes that the Fund
benefits with a securities industry comprised of many and diverse firms and that
the long term interest of shareholders of the Fund is best served by its
brokerage policies that include paying a fair commission, rather than seeking to
exploit its leverage to force the lowest possible commission rate.
Over-the-counter purchases and sales are transacted directly with market-makers,
except in those circumstances where, in the opinion of Northstar, better prices
and execution are available elsewhere.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (1) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
Northstar has informal arrangements with various brokers whereby, in
consideration for providing research services and subject to Section 28(e),
Northstar allocates brokerage to those firms, provided that the value of any
research and brokerage services was reasonable in relationship to the amount of
commission paid and was subject to best execution. In no case will Northstar
make binding commitments as to the level of brokerage commissions it will
allocate to a broker, nor will it commit to pay cash if any informal targets are
not met.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry groups
and individual issues. Research services will vary from firm to firm, with
broadest coverage generally from the large full-line firms. Smaller firms, in
general, tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor federal,
state, local and foreign political developments; many of the brokers also
provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff, since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, the outside research provides Northstar with a
diverse perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to Northstar and is available for
the benefit of other accounts advised by Northstar and its affiliates; and not
all of this information will be used in connection with the Fund. While this
information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value, and, in the
opinion of Northstar, it does not reduce the Adviser's expenses by a
determinable amount. The extent to which Northstar makes use of statistical,
research and other services furnished by brokers is considered by Northstar in
the allocation of brokerage business, but there is no formula by which such
business is allocated. Northstar does so in accordance with its judgment of the
best interests of the Fund and its shareholders.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Fund will also
purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed income securities transactions consists primarily of dealer
spreads and underwriting commissions.
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In purchasing and selling fixed income securities, it is the policy of the
Fund to obtain the best results, while taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors, such as the dealer's risk in positioning the securities involved. While
Northstar generally seeks reasonably competitive spreads or commissions, the
Fund will not necessarily pay the lowest spread or commission available.
The Fund may, under circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Fund. By allocating
transactions in this manner, Northstar is able to supplement its research and
analysis with the views and information of other securities firms.
During the calendar years ended December 31, 1997, 1996 and 1995,
respectively, the Northstar Special Fund paid the following brokerage
commissions:
Brokerage Commissions Paid During Calendar Years Ended
December 31,
1997 1996 1995 (1)
---------- ---------- ----------
$874,698 $479,135 $87,375
- ------------
(1) During the calendar year 1995, the Northstar Special Fund paid
brokerage commissions to Advest, Inc. in the amount of $6,540.
A change in securities held in the portfolio of the Fund is known as
"Portfolio Turnover" and may involve the payment by the Fund of dealer mark-ups
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
acquistion were one year or less. A 100% annual turnover rate would occur, for
example, if all the securities in the portfolio were replaced once in a period
of one year. The Fund cannot accurately predict its portfolio turnover rate, but
Northstar anticipates that the Fund's rate will exceed 300% under normal market
conditions. The Fund's portfolio turnover rate may be higher than that described
above if the 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.
The placement of portfolio transactions with broker-dealers who sell
shares of the Fund is subject to rules adopted by the National Association of
Securities Dealers, Inc. ("NASD").
SERVICES OF NORTHSTAR AND THE ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with the Fund, Northstar
Investment Management Corporation acts as the Investment Adviser to the Fund. In
this capacity, Northstar, subject to the authority of the Trustees of the
Northstar Special Fund (the "Trust") is responsible for furnishing continuous
investment supervision to the Fund and is responsible for the management of the
Fund's portfolio.
Northstar is an indirect, wholly-owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar"). ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the life insurance business. Through ReliaStar Life
Insurance Company ("ReliaStar Life") and other subsidiaries, ReliaStar issues
and distributes individual life insurance and annuities, group life and health
insurance and life and health reinsurance, and provides related investment
management services. The address of Northstar is 300 First Stamford Place,
Stamford, Connecticut 06902. The address of ReliaStar is 20 Washington Avenue
South, Minneapolis, Minnesota 55401.
Northstar charges a fee under the Investment Advisory Agreement to the
Fund at an annual rate of 0.75% of the Fund's average daily net assets. This fee
is accrued daily and payable monthly.
The Investment Advisory Agreement for the Fund was approved by the
Trustees of the 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 again on April 30, 1998. The Investment Advisory Agreement will continue 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 the Fund as defined in the 1940
Act.
The Fund's Investment Advisory Agreement may be terminated, 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 the Fund as defined in the 1940 Act. The
agreement will automatically terminate in the event of its assignment, as
defined in Section 2(a)(4) of the 1940 Act.
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Northstar Administrators Corporation serves as administrator for the Fund,
pursuant to an Administrative Services Agreement with the Fund. Subject to the
supervision of the Board of Trustees, the Administrator provides the overall
business management and administrative services necessary to the proper conduct
of the Fund's business, except for those services performed by Northstar under
the Investment Advisory Agreement, the custodian for the Fund under the
Custodian Agreement, the transfer agent for the Fund under the Transfer Agency
Agreement, and such other service providers as may be retained by the Fund from
time to time. The Administrator acts as liaison among these service providers to
the Fund. The Administrator is also responsible for ensuring that the Fund
operates in compliance with applicable legal requirements and for monitoring
Northstar for compliance with requirements under applicable law and with the
investment policies and restrictions of the Fund. The Administrator is an
affiliate of Northstar. The address of the Administrator is: 300 First Stamford
Place, Stamford, Connecticut 06902.
The Administrative Services Agreement was approved by the Trustees of the
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 again on April
30, 1998. The Administrative Services Agreement will continue if such
continuance is approved annually by a majority of the Trustees of the Fund.
The Administrator's fee is accrued daily against the value of the Fund's
net assets and is payable by the Fund monthly at an annual rate of 0.10% of the
Fund's average daily net assets. In addition, the Administrator charges an
annual account fee of $5.00 for each account of beneficial owners of shares of
the Fund for providing certain shareholder services and assisting broker-dealer
shareholder accounts.
During the calendar years ended December 31, 1997, 1996 and 1995
respectively, the Northstar Special Fund paid Northstar and the Administrator
the following investment advisory and administrative fees:
Total Advisory and Administrative Fees Paid
During Calendar Years Ended December 31,
1997 1997 1996 (2) 1996 (2) 1995
Advisory Admin. Advisory Admin. Advisory
Fees Fees Fees Fees Fees
----------- -------- ---------- ------- ---------
$2,341,067 266,145 1,146,789 0 287,311
- -----------
(1) Prior to June 5, 1995, the Special Fund was managed by Boston Security
Counselors, Inc. ("BSC") and did not utilize the services of an
administrator. During the calendar years ended December 31, 1997, 1996 and
1995, the Funds paid Northstar or BSC the above noted investment advisory
fees.
(2) Does not reflect expense reimbursement of $20,615 for the Fund for the
year ended December 31, 1996.
NET ASSET VALUE
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 from established market makers, or at prices for securities of
comparable maturity, quality and type. Securities (including OTC options) for
which market quotations are not readily available and other assets are valued at
their fair value as determined by or under the direction of the Trustees. Such
fair value may be determined by various methods, including utilizing information
furnished by pricing services that determine calculations for such securities
using methods based, among other things, upon market transactions for comparable
securities and various relationships between securities that are generally
recognized as relevant.
The net asset value of the Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern Time), on each business day that the
Exchange is open. Net asset value per share is computed by determining the value
of the 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 and Class C shares of the Fund will generally be lower than
that of the Class A or Class I shares because of the higher class specific
expenses borne by each of the Class B and Class C shares.
Under normal market conditions, daily prices for securities are obtained
from independent pricing services, determined by them in accordance with the
registration statement for the Fund. Securities are valued at market value or,
if a market quotation is not readily available, at their fair value, determined
in good faith under procedures established by and under the
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supervision of the Trustees. Money market instruments maturing within 60 days
are valued using the amortized cost method of valuation. This involves valuing a
security at cost on the date of acquisition and thereafter assuming a constant
accretion of a discount or amortization of a premium to maturity, regardless of
the impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument. See "How Net Asset Value
is Determined" in the Prospectus.
REDEMPTIONS
The right to redeem shares may be suspended and payment 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 the Fund to dispose of its securities
or to determine fairly the value of its net assets or during any other period
permitted by order of the SEC for the protection of investors. Furthermore, the
Transfer Agent will not mail redemption proceeds until checks received for
shares purchased have cleared, but payment will be forwarded immediately upon
the funds becoming available.
Exchanges. The following conditions must be met for all exchanges among
the Fund, other Northstar funds and the Cash Management Fund 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 Cash
Management Fund, 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.
The 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. The Fund reserves the right to terminate or modify
its exchange privileges at any time upon prominent notice to shareholders. Such
notice will be given at least 60 days in advance. It is the policy of Northstar
to discourage and prevent frequent trading by shareholders among the Funds in
response to market fluctuations. Accordingly, in order to maintain a stable
asset base in each Fund and to reduce administrative expenses borne by each
Fund, Northstar generally restricts shareholders to a maximum of six exchanges
across the Northstar Fund complex each calendar year. If a shareholder exceeds
this limit, future exchange requests may be denied.
Conversion Feature. Class B shares of the 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 the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"). In order to so
qualify, the Fund must, among other things, (i) derive each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies; (ii) derive less than 30% of its gross
income each taxable year from the sale or other disposition of certain assets,
including securities, held for less than three months (the "30% Limitation");
and (iii) at the end of each quarter of the taxable year maintain at least 50%
of the value of its total assets in cash, government securities, securities of
other regulated investment companies, and other securities of issuers that
represent, with respect to each issuer, no more than 5% the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
with no more than 25% of its assets invested in the securities (other than those
of the U.S. Government or other regulated investment companies) of any one
issuer or of two or more issuers that the Fund controls and that are engaged in
the same, similar or related trades and businesses. As a regulated investment
company, the Fund generally will not be subject to federal income tax on its
income and gains that it distributes to shareholders, if at least 90% of its
investment company taxable income (which includes dividends, interest and the
excess of any short-term capital gains over long-term capital losses) for the
taxable year is distributed.
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An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of a Fund's ordinary income
for the calendar year plus 98% of its capital gain net income recognized during
the one-year period ending on October 31 plus undistributed amounts from prior
years. The 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 the Fund
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses ("60/40 gains or losses"); however, foreign currency gains or
losses (as discussed below) arising from certain section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by 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 the Fund may result in straddles for
U.S. federal income tax purposes. The straddle rules may accelerate income to a
Fund, defer losses to a Fund, and affect the character of gains (or losses)
realized by a Fund. Hedging transactions may increase the amount of short-term
capital gains realized by a Fund that is taxed as ordinary income when
distributed to shareholders. A Fund may make one or more of the various
elections available under the Code with respect to hedging transactions. If the
Fund makes any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected positions will be determined
under rules that vary according to the elections made.
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 the Fund held the security used
to close the short sale. In addition, the Fund's holding period for any security
that is substantially identical to that which is sold short may be reduced or
eliminated as a result of the short sale.
Investments by the Fund in zero coupon securities will result in income to
the Fund equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Fund receives no cash interest payments.
This income is included in determining the amount of income that the Fund must
distribute to maintain its status as a regulated investment company and to avoid
the payment of federal income tax and the 4% excise tax. If the Fund invests in
certain high yield original issue discount obligations issued by corporations, a
portion of the original issue discount accruing on the obligations may be
eligible for the deduction for dividends received by corporations. In such
event, a portion of the dividends of investment company taxable income received
from the Fund by its corporate shareholders may be eligible for this deduction.
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Gains derived by the Fund from the disposition of any market discount
bonds (I.E., bonds purchased other than at original issue, where the face value
of the bonds exceeds their purchase price) held by the Fund will be taxed as
ordinary income to the extent of the accrued market discount on the bonds,
unless the Fund elects to include the market discount in income as it accrues.
If the Fund invests in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), these investments would be subject to special tax rules
designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's
earnings. In the absence of certain elections to report these earnings on a
current basis, regardless of whether the Fund actually receives any
distributions from the PFIC, investors in the Fund would be required to report
certain "excess distributions" from, and any gains from the disposition of stock
of, the PFIC as ordinary income. This ordinary income would be allocated ratably
to the Fund's holding period for the stock. Any amounts allocated to prior years
would be taxable at the highest rate of tax applicable in that year, increased
by an interest charge determined as though the amounts were underpayments of
tax.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. If more than
50% of the value of the 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 the Fund is
not eligible to make the election to "pass through" to its shareholders its
foreign taxes, the foreign taxes it pays will reduce its investment company
taxable income and distributions by the Fund will be treated as U.S. source
income.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to its foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Fund's income flows through to its shareholders. With respect to
the Fund, gains from the sale of securities will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains from
foreign currency denominated debt securities, receivables and payables, and
options, futures and forward transactions, will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income (as defined for purposes of the
foreign tax credit), including the foreign source passive income passed through
by the Fund.
The current position of the Internal Revenue Service (the "IRS") generally
is to treat a regulated investment company as owning its proportionate share of
the income and assets of any partnership in which it is a partner, in applying
the 90% qualifying income requirement, the 30% Limitation and the asset
diversification requirements that, as described above, the Fund must satisfy to
qualify as a regulated investment company under the Code. These requirements may
limit the extent to which the Fund may invest in limited partnerships,
especially in the case of limited partnerships that do not primarily invest in a
diversified portfolio of stocks and securities.
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of the Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated as capital
gain dividends are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the Fund on the
reinvestment date. A distribution of an amount in excess of the Fund's current
and accumulated earnings and profits will be treated by a shareholder as a
return of capital that is applied against and reduces the shareholder's basis in
his or her shares. To the extent that the amount of any such distribution
exceeds the shareholder's basis in his or her shares, the excess will be treated
by the shareholder as a gain from a sale or exchange of the shares. Shareholders
will be notified annually as to the U.S. federal tax status of distributions,
and shareholders receiving distributions in the form of additional shares will
receive a report as to the net asset value of those shares.
Upon the sale or other disposition of shares of the Fund, a shareholder
may realize a capital gain or loss that will be long-term or short-term,
generally depending upon the shareholder's holding period for the shares. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to
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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 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.
The foregoing discussion relates solely to U.S. Federal income tax law.
Dividends and distributions also may be subject to state, local and foreign
taxes. Dividends paid by the Fund from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers regarding the possible exclusion
of this portion of their dividends for state and local tax purposes. Non-U.S.
investors also should consult their tax advisers concerning the tax consequences
of ownership of shares of the Fund, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
Shareholders 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 the Fund Pays Distributions -- Distribution Options" section
of the Fund's current Prospectus. If a shareholder selects either of two such
options (that: (a) income dividends be paid in cash and capital gain
distributions be paid in additional shares of the same class of the Fund at net
asset value; or (b) income dividends and capital gain distributions both be paid
in cash), and the dividend/distribution checks cannot be delivered, or, if such
checks remain uncashed for six months, the Fund reserves the right to reinvest
the dividend or distribution in the shareholder's account at the then-current
net asset value and to convert the shareholder's election to automatic
reinvestment in shares of the Fund from which the distributions were made. The
Fund has received from the IRS, rulings to the effect that (i) the
implementation of the multiple class purchase arrangement will not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Code, and (ii) that any conversion feature associated with a class of shares
does not constitute a taxable event under federal income tax law.
UNDERWRITER AND DISTRIBUTION SERVICES
Pursuant to Underwriting Agreements, Northstar Distributors, Inc. is the
Underwriter for the Fund and as such conducts a continuous offering pursuant to
a "best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. The Underwriter is an affiliate of the
Adviser and the Administrator.
The Underwriting Agreements may be terminated at any time on not more than
60 days written notice, without payment of a penalty, by the Underwriter, by
vote of a majority of the outstanding class of voting securities of the Fund, or
by vote of a majority of the Trustees, 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.
15
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal Officers of the Trust and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and Officers is 300 First Stamford
Place, Stamford, Connecticut 06902.
Paul S. Doherty, Trustee. Age: 64.
President, Doherty, Wallace, Pillsbury and Murphy, P.C., Attorneys.
Director, Tambrands, Inc. Since October 1993, Trustee of the Northstar
affiliated investment companies.
Robert B. Goode, Jr., Trustee. Age: 68.
Currently retired. From 1990 to 1991, Chairman of The First Reinsurance
Company of Hartford. From 1987 to 1989, President and Director of American
Skandia Life Assurance Company. Since October 1993, Trustee of the Northstar
affiliated investment companies.
Alan L. Gosule, Trustee. Age: 58.
Partner, Rogers & Wells. Director, F.L. Putnam Investment Management Co.,
Inc.
*Mark L. Lipson, Trustee and President. Age: 49.
Director, Chairman and Chief Executive Officer of Northstar and Northstar,
Inc. Director and President of Northstar Administrators Corporation and Director
and Chairman of Northstar Distributors, Inc., President and Trustee of the
Northstar affiliated investment companies since October 1993. Prior to August,
1993, Director, President and Chief Executive Officer of National Securities &
Research Corporation and President and Director/Trustee of the National
Affiliated Investment Companies and certain of National's subsidiaries.
Walter H. May, Trustee. Age: 62.
Retired. Former Senior Executive for Piper Jaffrey, Inc.
David W.C. Putnam, Trustee. Age: 59.
President, Clerk and Director of F.L. Putnam Securities Company,
Incorporated, F.L. Putnam Investment Management Company, Incorporated,
Interstate Power Company, Inc., Trust Realty Corp. and Bow Ridge Mining Co.;
Director of Anchor Investment Management Corporation; President and Trustee of
Anchor Capital Accumulation Trust, Anchor International Bond Trust, Anchor Gold
and Currency Trust, Anchor Resources and Commodities Trust and Anchor Strategic
Assets Trust.
John R. Smith, Trustee. Age: 75.
From 1970-1991, Financial Vice President of Boston College; President of
New England Fiduciary Company (financial planning) since 1991; Chairman of
Massachusetts Educational Financing Authority since 1987; Vice Chairman of
Massachusetts Health and Education Authority.
*John G. Turner, Trustee. Age: 59.
Since May 1993, Chairman and CEO of ReliaStar Financial Corporation and
Northwestern NationalLife Insurance Co. and Chairman of other ReliaStar
Affiliated Insurance Companies since 1995. Since October 1993, Director of
Northstar and affiliates. Prior to May 1993, President and CEO of ReliaStar and
Northwestern National.
David W. Wallace, Trustee. Age: 74.
Chairman of Putnam Trust Company, Lone Star Industries and FECO Engineered
Systems, Inc. He is also President and Trustee of Robert R. Young Foundation and
Governor of the New York Hospital. Director of UMC Electronics and Zurn
Industries, Inc. Former Chairman and Chief Executive Officer, Todd Shipyards and
Bangor Punta Corporation, and former Chairman and Chief Executive Officer of
National Securities & Research Corporation. Since October 1993, Trustee of the
Northstar affiliated investment companies.
Stephanie L. Beckner, Vice President and Secretary. Age: 30.
Vice President, Secretary and Counsel of Northstar, Northstar affiliated
companies and Northstar affiliated investment companies.
Thomas Ole Dial, Vice President. Age: 42.
Executive Vice President and Chief Investment Officer-Fixed Income of
Northstar and Principal, T.D. & Associates, Inc. From 1989 to August 1993,
Executive Vice President and Chief Investment Officer-Fixed Income of National
Securities and Research Corporation, Vice President of National Affiliated
Investment Companies, and Vice President of NSR Asset Management Corporation.
From 1988 to 1989, President of Dial Capital Management.
- -----------
*Deemed to be an "interested person" of the Trust, as defined by the 1940 Act.
16
<PAGE>
Mary Lisanti, Vice President. Age: 42.
Executive Vice President and Chief Investment Officer-Equities of
Northstar. From September 1996 to May 1998, Portfolio Manager with Strong
Capital Management from March 1993 to August 1996, Managing Director and
Portfolio Manager with Bankers Trust Corporation.
Agnes Mullady, Vice President and Treasurer. Age: 40.
Senior Vice President and Chief Financial Officer of Northstar; Senior
Vice President, Treasurer and President of Northstar Administrators Corporation;
and Vice President and Treasurer of Northstar Distributors, Inc. and Northstar
affiliated investment companies. 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 Fund. All
Officers and Interested Trustees of the Fund 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 Fund, Northstar Trust, Northstar Equity Trust,
Northstar Galaxy Trust 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
Trusts and the other Northstar retail funds. The Trust also reimburses Trustees
for expenses incurred by them in connection with such meetings.
Compensation Table
Period Ended December 31, 1997
<TABLE>
<CAPTION>
Pension Benefits Estimated Annual Total Compensation
Compensation Accrued as Part of Benefits Upon from All Funds (17) in
from Funds(a) Fund Expenses Retirement Northstar Complex(b)
------------- ------------------ ------------- -----------------------
<S> <C> <C> <C> <C>
Paul S. Doherty ....................... 13,239 0 0 13,750
Robert B. Goode, Jr. .................. 14,500 0 0 15,000
Alan L. Gosule ........................ 14,988 0 0 15,500
Mark L. Lipson ........................ 0 0 0 0
Walter H. May ......................... 14,989 0 0 15,500
David W.C. Putnam ..................... 14,625 0 0 13,125
John R. Smith ......................... 14,989 0 0 15,500
John G. Turner ........................ 0 0 0 0
David W. Wallace ...................... 13,239 0 0 13,750
</TABLE>
- ------------
(a) See table below for Fund specific compensation. The Northstar Research
Enhanced Index Fund commenced operations on December 30, 1998, the
Northstar Emerging Markets Value commenced operations or January 1, 1998,
and the Northstar Mid-Cap Growth Fund commenced operations on August 20,
1998.
(b) Compensation paid by the Northstar Trust Funds, the Northstar Galaxy Trust
Funds, the Northstar Equity Trust Fund and the remaining five funds,
Northstar Special, Government Securities, High Yield Growth and Balance
Sheet Opportunities Funds.
Individual Fund
Fiscal Year Compensation Tables
<TABLE>
<CAPTION>
Income
Mid-Cap Growth + International Emerging and Government
Special Growth(a) Value Value Markets Growth Securities
------ ------ ----- ----- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul S. Doherty .............. 1,518 0 915 500 0 1,401 1,212
Robert B. Goode, Jr. ......... 1,604 0 1,073 659 0 1,501 1,334
Alan L. Gosule ............... 1,677 0 1,074 659 0 1,560 1,371
Mark L. Lipson ............... 0 0 0 0 0 0 0
Walter H. May ................ 1,677 0 1,074 659 0 1,560 1,371
David W.C. Putnam ............ 1,434 0 902 489 0 1,330 1,164
John R. Smith ................ 1,677 0 1,074 659 0 1,560 1,371
John G. Turner ............... 0 0 0 0 0 0 0
David W. Wallace ............. 1,518 0 915 500 0 1,401 1,212
</TABLE>
- ------------
(a) The Northstar Mid-Cap Growth Fund commenced operations on August 20, 1998.
The compensation amounts noted are estimates for the period ending
December 31, 1998.
17
<PAGE>
<TABLE>
<CAPTION>
High
Total High Total Balance Sheet
High Yield Return II Return Growth Opportunites
---------- ---------- ---------- ------ --------------
<S> <C> <C> <C> <C> <C>
Paul S. Doherty .................... 1,432 500 2,395 1,229 1,052
Robert B. Goode, Jr. ............... 1,528 659 2,377 1,349 1,193
Alan L. Gosule ..................... 1,591 659 2,554 1,388 1,211
Mark L. Lipson ..................... 0 0 0 0 0
Walter H. May ...................... 1,591 659 2,554 1,388 1,211
David W.C. Putnam .................. 1,357 489 2,207 1,179 1,022
John R. Smith ...................... 1,591 659 2,554 1,388 1,211
John G. Turner ..................... 0 0 0 0 0
David W. Wallace ................... 1,432 500 2,395 1,229 1,052
</TABLE>
OTHER INFORMATION
Independent Accountants. PricewaterhouseCoopers LLP has been selected as
the independent accountants of the Northstar Special Fund.
PricewaterhouseCoopers LLP audits the Fund's annual financial statements and
expresses an opinion thereon.
Custodian. State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02110, acts as custodian, and fund accounting agent for the Fund.
Transfer Agent. Pursuant to a Transfer Agency Agreement with the Fund,
First Data Investor Services Group, Inc., 4400 Computer Drive, Westborough, MA
01581-5120, acts as transfer agent for the Fund.
Reports to Shareholders. The fiscal year of the Northstar Special Fund
ends on December 31. The Fund will send financial statements to its shareholders
at least semiannually. An annual report containing financial statements audited
by the independent accountants will be sent to shareholders each year.
Organizational and Related Information. The Northstar Special Fund was
organized in 1986.
The shares of the Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders will be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares of the Fund or class having voting rights. Except as set
forth above and subject to the 1940 Act, the Trustees will continue to hold
office and appoint successor Trustees.
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Declaration of Trust
for the Fund contains provisions intended to limit such liability and to provide
indemnification out of Fund property of any shareholder charged or held
personally liable for obligations or liabilities of the Fund solely by reason of
being or having been a shareholder of the Fund and not because of such
shareholder's acts or omissions or for some other reason. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Year 2000 Compliance. The services provided to the Fund by the Adviser,
the Administrator and the Fund's other service providers are dependent on those
service providers' computer systems. Many computer software and hardware systems
in use today cannot distinguish between the year 2000 and the year 1900 because
of the way dates are encoded and calculated (the "Year 2000 Issue"). The failure
to make this distinction could have a negative implication on handling
securities trades, pricing and account services. The Adviser, the Administrator
and the Fund's other service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Issue with respect to the computer
systems that they use. Although there can be no assurances, the Fund believes
these steps will be sufficient to avoid any material adverse impact on the Fund.
The costs or consequences of incomplete or untimely resolution of the Year 2000
Issue are unknown to the Adviser, Administrator and the Fund's other service
providers at this time but could have a material adverse impact on the
operations of the Fund and the Adviser, Administrator and the Fund's other
service providers. Further, there can be no assurances, that the systems of the
companies in which the Fund invests will be timely converted or that the value
of such investments will not be adversely affected by the Year 2000 Issue.
18
<PAGE>
PERFORMANCE INFORMATION
Performance information for the Fund 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 the Fund's
results to those of a group of unmanaged securities that are widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm that ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; (iii) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Fund; and (iv) well known
monitoring sources of certificates of deposit performance rates, such as Solomon
Brothers, Federal Reserve Bulletin, American Bankers and Tower Data/The Wall
Street Journal. Unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for administrative and management costs and
expenses. Performance rankings are based on historical information and are not
intended to indicate future performance.
In addition, the Fund may, from time to time, include various measures of
the Fund's performance, including the current yield, the tax equivalent yield
and the average annual total return of shares of the Fund in advertisements,
promotional literature or reports to shareholders or prospective investors. Such
materials may occasionally cite statistics to reflect the Fund's volatility
risk.
Average Annual Total Return. Standardized quotations of average annual
total return ("Standardized Return") for each class of shares will be expressed
in terms of the average annual compounded rate of return for a hypothetical
investment in such class of shares over periods of 1, 5 and 10 years or up to
the life of the class of shares, calculated for each class separately pursuant
to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures reflect the deduction of a proportional share of
each class's expenses (on an annual basis), the deduction of the maximum initial
sales load (in the case of Class A shares) and the maximum contingent deferred
sales charge applicable to a complete redemption of the investment (in the case
of Class B and Class C shares), and assume that all dividends and distributions
are reinvested when paid.
Yield. Quotations of yield for a specific class of shares of the 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
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 Fund's distribution plan. Except as noted, the performance
results take the contingent deferred sales load into account.
19
<PAGE>
Non-Standardized Return. In addition to the performance information
described above, the Fund may provide total return information that is not
calculated according to the formula set forth above ("Non-Standardized Return").
Neither initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return. Excluding the Fund's sales charge from a
total return calculation produces a higher total return figure.
The 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 Fund in advertising is historical and is not intended to indicate future
returns. The Fund's share prices and total returns fluctuate in response to
market conditions and other factors, and the value of the Fund's shares when
redeemed may be more or less than their original cost.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or selections
from, editorials or articles about the Fund. These editorials or articles may
include quotations of performance from other sources, such as Lipper or
Morningstar. Sources for Fund performance information and articles about the
Fund may include the following: Banxquote, Barron's, Business Week, CDA
Investment Technologies, Inc, Changing Times, Consumer Digest, Financial World,
Forbes, Fortune, IBC/Donoghue'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 Company
Services.
When comparing yield, total return and investment risk of shares of the
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while the 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 the 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 the 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.
20
<PAGE>
APPENDIX
Description of Moody's Investors Service, Inc. ("Moody's") Corporate Bond
Ratings
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Description of Standard & Poor's Corporation's ("S&P") Corporate Debt Ratings
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
A-1
<PAGE>
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-) -- The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation.(1)
(b) By-laws.(1)
(c) N/A
(d) Investment Advisory Contracts.(1)
(e) N/A
(f) N/A
(g) Custodian Agreements.(1)
(h) Other Material Contracts.(1)
(i) Legal Opinion.
(j) N/A
(k) N/A
(l) N/A
(m) N/A
(n) N/A
(o) Rule 18f-3 Plan.
- ----------------------------------
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.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
There are no persons controlled by or under common control with the Fund.
<PAGE>
ITEM 25. INDEMNIFICATION
Section 5.4 of Registrant's Declaration of Trust provides the following:
(a) Subject to Paragraph (c) hereof every person who is, or has been, a Trustee,
Officer, employee or agent of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee, Officer, employee or agent and against amounts
paid or incurred by him in the settlement thereof in such manner, provided, that
to the extent any claim, action, suit or proceeding involves any particular
Series or Classes of Shares of the Trust or the assets or operations of one or
more Series or Classes of Shares, such indemnification shall be provided only
from the assets (or proceeds thereof or income therefrom of such one or more
Series or Classes of Shares and not from the assets (or proceeds thereof or
income therefrom) of any other Series or Class of Shares of the Trust.
(b) The words "claim", "action", "suit" or "proceeding" shall apply to all
claims, 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.
C-2
<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.
C-3
<PAGE>
ITEM 26. 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
Affiliates.
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
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C> <C>
Jeffrey Aurigemma Vice Vice President - Northstar Affiliated
President - Investment Companies
Investments and Portfolio Manager
Stephanie L. Beckner Vice President, Vice President & Secretary of
Secretary and Counsel Northstar Affiliates and the Northstar
Affiliated Investment Companies
Jeffrey Bernstein Vice President - Vice President, Northstar
Investments Affiliated Investment Companies
and Portfolio Manager, Former
Portfolio Manager with Strong Capital
Management, Former Assistant Portfolio Manager
with Bankers Trust Corporation
Thomas Ole Dial Executive Vice President, Northstar Affiliated
Vice President Investment Companies, and
Chief Investment Officer - Principal, TD Associates Inc.
Fixed Income
Mary Lisanti Executive Vice President, Northstar Affiliated
Vice President Investment Companies, Former
Chief Investment Officer - Portfolio Manager with Strong Capital
Equities Management, Former Managing Director and
Portfolio Manager with Bankers Trust Corporation
Agnes Mullady Sr. Vice President, Northstar Administrators Corporation,
President Vice President & Treasurer of
and CFO Northstar Affiliates and the Northstar
Affiliated Investment Companies
Mark Sfarra Vice Vice President - Northstar
President - Distributors, Inc.
Marketing
Stephen Vondrak Vice Vice President - Northstar
President - Distributors, Inc., Former Regional
Sales & Marketing Marketing Manager with Roger
Engemann and Associates from
1991-1994.
</TABLE>
Item 27. Principal Underwriters
C-5
<PAGE>
(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 otherwise indicated, the
principal business address for each person is c/o Northstar, 300 First Stamford
Place, Stamford,CT 06902.
(b) (1) (2) (3)
Name and Principal Position and Offices Position and Offices
Address with Underwriter with Registrant
- ------- ---------------- ---------------
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
Mike Brescia Reg. Vice President None
Jennifer Byrne Reg. Vice President None
Eugene Carlin Reg. Vice President None
Charles Dolce Reg. Vice President None
Chris Erbeck Reg. Vice President None
Neil Gargiulo Reg. Vice President None
Edward Ittner Reg. Vice President None
Nancy Lavin Reg. Vice President None
David Linton Senior Vice President &
National Sales Manager None
Stephen O'Brien Reg. Vice President None
Gregg Smyth Reg. Vice President None
Mark Sfarra Vice President None
Stephen Vondrak Vice President None
Stephanie L. Beckner Vice President Vice
Secretary & Counsel President & Secretary
Agnes Mullady Vice President Vice President
& Treasurer & Treasurer
C-6
<PAGE>
Item 28. Location of Accounts and Records
State Street Bank and Trust Co. maintains such records at 1776 Heritage Drive,
North Quinicy, MA 02171 as Custodian and Fund Accounting Agent for the Northstar
Special Fund:
(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; and
(4) Fund Accounting Records.
First Data Investor Services Group, ("First Data") maintains the following
records at One Exchange Place, 11th Floor, Boston, MA 02109, as Transfer Agent
and Blue Sky Administrator for the Northstar Special Fund.
(1) Shareholder Records;
(2) Share accumulation accounts: Details as to dates, number of shares
and share prices of each account;
(3) Fund Accounting Records; and
(4) State Securities Registration Records.
All other records required by item 30(a) are maintained at the office of the
Administrator, 300 First Stamford Place, Stamford, CT 06902.
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
(a) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees
when requested in writing to do so by the holders of at least 10% of the
Trust's 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.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund certified that it meets all the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and the Fund has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stamford
and the State of Connecticut on the 24th day of December, 1998.
REGISTRANT
By: MARK L. LIPSON
------------------------------
Mark L. Lipson*, President
SIGNATURES TITLE DATE
JOHN G. TURNER Chairman and December 24, 1998
John G. Turner* Trustee
MARK L. LIPSON Trustee December 24, 1998
Mark L. Lipson*
JOHN R. SMITH Trustee December 24, 1998
John R. Smith*
PAUL S. DOHERTY Trustee December 24, 1998
Paul S. Doherty*
DAVID W. WALLACE Trustee December 24, 1998
David W. Wallace*
ROBERT B. GOODE, JR. Trustee December 24, 1998
Robert B. Goode, Jr.*
ALAN L. GOSULE Trustee December 24, 1998
Alan L. Gosule*
DAVID W.C. PUTNAM Trustee December 24, 1998
David W.C. Putnam*
WALTER H. MAY, JR. Trustee December 24, 1998
Walter H. May, Jr.**
AGNES MULLADY Principal Financial December 24, 1998
Agnes Mullady and Accounting Officer
By: AGNES MULLADY*
Agnes Mullady
Attorney-in-fact
* Executed pursuant to powers of attorney filed with Northstar Trust and
Strategic Income Fund - PEA No. 6; Northstar Government Securities Fund - PEA
No. 15; Northstar Balance Sheet Opportunities Fund - PEA No. 14; Northstar
Growth Fund - PEA No. 14; Northstar Special Fund - PEA No. 14; and Northstar
High Yield Fund - PEA No.10.
** Executed pursuant to power of attorney filed with Northstar Trust and
Strategic Income Fund - PEA No. 8; Northstar Government Securities Fund - PEA
No. 17; Northstar Balance Sheet Opportunities Fund - PEA No. 16; Northstar
Growth Fund - PEA No. 16; Northstar Special Fund - PEA No. 16; and Northstar
High Yield Fund - PEA No. 12 .
C-8
<PAGE>
INDEX TO EXHIBITS
----------------------
NORTHSTAR SPECIAL FUND
<TABLE>
<CAPTION>
Exhibit Letter Under
Part C of Form N1-A Name of Exhibit Page Number Herein
- ------------------- --------------- ------------------
<S> <C> <C>
(i) Legal Opinion
(o) Rule 18f-3 Plan
</TABLE>
Exhibit i
DECHERT PRICE & RHOADS
1775 EYE STREET, N.W.
WASHINGTON, D.C. 20006
December 28, 1998
Northstar Special Fund
300 First Stamford Place
Stamford, CT 06902
Dear Sirs:
In connection with the registration under the Securities Act of 1933 of an
indefinite number of Class I shares of beneficial interest (the "Shares") of the
Northstar Special Fund (the "Fund"), we have examined such matters as we have
deemed necessary, and we are of the opinion that, as permitted by its
Declaration of Trust, and assuming that the Fund or its agent receives
consideration for such Shares in accordance with the provisions of its
Declaration of Trust, the Shares will be legally and validly issued, will be
fully paid, and will be non-assessable by the Fund.
We hereby consent to the use of this opinion as an exhibit to the Fund's
Registration Statement on Form N-1A filed with the Securities and Exchange
Commission (File No. 33-00847) for the registration under the Securities Act of
1933 of an indefinite number of the Shares, and to the use of our name in the
prospectus and statement of additional information contained therein, and any
amendments thereto.
Very truly yours,
By: /s/ Dechert Price & Rhoads
--------------------------
Dechert Price & Rhoads
AMENDED AND RESTATED
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
FOR
NORTHSTAR FUNDS
NORTHSTAR TRUST
AND
NORTHSTAR EQUITY TRUST
I. Introduction
The Northstar Funds, the Northstar Trust and the Northstar Equity Trust
hereby adopt this Multiple Class Plan (the "Plan") pursuant to Rule 18f-3
under the Investment Company Act of 1940 (the "1940 Act") on behalf of the
funds currently comprising The Northstar Funds: Northstar Special Fund,
Northstar Growth Fund, Northstar Balance Sheet Opportunities Fund,
Northstar Government Securities Fund, Northstar Strategic Income Fund, and
Northstar High Yield Fund; the current series of the Northstar Trust:
Northstar Income and Growth Fund, Northstar High Total Return Fund,
Northstar High Total Return Fund II, Northstar Growth + Value Fund,
Northstar International Fund, Northstar Emerging Markets Fund, and
Northstar Research Enhanced Index Fund; the current series of Northstar
Equity Trust: Northstar Mid-Cap Growth Fund; and any funds or series
thereof that may be established in the future (referred to herein
collectively as the "Funds" and individually as a "Fund").
II. Multiple Class Structure
Each of the Funds continuously offers three classes of shares: "Class A
Shares," "Class B Shares" and "Class C Shares." Northstar Growth Fund,
Northstar Special Fund, Northstar Research Enhanced Index Fund and
Northstar Mid-Cap Growth Fund also offer a fourth class of shares
designated "Class I Shares." In addition, prior to June 5, 1995, the
Northstar Special Fund, Northstar Growth Fund, Northstar Balance Sheet
Opportunities Fund, Northstar Government Securities Fund, Northstar
Strategic Income Fund and Northstar High Yield Fund each offered only one
class of shares, which is currently designated as "Class T shares." Class
T shares are no longer offered for sale by the Funds, except in connection
with reinvestment of dividends and other distributions, upon exchanges of
Class T shares of another Fund, and upon exchange of shares from the Class
T Account of The Cash Management Fund of Salomon Brothers Investment
Series (the "Money Market Portfolio").
Shares of each class of a Fund shall represent an equal pro rata interest
in such Fund and, generally, shall have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications and terms and conditions, except that: (a)
each class shall have a different designation; (b) each class shall bear
any Class Expenses, as defined in Section C below; and (c) each class
shall have exclusive voting rights on any matter submitted to shareholders
that relates solely to its distribution arrangement
<PAGE>
and each class shall have separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the
interests of any other class. In addition, Class A, Class B, Class C,
Class I and Class T shares shall have the features described below.
A. Sales Charge Structure
(1) Class A Shares. Class A shares of a Fund shall be offered at
net asset value plus an initial sales charge. The front-end
sales charge shall be in such amount as is disclosed in the
Funds' prospectus or supplements thereto and shall be subject
to reductions for larger purchases and such waivers or
reductions as are disclosed in the Funds' prospectus or
supplements thereto. Class A shares generally shall not be
subject to a contingent deferred sales charge; however, a
contingent deferred sales charge in such amount as may be
described in the Funds' prospectus or supplements thereto may
be imposed on redemptions of Class A shares acquired in a
purchase of over a million dollars that are redeemed within 18
months of their purchase. Additional contingent deferred sales
charges may be imposed in such other cases as the Board may
approve and as are disclosed in the Funds' prospectus or
supplements thereto.
(2) Class B Shares. Class B shares of a Fund shall be offered at
net asset value without the imposition of an initial sales
charge. A contingent deferred sales charge in such amount as
is described in the Funds' prospectus or supplements thereto
shall be imposed on Class B shares, subject to such waivers or
reductions as are disclosed in the Funds' prospectus or
supplements thereto.
(3) Class C Shares. Class C shares of a Fund shall be offered at
net asset value without the imposition of a sales charge at
the time of purchase. A contingent deferred sales charge in
such amount as is described in the Funds' prospectus or
supplements thereto shall be imposed on redemptions of Class C
shares made within one year from the first day of the month
after purchase, subject to waivers or reductions as are
disclosed in the Funds' prospectus or supplements thereto.
(4) Class I Shares. Class I shares are offered to certain
institutional investors without the imposition of an initial
sales charge or a contingent deferred sales charge.
(4) Class T Shares. Class T shares are no longer offered for sale
by the Funds but may be obtained pursuant to the methods
described above. A contingent deferred sales charge in such
amount as is described in the
-2-
<PAGE>
Funds' prospectus or supplements thereto shall be imposed on
redemptions of Class T shares made within four years after
their purchase, subject to waivers or reductions as are
disclosed in the Funds' prospectus or supplements thereto.
B. Service and Distribution Plans
Each Fund has adopted a 12b-1 plan for each class of shares of that
Fund (other than Class I Shares of the Northstar Growth Fund) with
the following terms:
(1) Class A Shares. Class A shares of each Fund, shall pay
Northstar Distributors, Inc. (the "Underwriter") 0.25%
annually of the average daily net assets of each Fund's Class
A shares for service activities, as defined in the rules of
the National Association of Securities Dealers, and 0.05%
annually of the average daily net assets of each Fund's Class
A shares for distribution activities.
(2) Class B Shares. Class B shares of each Fund, shall pay the
Underwriter 0.25% annually of the average daily net assets of
each Fund's Class B shares for service activities, as defined
in the rules of the National Association of Securities
Dealers, and 0.75% annually of the average daily net assets of
each Fund's Class B shares for distribution activities.
(3) Class C Shares. Class C shares of each Fund shall pay the
Underwriter 0.25% annually of the average daily net assets of
each Fund's Class C shares for service activities, as defined
in the rules of the National Association of Securities
Dealers, and 0.75% annually of the average daily net assets of
each Fund's Class C shares for distribution activities.
(4) Class I Shares. Class I shares of each Fund pay no service or
distribution fees.
(5) Class T Shares. Class T shares of the Northstar Growth Fund,
Northstar Special Fund and Northstar Strategic Income Fund
shall pay the Underwriter 0.95% annually of the average daily
net assets of those Funds' Class T shares; Class T shares of
the Northstar Balance Sheet Fund shall pay the Underwriter
0.75% annually of the average daily net assets of that Fund's
Class T shares; and the Northstar Government Securities Fund
and Northstar High Yield Fund shall pay 0.65% of the average
daily net assets of those Funds' Class T shares. In each case,
0.25% of the average daily net assets of each Fund's Class T
shares, which is paid annually to the Underwriter pursuant to
the 12b-1 plans, shall be allocated to pay for service
activities, as defined in the rules of the National
Association of
-3-
<PAGE>
Securities Dealers, with the remainder allocated toward
payment for distribution activities.
C. Allocation of Income and Expenses
(1) The gross income of each Fund shall, generally, be allocated
to each class on the basis of net assets. To the extent
practicable, certain expenses (other than Class Expenses as
defined below which shall be allocated more specifically)
shall be subtracted from the gross income on the basis of the
net assets of each class of each Fund. These expenses include:
(a) Expenses incurred by each Trust (for example, fees of
Trustees, auditors and legal counsel) not attributable
to a particular Fund or to a particular class of shares
of a Fund ("Trust Expenses"); and
(b) Expenses incurred by a Fund not attributable to any
particular class of the Fund's shares (for example,
advisory fees, custodial fees, or other expenses
relating to the management of the Fund's assets) ("Fund
Expenses").
(2) Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (i) payments made pursuant to a 12b-1
plan; (ii) transfer agency fees and expenses, including any
expenses of broker-dealers and other third parties providing
shareholder services to shareholders of a specific class;
(iii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders of a specific
class; (iv) Blue Sky registration fees incurred by a class;
(v) SEC registration fees incurred by a class; (vi) the
expense of administrative personnel and services to support
the shareholders of a specific class; (vii) litigation or
other legal expenses relating solely to one class; and (viii)
Trustees' fees incurred as a result of issues relating to one
class. Expenses in category (i) and (ii) above must be
allocated to the class for which such expenses are incurred.
All other "Class Expenses" listed in categories (iii)-(viii)
above may be allocated to a class but only if the President
and Treasurer have determined, subject to Board approval or
ratification, which of such categories of expenses will be
treated as Class Expenses, consistent with applicable legal
principles under the Act and the Internal Revenue Code of
1986, as amended.
Therefore, expenses of a Fund shall be apportioned to each
class of shares depending on the nature of the expense item.
Trust Expenses and Fund Expenses will be allocated among the
classes of shares based on their
-4-
<PAGE>
relative net asset values. Approved Class Expenses shall be
allocated to the particular class to which they are
attributable.
In the event a particular expense is no longer reasonably
allocable by class or to a particular class, it shall be
treated as a Trust Expense or Fund Expense, and in the event a
Trust Expense or Fund Expense becomes allocable at a different
level, including as a Class Expense, it shall be so allocated,
subject to compliance with Rule 18f-3 and to approval or
ratification by the Board of Trustees.
The initial determination of expenses that will be allocated
as Class Expenses and any subsequent changes thereto shall be
reviewed by the Board of Trustees and approved by such Board
and by a majority of the Trustees who are not "interested
persons," as defined in the 1940 Act.
D. Exchange Privileges. Shareholders may exchange shares of a Fund for
the same class of shares of another Fund or for shares of the Money
Market Portfolio except that Class I Shares of the Growth Fund do
not provide for any exchange privileges.
Shareholders of a class who exchange shares of a Fund for shares of
the Money Market Portfolio may only exchange shares of the Money
Market Portfolio for shares of another Fund in the same class as the
shareholder originally held. Exchanges are effected at net asset
value per share next computed following receipt of a properly
executed exchange request, without a sales charge, provided,
however, that in the case of a exchanges into Class A shares of a
Fund after a direct purchase into the Money Market Portfolio, the
applicable sales charge shall be imposed. Collection of the
contingent deferred sales charge shall be deferred on shares subject
to a charge that are exchanged for shares of the same class of
another Fund, or converted to shares of the Money Market Portfolio.
Under these circumstances, the combined holding period of shares in
each Fund or in a Fund and the Money Market Portfolio, shall be used
to calculate the conversion period discussed below, if applicable,
and to determine the deferred sales charge due upon redemption. Each
Fund reserves the right to terminate or modify its exchange
privileges at any time.
E. Conversion Features. Class B and Class T shares automatically
convert to Class A shares after eight years from purchase in the
case of Class B shares, and on the later of May 31, 1998 or eight
years after purchase in the case of Class T shares.
For purposes of conversion to Class A shares, shares purchased
through the reinvestment of dividends and distributions paid in
respect of Class B or Class T shares in a shareholder's Fund account
will be considered to be held in a separate
-5-
<PAGE>
subaccount. Each time any Class B or Class T shares in the
shareholder's Fund account (other than those in the subaccount)
convert to Class A, an equal pro rata portion of the Class B or
Class T shares in the subaccount will also convert to Class A.
Shares shall be converted at the relative net asset values of the
two classes without the imposition of a sales charge, fee or other
charge. If the amount of Class A 12b-1 expenses of any Fund is
increased materially without the approval of the Class B and Class T
shareholders, any conversion will only take place in a manner
permitted by Rule 18f-3.
F. Waiver or Reimbursement of Expenses. Expenses may be waived or
reimbursed by any adviser, by the Underwriter or any other provider
of services to the Funds without the prior approval of the Board of
Trustees.
III. Board Review
A. Initial Approval
The Board of Trustees, including a majority of the Trustees who are
not "interested persons" of the Funds and the Trusts as defined in
the 1940 Act, initially approved the Plan, with regard to the Funds
and classes thereof that were offered at the time, on October 29,
1996, approved an amendment to the Plan on July 29, 1998, and
approved this amended and restated Plan on December 16, 1998. These
approvals were based on a determination that the Plan, including the
expense allocation, is in the best interests of each class and Fund
individually and of the Trusts. Their determination was based on
their review of information furnished to them which they deemed
reasonably necessary and sufficient to evaluate the Plan.
B. Approval of Amendments
The Plan may not be amended materially unless the Board of Trustees,
including a majority of the Trustees who are not "interested
persons" of the Funds and the Trusts as defined in the 1940 Act,
have found that the proposed amendment, including any proposed
related expense allocation, is in the best interests of each class
and Fund individually and of the Trusts. Such finding shall be based
on information requested by the Board and furnished to them which
the Board deems reasonably necessary to evaluate the proposed
amendment.
C. Periodic Review
-6-
<PAGE>
The Board shall review reports of expense allocations and such other
information as they request at such times, or pursuant to such
schedule, as they may determine consistent with applicable legal
requirements.
IV. Miscellaneous
A. Limitation of Liability
The Board of Trustees and the shareholders of each Fund shall not be
liable for any obligations of the Trusts or any Fund under this
Plan, and the Underwriter or any other person, in asserting any
rights or claims under this Plan, shall look only to the assets and
property of the Trusts or such Funds in settlement of such right or
claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Trusts, on behalf of the Funds, have adopted this
amended and restated Multiple Class Plan as of this 16th day of December, 1998.
NORTHSTAR FUNDS
NORTHSTAR TRUST
NORTHSTAR EQUITY TRUST
By: _________________________________
Title: Vice President and Treasurer
