<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1998
SECURITIES ACT FILE NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
---------------
NORTHSTAR HIGH YIELD FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
---------------
(203) 602-7881
(REGISTRANT'S AREA CODE AND TELEPHONE NUMBER)
300 FIRST STAMFORD PLACE, STAMFORD, CONNECTICUT 06902
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
---------------
STEPHANIE L. BECKNER, ESQ.
300 FIRST STAMFORD PLACE, STAMFORD, CONNECTICUT 06902
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------
WITH COPIES TO:
JEFFREY L. STEELE, ESQ.
DECHERT PRICE & RHOADS
1775 EYE STREET, N.W.
WASHINGTON, D.C. 20006
---------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Registration Statement becomes effective
---------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON SEPTEMBER 28, 1998
PURSUANT TO RULE 488(A) UNDER THE SECURITIES ACT OF 1933.
---------------
NO FILING FEE IS DUE BECAUSE OF RELIANCE ON SECTION 24F OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
NORTHSTAR HIGH YIELD FUND
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART A ITEM NO. AND CAPTION PROXY STATEMENT/PROSPECTUS CAPTION
- ------------------------------------------- ----------------------------------------------------------------
<S> <C>
1. Beginning of Registration
Statement and Outside Front Cover
Page of Prospectus ..................... Cover Page; Cross-Reference Sheet
2. Beginning and Outside Back Cover
Page of Prospectus ..................... Table of Contents
3. Synopsis and Risk Factors ............. Summary; Special Considerations and Risk Factors
4. Information about the Transaction ..... Summary; The Reorganization; Pro Forma Capitalization
5. Information about the Registrant ...... Cover Page; Summary; Investment Objectives and Policies;
Special Considerations and Risk Factors; Fees and Expenses;
Information Filed with the Securities and Exchange Commission
6. Information about the Company
Being Acquired ......................... Cover Page; Summary; Investment Objectives and Policies;
Special Considerations and Risk Factors; Information Filed with
the Securities and Exchange Commission
7. Voting Information .................... Information Concerning the Meeting; Security Ownership of
Certain Shareholders and Management
8. Interest of Certain Persons and
Experts ................................ Inapplicable
9. Additional Information Required for
Reoffering by Persons Deemed to be
Underwriters ........................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B ITEM NO. AND CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------------------------------------------ ---------------------------------------------------------------
<S> <C>
10. Cover Page .......................... Cover Page
11. Table of Contents ................... Cover Page
12. Additional Information about the
Registrant ............................ Statement of Additional Information of Northstar High Yield
Fund dated March 1, 1998.
13. Additional Information about the
Company Being Acquired ................ Inapplicable
14. Financial Statements ................ Statement of Additional Information of Northstar High Yield
Fund dated March 1, 1998; Combined Annual Report of
Northstar High Yield Fund and Northstar Strategic Income Fund
for the fiscal year ended December 31, 1997; Combined
Semi-Annual Report for Northstar High Yield Fund and
Northstar Strategic Income Fund for the six-month period ended
June 30, 1998; Pro Forma Financial Statements for Northstar
High Yield Fund and Northstar Strategic Income Fund as of and
for the year ended December 31, 1997; Pro Forma Financial
Statements as of and for the six-month period ended June 30, 1998
</TABLE>
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
300 FIRST STAMFORD PLACE
STAMFORD, CONNECTICUT 06902
October 5, 1998
Dear Northstar Strategic Income Fund Shareholder:
A special meeting of shareholders of Northstar Strategic Income Fund (the
"Fund") has been called for November 12, 1998, at which the shareholders of the
Fund will be asked to consider a proposal for combining the assets of the Fund
with the assets of Northstar High Yield Fund ("High Yield"), which has
investment objectives and policies similar to those of the Fund. The proposal
was reviewed and unanimously endorsed by the Trustees of the Fund, as being in
the best interests of the Fund and its shareholders.
As a result of the proposed transaction, your Fund would be combined with
High Yield, and you would become a shareholder of High Yield, receiving the
same class of shares, Class A, Class B, Class C or Class T, as you currently
own in the Fund. The value of your Fund shares will be used to purchase shares
of High Yield without a sales charge. No taxes will be due on this transaction.
WE STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS
POSSIBLE.
Detailed information about the proposed transaction and the reasons for it
are contained in the enclosed materials. Please exercise your right to vote by
completing, dating and signing the enclosed proxy card. A self-addressed,
postage-paid envelope has been enclosed for your convenience. IT IS VERY
IMPORTANT THAT YOU VOTE AND THAT YOUR VOTING INSTRUCTIONS BE RECEIVED BY NO
LATER THAN NOVEMBER 5, 1998.
NOTE: You may receive more than one proxy package if you hold shares of
the Fund in more than one account. You must return separate proxy cards for
separate holdings. We have provided postage-paid return envelopes for each.
Sincerely,
Mark L. Lipson
PRESIDENT
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
300 FIRST STAMFORD PLACE
STAMFORD, CONNECTICUT 06902
--------------------------------------------------------
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 12, 1998
--------------------------------------------------------
October 5, 1998
To the Shareholders of
Northstar Strategic Income Fund:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Northstar Strategic Income Fund (the "Fund"), a Massachusetts
business trust, will be held at the offices of Northstar Investment Management
Corporation, 300 First Stamford Place, Stamford, Connecticut on November 12,
1998, at 10:00 a.m., for the following purposes:
1. To consider an Agreement and Plan of Reorganization providing for the
transfer of all of the properties and assets of the Fund to Northstar
High Yield Fund ("High Yield"), in exchange for Class A, Class B,
Class C and Class T shares of High Yield, and the assumption by High
Yield of certain identified liabilities of the Fund, and for the
distribution of such Class A, Class B, Class C or Class T shares, as
applicable, of High Yield to the shareholders of the Fund and the
subsequent liquidation of the Fund; and
2. To transact such other business as may properly come before the
Meeting or any adjournment thereof. The Trustees of the Trust have
fixed the close of business on September 14, 1998 as the record date
for determining shareholders entitled to notice of and to vote at the
Meeting or any adjournment thereof.
A complete list of the shareholders of the Fund entitled to vote at the
Meeting will be available and open to the examination of any shareholder of the
Fund for any purpose germane to the Meeting during ordinary business hours at
the offices of the Fund, 300 First Stamford Place, Stamford, Connecticut 06902.
By Order of the Trustees,
Stephanie L. Beckner,
SECRETARY
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES ARE SET FORTH ON THE INSIDE COVER.
YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.
<PAGE>
PROXY STATEMENT/PROSPECTUS
OCTOBER 5, 1998
RELATING TO THE ACQUISITION OF THE ASSETS OF
NORTHSTAR STRATEGIC INCOME FUND
300 FIRST STAMFORD PLACE
STAMFORD, CONNECTICUT 06902
(800) 595-7827
BY AND IN EXCHANGE FOR SHARES OF
NORTHSTAR HIGH YIELD FUND
300 FIRST STAMFORD PLACE
STAMFORD, CONNECTICUT 06902
(800) 595-7827
---------------
This Proxy Statement/Prospectus is being furnished to shareholders of
Northstar Strategic Income Fund (the "Fund"), a Massachusetts business trust,
in connection with a proposed reorganization (the "Reorganization") in which
the assets of the Fund will be transferred to, and certain identified
liabilities of the Fund will be assumed by, Northstar High Yield Fund ("High
Yield"), a Massachusetts business trust, in exchange for Class A, Class B,
Class C and Class T voting shares of High Yield. Upon receipt, the Fund will
distribute the Class A, Class B, Class C and Class T High Yield shares to its
shareholders in complete liquidation of the Fund, subsequent to which the Fund
will be dissolved.
This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information about High Yield that a
prospective investor should know before investing. For a more detailed
discussion of the investment objectives and policies of High Yield, and the
risks of investing in it, see High Yield's Prospectus dated March 1, 1998,
which is incorporated by reference into this Proxy Statement/Prospectus.
The Statement of Additional Information for High Yield, dated March 1,
1998, is incorporated herein by reference and may be obtained upon request and
without charge by calling the above telephone numbers or by writing to the
above address. A Statement of Additional Information ("SAI"), dated October 5,
1998, containing additional information about the Reorganization and the
parties thereto has been filed with the Securities and Exchange Commission (the
"Commission") and is incorporated by reference into this Proxy Statement/
Prospectus. A copy can be obtained without charge by calling or writing to High
Yield at its principal executive offices as set forth above.
The Fund is a diversified open-end management investment company. High
Yield is a diversified open-end, management investment company. The Fund's
primary investment objective is to seek high current income and a net asset
value with limited volatility by allocating substantially all of its assets
among (i) U.S. Government Securities, (ii) high-yield securities, including
preferred stocks, convertible securities, zero coupon, pay-in-kind securities
and lower-rated foreign government securities, (iii) investment grade corporate
debt securities, and (iv) investment grade securities (or unrated securities
that Northstar determines to be of equivalent quality) issued by foreign
governments or their agencies or instrumentalities, or supranational entities.
High Yield's investment objective is to seek high current income by investing
primarily in long-term and intermediate term fixed income securities, with
emphasis on high-yield corporate debt instruments of domestic and foreign
issuers.
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
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
SUMMARY ................................................................ 3
The Proposed Reorganization ........................................... 3
Comparison of the Fund and High Yield ................................. 3
Investment Objectives and Policies ................................. 3
Special Considerations and Risk Factors ............................ 4
Fees and Expenses .................................................. 5
Distribution Arrangements .......................................... 10
Exchange and Other Privileges ...................................... 10
Redemption Procedures .............................................. 10
Tax Considerations .................................................... 10
THE REORGANIZATION ..................................................... 11
Terms of the Agreement ................................................ 11
Description of Securities to Be Issued ................................ 11
Reasons for and Purposes of the Reorganization ........................ 12
Certain Effects of the Reorganization on Shareholders of the Fund ..... 13
Expenses of the Reorganization ........................................ 13
Certain Legal Effects ................................................. 13
Tax Consequences ...................................................... 13
Recommendation of the Trustees ........................................ 14
PRO-FORMA CAPITALIZATION ............................................... 14
PERFORMANCE INFORMATION ................................................ 15
INFORMATION CONCERNING THE MEETING ..................................... 16
Date, Time and Place of Meeting ....................................... 17
Solicitation, Revocation and Use of Proxies ........................... 17
Record Date and Outstanding Shares .................................... 17
Voting Rights and Required Vote ....................................... 17
SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS AND MANAGEMENT .............. 17
FINANCIAL STATEMENTS ................................................... 18
INFORMATION FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION .................................... 18
OTHER MATTERS .......................................................... 18
AGREEMENT AND PLAN OF REORGANIZATION ................................... Exhibit A
</TABLE>
2
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus (including the documents incorporated by
reference or included herewith) relating to the proposed Reorganization and the
parties thereto.
THE PROPOSED REORGANIZATION
At a meeting held on July 29, 1998, all Trustees of the Fund, reviewed and
approved a proposal that the Fund transfer to High Yield all of its properties
and assets, subject to certain identified liabilities, in exchange for Class A,
Class B, Class C and Class T voting shares of High Yield to be distributed to
the Fund's shareholders in liquidation of the Fund. The acquisition of the
assets and assumption certain identified liabilities of the Fund by High Yield
and the subsequent distribution of Class A, Class B, Class C and Class T shares
of High Yield to the shareholders of the Fund are herein referred to as the
"Reorganization."
COMPARISON OF THE FUND AND HIGH YIELD
INVESTMENT OBJECTIVES AND POLICIES
The Fund is an open-end management investment company and High Yield is an
open-end management investment company. The Fund's objective is to seek high
current income and a net asset value with limited volatility by allocating
substantially all of its assets among (i) U.S. Government Securities, (ii)
high-yield securities, including preferred stocks, convertible securities, zero
coupon, pay-in-kind securities and lower-rated foreign government securities,
(iii) investment grade corporate debt securities, and (iv) investment grade
securities (or unrated securities that Northstar determines to be of equivalent
quality) issued by foreign governments or their agencies or instrumentalities,
or supranational entities. High Yield seeks high current income by investing
primarily in long-term and intermediate-term fixed income securities, with
emphasis on high-yield corporate debt instruments of domestic and foreign
issuers. The Fund seeks to achieve its objective by allocating substantially
all of its assets among: (a) U.S. Government Securities, (b) high-yield
securities, (c) investment grade corporate debt securities, and (d) investment
grade (or comparable quality) securities issued by foreign governments or their
agencies or instrumentalities, or supranational entities. To control risk, the
Fund will never allocate more than 60% of its assets to a single sector. High
Yield seeks to achieve its objective by investing primarily in high-yield
bonds. The Fund's investments in foreign securities are limited to 35% of
assets determined at the time of investment; investments in high-yield
high-risk securities are limited to 50% of assets, determined at the time of
investment. Under normal market conditions, High Yield may invest no more than
35% of its net assets in foreign securities, but only 10% can be in securities
that are not listed on a U.S. Securities exchange. It can hold up to 100% of
its assets in debt securities rated as low as Ca by Moody's or CC by S&P (or
comparable quality), and up to 1% of its assets in bonds in the lowest rating
categories. High Yield may also hold up to 25% of its assets in equity or
equity-related instruments, such as preferred stocks, convertible securities
and rights and warrants associated with debt instruments.
In addition to the above noted investment strategies, each fund has
adopted certain policies and utilizes certain investment techniques in seeking
to obtain its objective. Each fund also may invest in short-term fixed income
securities or hold its assets in cash for defensive purposes under abnormal
market conditions. Each fund is permitted to utilize hedging techniques, such
as writing and purchasing options and purchasing and selling financial futures
contracts and related options to hedge against market, interest rate and
currency risks. The use of these techniques would subject the funds to certain
risks that would otherwise not be present. The Fund and High Yield do not
utilize any such hedging techniques in a manner such that more than 5% of
either fund's assets are committed to these strategies. In addition, each fund
may seek to increase the current return of its portfolio by writing covered
call or secured put options. See "Special Considerations and Risk Factors".
As a matter of fundamental policy, neither fund may purchase any security
if, as a result: (i) as to 75% of its total assets, more than 5% of the fund's
total assets would be invested in securities of a single issuer, (ii) the fund
would own 10% or more of the outstanding voting securities of any single issuer
or (iii) 25% or more of the fund's total assets would be concentrated in any
one industry.
Both funds have a similar fundamental policy with respect to borrowing,
which is limited to bank borrowing and then only when there is asset coverage
of at least 300%. As a fundamental policy, High Yield and the Fund may not
borrow money in excess of 5% of its total assets. Neither fund has previously
engaged in any bank
3
<PAGE>
borrowing activity. Each fund may also engage in the following investment
techniques: (i) invest in mortgage-backed securities; (ii) purchase U.S.
Treasury and corporate zero coupon bonds, step coupon and paid-in-kind bonds;
(iii) enter into repurchase agreements; (iv) enter into forward commitment
contracts or purchase securities on a when-issued or delayed delivery basis,
(v) lend securities; (vi) purchase loan participations and (vii) invest in
private placements and Rule 144A securities. The Fund may also enter into
reverse repurchase and dollar roll agreements.
SPECIAL CONSIDERATIONS AND RISK FACTORS
The Fund may invest up to 50% of its assets in high-yield high-risk
securities and up to 35% of its assets in foreign securities, and High Yield
may invest up to 100% of its assets (and not less than 20%) in high-yield high-
risk securities and up to 35% of its assets in foreign securities. Therefore,
the risks inherent in such investments are applicable to both entities.
High-yield high-risk securities, commonly known as "junk bonds,"are
predominantly speculative, and are characterized by substantial risk concerning
payment of interest and principal. The market for these securities may consist
of a limited number of dealers and investors, and the market value of such
securities may reflect individual corporate developments rather than general
economic conditions. Factors adversely affecting the market value of high-yield
high-risk securities will adversely affect a fund's net asset value to the
extent the fund's assets are invested in such securities.
Based upon the monthly weighted average ratings of all bonds held during
the respective last semi-annual periods of each of the Fund and High Yield, the
percentage of the total investments of each of the Fund and High Yield
represented by bonds rated by Moody's Investors Service, Inc. ("Moody's") or by
Standard & Poor's Corporation ("S&P"), separated into each rating category, is
as follows:
<TABLE>
<CAPTION>
RATING FUND HIGH YIELD
- ------------------------- --------- -----------
MOODY'S OR S&P'S 6/30/98 6/30/98
- ------------- ----------- --------- -----------
<S> <C> <C> <C>
Aaa AAA 10.0 --
Aa AA -- --
A A -- --
Baa BBB 13.5 --
Ba BB 23.1 32.6
B B 27.0 57.1
Caa CCC 5.0 3.5
Ca CC -- --
C C -- --
Not rated Not Rated 3.6 2.5
</TABLE>
Investing in the securities of non-U.S. companies involves special risks
and considerations not typically associated with investing in U.S. companies.
These include differences in accounting, auditing and financial reporting
standards, generally higher commission rates on foreign portfolio transactions,
the possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in foreign countries, and potential restriction in the
flow of international capital. Additionally, dividends payable on foreign
securities may be subject to foreign taxes withheld prior to distribution.
Foreign Securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility, and changes in
foreign exchange rates will affect the value of those securities which are
denominated or quoted in currencies other than the U.S. dollar. Many of the
foreign securities held by either fund will not be registered with, nor the
issuers thereof be subject to, the reporting requirements of the Commission.
Accordingly, there may be less publicly available information about the
securities and about foreign companies or governments than is available about a
domestic company or government entity. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of Gross Domestic Product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment positions.
The use of forward currency exchange contracts by the funds involves
certain investment risks and transaction costs to which the funds might not
otherwise be subject. Although permitted, the High Yield has never used this
hedging technique; the Fund has employed this technique from time to time. Such
risks include: (i) the Adviser may not always be able to accurately predict
movements within currency markets, (ii) the skills and techniques needed to use
forward currency contracts are different from those needed to select the
securities in
4
<PAGE>
which a fund invests and (iii) there is no assurance that a liquid secondary
market will exist that would enable the Adviser to "close out" existing
(current) contracts or futures positions or options when doing so is desirable.
Each fund's successful use of forward currency exchange contracts, options on
foreign currencies, futures contracts on foreign currencies and options on such
contracts depends upon the Adviser's ability to predict the direction of the
market and political conditions, which require different skills and techniques
than predicting changes in the securities markets generally. For instance, if
the value of securities being hedged moves in a favorable direction, the
advantage to a fund would be wholly or partially offset by a loss in the
forward contracts or futures contracts. Further, if the value of the securities
being hedged does not change, the fund's net income would be less than if the
fund had not hedged, since there are transaction costs associated with the use
of these investment practices. These practices are subject to various
additional risks. The correlation between movements in the price of options and
futures contracts and the price of the currencies being hedged is imperfect.
The use of these instruments will hedge only the currency risks associated with
investments in foreign securities, not market risks. In addition, if a fund
purchases these instruments to hedge against currency advances before it
invests in securities denominated in such currency and the currency market
declines, the fund might incur a loss on the futures contract. A fund's ability
to establish and maintain positions will depend on market liquidity. The
ability of a fund to close out a futures position or an option depends upon a
liquid secondary market. There is no assurance that liquid secondary markets
will exist for any particular futures contract or option at any particular
time.
Each as a Massachusetts business trust, neither the Fund nor High Yield is
required to hold shareholders meetings unless so required under the provisions
of the 1940 Act. Under Massachusetts law, shareholders of a business trust
could, under certain limited circumstances, be held personally liable for the
obligations of the trust. The Amended and Restated Declaration of Trust of the
Fund and the Amended and Restated Declaration of Trust of High Yield each
contains an express disclaimer of shareholder liability for acts or obligations
of the respective funds and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Fund
or High Yield or the Trustees of either fund. The Amended and Restated
Declaration of Trust of the Fund and the Amended and Restated Declaration of
Trust of High Yield each also provides for indemnification out of trust
property for all losses and expenses of shareholders held personally liable for
the obligations of the fund. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote since
it is limited to circumstances in which a disclaimer is inoperative and the
Fund or High Yield itself would be unable to meet its obligations. A
significant number of mutual funds in the United States are organized as
Massachusetts business trusts.
FEES AND EXPENSES
Pursuant to investment advisory agreements with the funds, Northstar
Investment Management Corporation ("Northstar" or the "Adviser") serves as
investment adviser to the Fund and High Yield. In this capacity, Northstar,
subject to the authority of the Trustees, is responsible for furnishing
continuous investment supervision to each fund and is responsible for the
management of the funds' portfolios. See "Summary," "The Reorganization --
Reasons for the Reorganization," "Investment Objectives and Policies". For
services rendered to the Fund, Northstar receives an advisory fee at the annual
rate of 0.65% of average daily net assets. As of , 1998, the Fund had net
assets of approximately $ million. For services rendered to High Yield,
Northstar receives an advisory fee of 0.60% of average daily net assets. For
the Fund's fiscal year ended December 31, 1997, operating expenses of the Fund
were equal to 1.48% of net assets for Class A shares, 2.20% of net assets for
Class B shares, 2.19% of net assets for Class C shares, and 2.08% of net assets
for Class T shares. For High Yield's fiscal year ended December 31, 1997,
operating expenses of the High Yield Fund were equal to 1.20% of net assets for
Class A shares, 1.91% of net assets for Class B shares, 1.92% of net assets for
Class C shares, and 1.47% of net assets for Class T shares.
5
<PAGE>
COMPARATIVE FEE TABLE
A table comparing the annual fund operating expenses for the Fund Class A,
Class B, Class C and Class T with the annual fund operating expenses for High
Yield Class A, Class B, Class C and Class T and the Combined Fund Class A,
Class B, Class C and Class T, assuming the Reorganization has been consummated,
is provided below:
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
FUND(1)
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Management Fees ............................. 0.65% 0.65% 0.65% 0.65%
Administration Fees ......................... 0.10% 0.10% 0.10% 0.10%
12b-1 Service and Distribution Fees ......... 0.30% 1.00% 1.00% 0.95%
Other Expenses .............................. 0.40% 0.43% 0.42% 0.33%
---- ---- ---- ----
Total Fund Operating Expenses ............... 1.45% 2.18% 2.17% 2.13%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD(1)
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Management Fees ............................. 0.60% 0.60% 0.60% 0.60%
Administration Fees ......................... 0.10% 0.10% 0.10% 0.10%
12b-1 Service and Distribution Fees ......... 0.30% 1.00% 1.00% 0.65%
Other Expenses .............................. 0.20% 0.21% 0.22% 0.12%
---- ---- ---- ----
Total Fund Operating Expenses ............... 1.20% 1.91% 1.92% 1.47%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
COMBINED
(PRO FORMA)
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Management Fees ............................. 0.60% 0.60% 0.60% 0.60%
Administration Fees ......................... 0.10% 0.10% 0.10% 0.10%
12b-1 Service and Distribution Fees ......... 0.30% 1.00% 1.00% 0.65%
Other Expenses .............................. 0.20% 0.21% 0.22% 0.12%
---- ---- ---- ----
Total Fund Operating Expenses ............... 1.20% 1.91% 1.92% 1.47%
==== ==== ==== ====
</TABLE>
- ---------
(1) The percentages in the table expressing annual fund operating expenses for
the Fund and High Yield are based on amounts incurred during the fiscal
period for each of the funds ended December 31, 1997.
EXAMPLE OF EFFECT ON PORTFOLIO EXPENSES
The following table illustrates the impact of the Annual Portfolio
Operating Expenses stated above on a $1,000 investment, assuming a 5% annual
return.
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
------ ------- ------- ------
<S> <C> <C> <C> <C>
CLASS A
Fund ......................... $62 $91 $123 $213
High Yield ................... 59 84 110 186
Combined (Pro Forma) ......... 59 84 110 186
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
------ ------- ------- ------
<S> <C> <C> <C> <C>
CLASS B
Fund Without Redemption ......................... $22 $68 $117 $233
With Redemption ................................. 72 98 137 233
High Yield Without Redemption ................... 19 60 103 205
With Redemption ................................. 69 90 123 205
Combined (Pro Forma) Without Redemption ......... 19 60 123 205
With Redemption ................................. 69 90 123 205
</TABLE>
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
------ ------- ------- ------
<S> <C> <C> <C> <C>
CLASS C
Fund Without Redemption ......................... $22 $68 $116 $250
With Redemption ................................. 32 68 116 250
High Yield Without Redemption ................... 19 60 104 224
With Redemption ................................. 29 60 104 224
Combined (Pro Forma) Without Redemption ......... 19 60 104 224
With Redemption ................................. 29 60 104 224
</TABLE>
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
------ ------- ------- ------
<S> <C> <C> <C> <C>
CLASS T
Fund Without Redemption ......................... $21 $64 $109 $221
With Redemption ................................. 61 84 109 221
High Yield Without Redemption ................... 15 46 80 168
With Redemption ................................. 55 66 80 168
Combined (Pro Forma) Without Redemption ......... 15 46 80 168
With Redemption ................................. 55 66 80 168
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS FOR FUND
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED CLASS A ENDED
JUNE 30, 1998 YEAR ENDED DECEMBER 31, JUNE 30, 1998
(UNAUDITED) 1997 1996 1995(1) (UNAUDITED)
--------------- ----------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 12.04 $ 12.67 $ 12.40 $ 12.24 $ 12.03
======= ======= ======= ======== =======
Net investment income 0.47 1.00 0.93 0.63 0.43
Net realized and unrealized gain (loss)
on investments ( 0.44) ( 0.69) 0.35 0.13 ( 0.44)
======= ======= ======= ======== =======
TOTAL FROM INVESTMENT OPERATIONS 0.03 0.31 1.28 0.76 ( 0.01)
Dividends from net investment income ( 0.47) ( 0.94) ( 1.01) ( 0.60) ( 0.43)
TOTAL DISTRIBUTIONS ( 0.47) ( 0.94) ( 1.01) ( 0.60) ( 0.43)
NET ASSET VALUE AT THE END OF THE PERIOD $ 11.60 $ 12.04 $ 12.67 $ 12.40 $ 11.59
======= ======= ======= ========= =======
TOTAL INVESTMENT RETURN(2) 0.23% 2.50% 10.88% 6.40% ( 0.14)%
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $12,077 $12,523 $17,293 $ 21,790 $26,517
Ratio of expenses to average net assets 1.46% 1.45% 1.40% 1.36%(3) 2.19%
Ratio of expense reimbursement to
average net assets -- 0.03 0.05 0.07 (3) --
Ratio of net investment income to
average net assets 7.91 7.75 7.55 7.03 (3) 7.14
Portfolio turnover rate 182 225 130 153 182
<CAPTION>
SIX MONTHS
CLASS B ENDED CLASS C
YEAR ENDED DECEMBER 31, JUNE 30, 1998 YEAR ENDED DECEMBER 31,
1997 1996 1995(1) (UNAUDITED) 1997 1996
----------- ----------- ---------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 12.67 $ 12.39 $ 12.24 $ 12.02 $ 12.65 $ 12.38
======= ======= ======== ======== ======= =======
Net investment income 0.87 0.85 0.55 0.43 0.88 0.85
Net realized and unrealized gain (loss)
on investments ( 0.66) 0.36 0.15 ( 0.44) ( 0.65) 0.35
======= ======= ======== ======== ======== =======
TOTAL FROM INVESTMENT OPERATIONS 0.21 1.21 0.70 ( 0.01) 0.23 1.20
Dividends from net investment income ( 0.85) ( 0.93) ( 0.55) ( 0.43) ( 0.86) ( 0.93)
TOTAL DISTRIBUTIONS ( 0.85) ( 0.93) ( 0.55) ( 0.43) ( 0.86) ( 0.93)
NET ASSET VALUE AT THE END OF THE PERIOD $ 12.03 $ 12.67 $ 12.39 $ 11.58 $ 12.02 $ 12.65
======= ======= ========= ======== ======== ========
TOTAL INVESTMENT RETURN(2) 1.67% 10.18% 5.89% ( 0.14)% 1.75% 10.11%
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $29,921 $30,733 $ 22,143 $ 3,053 $ 4,397 $ 4,222
Ratio of expenses to average net assets 2.18% 2.10% 2.06%(3) 2.18% 2.17% 2.10%
Ratio of expense reimbursement to
average net assets 0.02 0.09 0.06 (3) -- 0.02 0.11
Ratio of net investment income to
average net assets 7.02 6.82 6.47 (3) 7.12 7.03 6.79
Portfolio turnover rate 225 130 153 182 225 130
<CAPTION>
CLASS C
YEAR ENDED
DECEMBER 31,
1995(1)
----------------
<S> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 12.24
========
Net investment income 0.55
Net realized and unrealized gain (loss)
on investments 0.14
========
TOTAL FROM INVESTMENT OPERATIONS 0.69
Dividends from net investment income ( 0.55)
TOTAL DISTRIBUTIONS ( 0.55)
NET ASSET VALUE AT THE END OF THE PERIOD $ 12.38
=========
TOTAL INVESTMENT RETURN(2) 5.81%
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 2,172
Ratio of expenses to average net assets 2.02%(3)
Ratio of expense reimbursement to
average net assets 0.06 (3)
Ratio of net investment income to
average net assets 6.48 (3)
Portfolio turnover rate 153
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED CLASS T
JUNE 30, 1998 YEAR ENDED DECEMBER 31,
(UNAUDITED) 1997 1996 1995 1994(1)
-------------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the period $ 12.04 $ 12.67 $ 12.39 $ 11.71 $ 12.00
======= ======= ======= ======= =======
Net investment income 0.45 0.94 0.88 0.98 0.51
Net realized and unrealized gain (loss) on investments ( 0.46) ( 0.70) 0.35 0.66 ( 0.25)
======= ======= ======= ======= ========
TOTAL FROM INVESTMENT OPERATIONS ( 0.01) 0.24 1.23 1.64 0.26
Dividends from net investment income ( 0.43) ( 0.87) ( 0.95) ( 0.96) ( 0.49)
Dividends from net realized gain on investments sold -- -- -- -- ( 0.05)
Distributions from capital -- -- -- -- ( 0.01)
======= ======= ======= ======= ========
TOTAL DISTRIBUTIONS ( 0.43) ( 0.87) ( 0.95) ( 0.96) ( 0.55)
NET ASSET VALUE AT THE END OF THE PERIOD $ 11.60 $ 12.04 $ 12.67 $ 12.39 $ 11.71
======= ======= ======= ======= ========
TOTAL INVESTMENT RETURN(2) ( 0.09)% 1.89% 10.39% 14.54% 2.14%
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period ($000s) $15,679 $20,172 $27,350 $30,228 $ 25,252
Ratio of expenses to average net assets 2.12% 2.03% 1.90% 1.90% 1.90%(3)
Ratio of expense reimbursement to average net assets -- 0.05 0.09 0.28 0.63 (3)
Ratio of net investment income to average net assets 7.18 7.17 7.07 6.86 7.92 (3)
Portfolio turnover rate 182 225 130 153 156
- ----------------------------------------------------------
</TABLE>
(1) Classes A, B and C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
(4) Class T commenced operations on July 1, 1994.
8
<PAGE>
FINANCIAL HIGHLIGHTS FOR HIGH YIELD
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED CLASS A ENDED
JUNE 30, 1998 YEAR ENDED DECEMBER 31, JUNE 30, 1998
(UNAUDITED) 1997 1996 1995(1) (UNAUDITED)
--------------- ----------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning
of the period $ 9.14 $ 8.94 $ 8.56 $ 8.68 $ 9.15
====== ====== ====== ======== =======
Net investment income 0.37 0.73 0.76 0.48 0.34
Net realized and unrealized gain
(loss) on investments 0.03 0.23 0.44 (0.10) 0.03
====== ====== ====== ========= =======
TOTAL FROM INVESTMENT
OPERATIONS 0.40 0.96 1.20 0.38 0.37
Dividends from net investment
income (0.38) (0.76) (0.75) (0.50) (0.35)
Dividends from capital -- -- (0.07) -- --
======= ======= ======= ========= ========
TOTAL DISTRIBUTIONS (0.38) (0.76) (0.82) (0.50) (0.35)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 9.16 $ 9.14 $ 8.94 $ 8.56 $ 9.17
======= ======= ======= ========= ========
TOTAL INVESTMENT RETURN(2) 4.40% 11.18% 14.74% 4.48% 4.02%
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) $22,920 $16,213 $13,146 $ 7,466 $119,069
Ratio of expenses to average net
assets 1.25% 1.20% 1.11% 1.02%(3) 1.97%
Ratio of net investment income
to average net assets 8.13 8.06 8.60 9.83 (3) 7.35
Portfolio turnover rate 87 134 128 103 87
<CAPTION>
SIX MONTHS
CLASS B ENDED CLASS C
YEAR ENDED DECEMBER 31, JUNE 30, 1998 YEAR ENDED DECEMBER 31,
1997 1996 1995(1) (UNAUDITED) 1997 1996
------------ ----------- ---------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning
of the period $ 8.95 $ 8.57 $ 8.68 $ 9.15 $ 8.95 $ 8.57
======= ====== ======== ====== ====== ======
Net investment income 0.67 0.71 0.44 0.34 0.67 0.72
Net realized and unrealized gain
(loss) on investments 0.23 0.43 (0.09) 0.01 0.23 0.42
======= ====== ========= ====== ====== ======
TOTAL FROM INVESTMENT
OPERATIONS 0.90 1.14 0.35 .35 0.90 1.14
Dividends from net investment
income (0.70) (0.69) (0.46) (0.34) (0.70) (0.69)
Dividends from capital -- (0.07) -- -- -- (0.07)
======== ======= ========= ======= ======= =======
TOTAL DISTRIBUTIONS (0.70) (0.76) (0.46) (0.34) (0.70) (0.76)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 9.15 $ 8.95 $ 8.57 $ 9.16 $ 9.15 $ 8.95
======== ======= ========= ======= ======= =======
TOTAL INVESTMENT RETURN(2) 10.38% 13.94% 4.17% 3.91% 10.37% 13.93%
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) $108,469 $79,199 $ 29,063 $22,341 $21,393 $14,275
Ratio of expenses to average net
assets 1.91% 1.81% 1.71%(3) 1.97% 1.92% 1.82%
Ratio of net investment income
to average net assets 7.35 7.88 9.18 (3) 7.34 7.35 7.85
Portfolio turnover rate 134 128 103 87 134 128
<CAPTION>
CLASS C
YEAR ENDED
DECEMBER 31,
1995(1)
----------------
<S> <C>
OPERATING PERFORMANCE
Net asset value at the beginning
of the period $ 8.68
========
Net investment income 0.44
Net realized and unrealized gain
(loss) on investments (0.09)
=========
TOTAL FROM INVESTMENT
OPERATIONS 0.35
Dividends from net investment
income (0.46)
Dividends from capital --
=========
TOTAL DISTRIBUTIONS (0.46)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 8.57
=========
TOTAL INVESTMENT RETURN(2) 4.17%
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) $ 3,410
Ratio of expenses to average net
assets 1.72%(3)
Ratio of net investment income
to average net assets 9.29 (3)
Portfolio turnover rate 103
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998
(UNAUDITED)
--------------
<S> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the period $ 9.14
======
Net investment income 0.35
Net realized and unrealized gain (loss) on investments 0.03
======
TOTAL FROM INVESTMENT OPERATIONS 0.38
Dividends from net investment income (0.36)
Dividends from net realized gain --
Distributions from capital --
=======
TOTAL DISTRIBUTIONS (0.36)
NET ASSET VALUE AT THE END OF THE PERIOD $ 9.16
=======
TOTAL INVESTMENT RETURN(2) 4.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period ($000s) $93,516
Ratio of expenses to average net assets 1.60%
Ratio of expense reimbursement to average net assets --
Ratio of net investment income (loss) to average net assets 7.69
Portfolio turnover rate 87
- ---------------------------------------------------------------
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the period $ 8.94 $ 8.56 $ 8.29 $ 9.31 $ 9.09
======= ======= ======= ======= =======
Net investment income 0.71 0.73 0.84 0.81 0.85
Net realized and unrealized gain (loss) on investments 0.23 0.45 0.26 (0.99) 0.80
======= ======= ======= ======= =======
TOTAL FROM INVESTMENT OPERATIONS 0.94 1.18 1.10 (0.18) 1.65
Dividends from net investment income (0.74) (0.73) (0.83) (0.83) (0.83)
Dividends from net realized gain -- -- -- (0.01) (0.60)
Distributions from capital -- (0.07) -- -- --
======== ======== ======== ======= ========
TOTAL DISTRIBUTIONS (0.74) (0.80) (0.83) (0.84) (1.43)
NET ASSET VALUE AT THE END OF THE PERIOD $ 9.14 $ 8.94 $ 8.56 $ 8.29 $ 9.31
======== ======== ======== ======= ========
TOTAL INVESTMENT RETURN(2) 10.86% 14.49% 13.71% (2.18)% 18.89%
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period ($000s) $109,320 $124,431 $139,711 $136,426 $125,095
Ratio of expenses to average net assets 1.47% 1.31% 1.33% 1.34% 1.40%
Ratio of expense reimbursement to average net assets -- -- -- -- --
Ratio of net investment income (loss) to average net assets 7.77 8.43 9.69 9.08 8.84
Portfolio turnover rate 134 128 103 86 176
- ---------------------------------------------------------------
</TABLE>
(1) Classes A, B and C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
9
<PAGE>
DISTRIBUTION ARRANGEMENTS
Shares of the Fund and High Yield are sold to the public at a public
offering price which, in the case of Class A shares, includes an initial sales
charge which varies depending on the size of the purchase, from 4.75% on
purchases under $100,000 to 0% on purchases of $1 million and above. A
contingent deferred sales charge may be imposed on purchases of $1 million and
above at the time of redemption. Each fund offers certain arrangements for
Class A shares that will result in reduced sales charges, including cumulative
quantity discounts, group purchases, and statements of intention, and each fund
waives the sales charge with respect to certain qualified persons. Each fund
also offers Class B shares and Class C shares, each of which imposes a
contingent deferred sales charge ("CDSC") in connection with certain
redemptions. The CDSC will be imposed on most Class B share redemptions made
within five (5) years of purchase at the maximum amount of 5 percent for
redemptions made within one year from the date of purchase, declining to 0%
after the fifth year of investment. Class C shares impose a 1% CDSC on
redemptions made within one year of purchase. The sales charge on Class B and
Class C shares is waived under certain circumstances and in connection with
redemptions by certain qualified persons. The minimum initial purchase for each
fund is $2,500, and the minimum subsequent purchase is $100.
In addition, each fund has adopted a distribution plan for each class of
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). Pursuant to the distribution plans, the funds are
each required to reimburse the underwriter, Northstar Distributors, Inc.
("Distributors"), an affiliate of Northstar, monthly for actual expenses of
Distributors, up to a maximum annual rate in the case of Class A shares of
0.30% of the fund's average daily net assets represented by Class A shares, and
up to 1.00% of average daily net assets in the case of Class B and Class C
shares, for distribution expenditures incurred in connection with the sale and
promotion of each class of shares of each fund, and the furnishing to each
class of shares of the respective funds of shareholder services.
EXCHANGE AND OTHER PRIVILEGES
Class A, B and C shares of the Fund and of Strategic may be exchanged
without a sales charge for the same class of shares of any of the other
registered investment companies managed or advised by Northstar, subject to
certain conditions. Each fund also offers its shareholders an Automatic
Investment Plan, a Withdrawal Program, and Dividend and Distribution
Reinvestment Options.
REDEMPTION PROCEDURES
Shares of both funds may be redeemed at any time at their net asset value
next determined after receipt of a complete redemption request; Class B and
Class C shares may be subject to a CDSC at the time of redemption.
DIVIDEND POLICIES
The Fund and High Yield declare and pay income distributions from net
investment income monthly. In order to maintain a more stable monthly
distribution, the Fund and High Yield may at times pay out more or less than
the entire amount of its net investment income and short-term capital gains
earned in any particular period. The Fund and High Yield intends to distribute
any remaining net investment income, as well as any undistributed long- and
short-term capital gains, at least annually.
TAX CONSIDERATIONS
The Reorganization is being structured as a tax-free reorganization for
Federal income tax purposes. If the Reorganization does in fact qualify for
such treatment as intended, the Fund and High Yield will obtain an opinion of
the law firm of Dechert Price & Rhoads to that effect. That opinion will be
based on certain facts, assumptions and representations received from the Fund
and High Yield.
For further information about the tax consequences of the Reorganization,
see "The Reorganization -- Tax Consequences."
10
<PAGE>
THE REORGANIZATION
The terms and conditions upon which the Reorganization may be consummated
are set forth in the Agreement and Plan of Reorganization, dated August 1, 1998
between the Fund and High Yield (the "Agreement") (see Exhibit A attached
hereto). If certain conditions, including approval by the shareholders of the
Fund, are satisfied, all of the Fund's assets will be transferred to High Yield
and its certain identified liabilities assumed by High Yield. This will occur
on the "Effective Date" of the Reorganization, which is November 13, 1998, or
such later date as the parties may agree.
On the Effective Date, after the transfer of the Fund's assets to High
Yield and assumption of certain identified of the Fund's liabilities by High
Yield, the Fund's shareholders will receive the number of newly-issued Class A,
Class B, Class C and Class T shares of High Yield of equal aggregate value to
the aggregate value of the Class A, Class B, Class C and Class T shares of the
Fund which were previously held. The newly issued Class A, Class B, Class C and
Class T shares will be credited to each shareholder's account as of the
Effective Date.
TERMS OF THE AGREEMENT
On the Effective Date, all the assets and certain identified liabilities
of the Fund will be transferred to High Yield in exchange for Class A, Class B,
Class C and Class T voting shares of High Yield on the basis of relative net
asset value. The Fund will then distribute to its shareholders the Class A,
Class B, Class C and Class T shares, as appropriate, of High Yield received by
the Fund pursuant to the terms of the Agreement in complete liquidation of the
Fund.
The transaction described above, which will take place on the Effective
Date, will not result in a diminution or inflation of the value of any
shareholder's investment with respect to the newly issued Class A, Class B,
Class C and Class T shares of High Yield as compared with the Class A, Class B,
Class C and Class T shares of the Fund previously held.
As of the Effective Date, High Yield will, through its transfer agent,
credit on its books and confirm in writing an appropriate number of full and
fractional Class A, Class B, Class C and Class T shares of High Yield to each
Class A, Class B, Class C and Class T shareholder of the Fund, where
applicable, regardless of whether such shareholder holds physically-issued
certificates. As of the Effective Date, any such certificate representing Class
A, Class B, Class C and Class T shares of the Fund will represent only the
right to receive an appropriate number of Class A, Class B, Class C and Class T
shares of High Yield. Therefore, as of the Effective Date, present certificate
holders of the Fund will be asked to surrender their certificates. No
redemption or repurchase of any High Yield Class A, Class B, Class C and Class
T shares credited to former shareholders of the Fund in place of Fund shares
represented by unsurrendered certificates will be permitted until such
certificates have been surrendered for cancellation. Any shareholder of the
Fund who wishes to receive a certificate representing his or her Class A, Class
B, Class C and Class T shares in Strategic must submit a written request
therefor, along with any certificates representing Class A, Class B, Class C
and Class T shares of the Fund, accompanied by such proper instruments of
transfer, such as stock powers and signature guarantees, as High Yield may
reasonably require.
The Agreement sets forth certain conditions to the obligations of the
parties to proceed with the Reorganization, including the approval of the
Reorganization by shareholders of the Fund, an opinion of counsel as to tax
matters (depending on then-existing facts and circumstances), and the accuracy
of various representations and warranties of each fund. Further, if the
Reorganization is not approved at the Meeting, the funds will continue to
operate separately; however, the proposal may be resubmitted to the Fund's
shareholders, or the Trustees of the Fund, may consider what other action, if
any, should be taken, including operating the Fund as it presently operates,
terminating future sales of shares of the Fund, or seeking shareholder approval
to liquidate the Fund.
DESCRIPTION OF SECURITIES TO BE ISSUED
Shareholders of the Fund will be issued Class A, Class B, Class C and
Class T shares of beneficial interest of High Yield without par value. Each
share of beneficial interest entitles the holder to one vote at all meetings of
High Yield shareholders, except where matters relate solely to a particular
class, in which case only holders of that class of shares are entitled to vote.
Shareholders of each class participate equally in dividends and distributions
declared by High Yield and in remaining net assets on liquidation after
satisfaction of outstanding liabilities, provided, however, that such amounts
distributed to shareholders may vary by class as a result of different
11
<PAGE>
expenses attributable to the respective classes. High Yield shares are fully
paid and nonassessable, have no preemptive, conversion or cumulative voting
rights (except for conversion rights to Class A shares associated with the
Class B and Class T shares of High Yield), are transferable without
restriction, and are redeemable at net asset value, which redemption proceeds
may be reduced by the amount of the CDSC imposed on redemption, if any.
REASONS FOR AND PURPOSES OF THE REORGANIZATION
On July 29, 1998, management of the Adviser and Distributors recommended
and the Trustees of the funds approved combining the assets of High Yield and
the Fund for several reasons, namely because the investment objectives,
policies and techniques of High Yield and the Fund are similar to one another.
By combining the assets, Distributors could better coordinate marketing efforts
and alleviate the potential for public confusion that might result from
offering two similar funds. Moreover, the Adviser concluded that efficiencies
could be realized by operating a single fund having as its objective high
current income rather than incurring the expense of operating two such funds
separately.
Furthermore, since the Fund's inception on July 1, 1994, the assets have
grown to only $57 million as of June 30, 1998. In light of the slow growth in
assets over the preceding period from inception and the factors described
above, the Trustees considered and determined at a meeting held on July 29,
1998 that the Reorganization was the appropriate course of action. After a
discussion of various available options, the Trustees of the Fund, including
all of the Trustees who are not "interested persons" (as that term is defined
in the 1940 Act), unanimously adopted a resolution declaring the Reorganization
advisable and directed that it be submitted to the shareholders for
consideration. Several factors, including those described below, influenced the
Trustees' determination.
The Fund's ratio of expenses to average net assets on an annualized basis
was 1.48% for Class A shares, 2.20% for Class B shares, 2.19% for Class C
shares and 2.08% for Class T shares for the fiscal year ended December 31,
1997, and 1.46% for Class A shares, 2.19% for Class B shares, 2.18% for Class C
shares and 2.12% for Class T shares for the semi-annual period ending June 30,
1998. Since it would take a significant increase in the Fund's assets to
decrease materially its expense ratio, it is not expected that the expense
ratio would decrease in the near future if the Fund continued its separate
existence, particularly in light of the fact that Distributors also will be
distributing shares of High Yield, a fund very similar to the Fund. It is
anticipated that Fund Shareholders will benefit from a lower expense ratio in
High Yield after the combination (see "Fees and Expenses" and "Comparative Fee
Table").
For the period from inception (June 5, 1995 for Class A, Class B and Class
C and July 1, 1994 for Class T) through December 31, 1997, the Fund's total
return was 20.53% for Class A shares, 18.23% for Class B shares, 18.16% for
Class C shares and 31.59% for Class T shares. For the period from January 1,
1998 through June 30, 1998, the Fund's total return was 0.23% for Class A
shares, (0.14)% for Class B shares, (0.14)% for Class C shares and (0.09)% for
Class T shares. While the Adviser believes that over the next market cycle the
Fund's performance may continue to improve, they believe that short-term
results will not rise to an adequate competitive level to provide sufficient
inducement to encourage additional sales. At the Trustees' meeting held on July
29, 1998, the Trustees considered the various alternatives available, including
the transfer of the Fund's assets, subject to certain identified liabilities,
to High Yield and the liquidation and dissolution of the Fund. After
considering a number of factors, the Trustees determined that the sale to High
Yield was the most advisable course of action. The Trustees were of the view
that High Yield presented opportunity for the Fund shareholders to continue to
receive the services of Northstar, in a situation where shareholders could
potentially benefit from economies of scale. High Yield had total net assets of
approximately $258 million at June 30, 1998. The Trustees compared the
investment objectives, policies, restrictions, techniques and risks of the Fund
and High Yield, and concluded that High Yield may afford shareholders an
investment opportunity with similar objectives but with the benefits that
accompany a larger asset base. Furthermore, it was noted that the overall
expense ratio of High Yield was lower than that of the Fund. See "Special
Considerations and Risk Factors," "Investment Objectives and Policies," "Fees
and Expenses" and "Comparative Fee Table." In considering the potential effects
of the Reorganization on Fund shareholders, the Trustees reviewed a comparative
cost analysis. High Yield's advisory fees are payable at a lower annual rate
than are the Fund's fees. Both Fund and High Yield shares are sold at a public
offering price that in the case of most Class A shares includes a sales charge.
In the case of most Class B and Class C share purchases, a sales charge will be
imposed at the time of redemption, in the case of
12
<PAGE>
Class B shares, on a declining scale for up to five years from the date of
purchase, and in the case of Class C shares, for one year from the date of
purchase. Each class of each fund is also subject to a Rule 12b-1 distribution
plan. See "Summary -- Comparison of the Fund and High Yield," "Investment
Objectives and Policies" and "Fees and Expenses." Based upon the comparable
cost structure of the two funds and in view of all relevant factors, the
Trustees of the Fund, determined that on balance, the Reorganization would be
beneficial to the Fund's shareholders. The Trustees of the Fund also reviewed
the organizational and financial capability and reputation of Northstar, its
principals and affiliates. Northstar is an indirect, wholly-owned subsidiary of
ReliaStar Financial Corporation, a holding company whose subsidiaries
specialize in the life and health insurance businesses. Northstar serves as
adviser to fifteen other registered investment companies which, including the
funds, represented in excess of $3 billion in combined assets as of June 30,
1998.
The Fund has established an expense accrual of $.001 per share which is
estimated to cover the ongoing expense of the Fund, as well as the legal,
accounting and other expenses associated with the Reorganization.
The right of a shareholder to redeem shares of the Fund at any time prior
to the Effective Time has not been impaired by the approval of the
Reorganization. Therefore, a shareholder may redeem in accordance with the
redemption procedure set forth in the Fund's current prospectus. The Fund does
not impose any redemption charges; however, certain redemptions may be subject
to a CDSC. Shareholders should consult with their personal tax advisors as to
the different tax consequences of redeeming their shares as opposed to
exchanging their shares for High Yield shares in the Reorganization. See "Tax
Consequences" below.
CERTAIN EFFECTS OF THE REORGANIZATION ON SHAREHOLDERS OF THE FUND
Upon consummation of the Reorganization, any prior election by Fund
shareholders to reinvest dividends and distributions in additional shares or to
receive dividends or distributions in cash will continue in effect until
changed as set forth in High Yield's Prospectus (such options for reinvestment
being identical to the Fund's). Shareholders of the Fund will receive shares of
High Yield having, on the Effective Date, the equivalent value in the aggregate
of the shares of the Fund previously held, in accordance with the terms of the
Agreement.
EXPENSES OF THE REORGANIZATION
The aggregate expense to both funds for effecting the Reorganization is
estimated at approximately $20,000. the Fund and High Yield will each bear its
respective expenses incurred in the Reorganization.
CERTAIN LEGAL EFFECTS
Upon consummation of the Reorganization, High Yield will continue to be
governed by the provisions of its current Amended and Restated Declaration of
Trust and By-Laws. High Yield's affairs will be supervised by the current
Trustees of High Yield.
TAX CONSEQUENCES
The Reorganization has been structured with the intention that it will
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"). In the event that the Reorganization so qualifies based on existing
facts and circumstances at the time of consummation of the Reorganization, the
Fund and High Yield will receive an opinion of counsel to that effect.
Accordingly, pursuant to this treatment, no gain or loss will be recognized by
the Fund or High Yield or Fund shareholders as a result of the Reorganization;
the basis of High Yield shares received by Fund shareholders in exchange for
their shares of the Fund will equal the basis of the Fund shares so
surrendered; the holding period of High Yield shares received by Fund
shareholders in exchange for their shares of the Fund will include the period
during which such shareholders held shares of the Fund (provided that the Fund
shares were held as capital assets on the date of the Reorganization); the
basis of the assets acquired by High Yield will be the same as the basis of
such assets when held by the Fund immediately prior to the Reorganization; and
the holding period of the assets of the Fund when held by High Yield will
include the period during which such assets were held by the Fund.
The opinion of counsel will be based upon certain representations made by
the Fund and High Yield. While an opinion of counsel does not bind the Internal
Revenue Service (the "IRS") or the courts, it will reflect such counsel's view,
as of the closing of the Reorganization, as to the expected Federal income tax
treatment of the
13
<PAGE>
Reorganization. If the IRS were to take a position contrary to the views
expressed by such counsel, and succeed in asserting such position, shareholders
would be treated as having received shares of High Yield in a transaction in
which gain or loss would be recognized for Federal income tax purposes and High
Yield would be treated for such purposes as having purchased the assets of the
Fund for their fair market value. In the event that more than fifty percent of
the Fund's shares are redeemed prior to or shortly after the date of
consummation of the Reorganization, the Reorganization most probably will not
qualify as a tax-free reorganization under the Code. The Reorganization will
nevertheless be consummated, subject to the other conditions of the Agreement.
In such event (i) the basis of the assets of the Fund acquired by High Yield
will be their value on the date of the Reorganization and the holding period
will start on the day following such date; (ii) each shareholder of the Fund
will recognize gain or loss on the exchange of his or her Fund shares for High
Yield shares, generally equal to the difference between his or her basis in the
surrendered Fund shares and the value of the High Yield shares received in
exchange as of the Effective Date; and (iii) the holding period for the High
Yield shares received by a former Fund shareholder will commence as of the day
following the Effective Date. At its fiscal year end on December 31, 1997, the
Fund had capital loss carryforwards of approximately $1.9 million. The Fund
currently also has net unrealized losses of approximately $3.7 million, because
the aggregate basis for all of the Fund's assets exceeds the fair market value
of those assets. If the Reorganization is carried out, the ability of High
Yield to utilize the Fund's capital loss carryforwards, as well as any
recognized loss attributable to the Fund's net unrealized built- in losses
immediately before the Reorganization, will be limited under the Code. As a
result of this limitation, it is possible that High Yield will not be able to
use these losses as rapidly as the Fund might have been able to, and part or
all of these losses may not be usable by High Yield at all. The ability of the
Fund or High Yield to absorb losses in the future depends on a variety of
factors that cannot be known in advance, including the existence of capital
gains eligible to be offset. Net capital loss carryforwards of regulated
investment companies generally expire at the end of the eighth taxable year
after they arise if they have not been absorbed by that time. Therefore, under
the limitation described above, it is possible that some or all of the losses
from the Fund will expire unutilized.
Shareholders should consult their tax advisors regarding the effect of the
proposed transactions in light of their individual circumstances. As the
foregoing discussion relates only to Federal income tax consequences,
shareholders should also consult their tax advisors as to the state and local
tax consequences of such transactions.
RECOMMENDATION OF THE TRUSTEES
Based upon their review, the Trustees of the Fund, concluded that the
participation of the Fund in the proposed Reorganization would be in the best
interests of the Fund and its shareholders and that the Reorganization would
not result in the dilution of existing shareholders' interests. The Trustees of
the Fund, including the Independent Trustees, have unanimously recommended that
the Fund's shareholders vote FOR the Reorganization. See "Information
Concerning the Special Meeting -- Voting Rights and Required Vote."
PRO-FORMA CAPITALIZATION
The capitalization of the Class A shares of the Fund and High Yield as of
June 30, 1998 and the pro forma combined capitalization of High Yield as of
that date after giving effect to the Reorganization are as follows:
<TABLE>
<CAPTION>
PRO FORMA
FUND HIGH YIELD ADJUSTMENTS COMBINED
---------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net Assets: $ 12,076,519 $ 22,919,740 $ 3,752 $ 35,000,011
Net Asset Value PerShare
Outstanding: $ 11.60 $ 9.16 $ 9.16
Shares Outstanding: 1,040,990 2,502,717 277,407 3,821,114
</TABLE>
14
<PAGE>
The capitalization of the Class B shares of the Fund and High Yield as of
June 30, 1998 and the pro forma combined capitalization of High Yield as of
that date after giving effect to the Reorganization are as follows:
<TABLE>
<CAPTION>
PRO FORMA
FUND HIGH YIELD ADJUSTMENTS COMBINED
-------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Net Assets: 26,517,258 119,068,705 15,610 145,601,573
Net Asset Value PerShare
Outstanding: 11.59 9.17 9.17
Shares Outstanding: 2,287,013 12,990,493 604,727 15,882,233
</TABLE>
The capitalization of the Class C shares of the Fund and High Yield as of
June 30, 1998 and the pro forma combined capitalization of High Yield as of
that date after giving effect to the Reorganization are as follows:
<TABLE>
<CAPTION>
PRO FORMA
FUND HIGH YIELD ADJUSTMENTS COMBINED
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Assets: 3,052,930 22,341,288 2,723 25,396,941
Net Asset Value PerShare
Outstanding: 11.58 9.16 9.16
Shares Outstanding: 263,624 2,438,073 69,665 2,771,362
</TABLE>
The capitalization of the Class T shares of the Fund and High Yield as of
June 30, 1998 and the pro forma combined capitalization of High Yield as of
that date after giving effect to the Reorganization are as follows:
<TABLE>
<CAPTION>
PRO FORMA
FUND HIGH YIELD ADJUSTMENTS COMBINED
-------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Net Assets: 15,679,445 93,516,064 39,044 109,234,553
Net Asset Value PerShare
Outstanding: 11.60 9.16 9.16
Shares Outstanding: 1,352,019 10,212,258 359,711 11,923,988
</TABLE>
PERFORMANCE INFORMATION
Total return is a measure of the change in value of an investment in a
fund over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the same class of that
fund rather than paid to the investor in cash. The formula for total return
used by a fund is prescribed by the Commission and includes three steps: (1)
adding to the total number of shares of the particular class that would be
purchased by a hypothetical $1,000 investment in the fund (giving effect to the
deduction of a sales charge, if applicable) all additional shares that would
have been purchased if all dividends and distributions paid or distributed
during the period had been automatically reinvested; (2) calculating the
redeemable value of the hypothetical initial investment as of the end of the
period by multiplying the total number of shares owned at the end of the period
by the net asset value per share of the relevant class on the last trading day
of the period (and giving effect to a CDSC, if applicable); and (3) dividing
this account value for the hypothetical investor by the amount of the initial
investment, and annualizing the result for periods of less than one year. Total
return may be stated with or without giving effect to any expense limitations
in effect for a fund.
AVERAGE ANNUAL TOTAL RETURN -- CLASS A SHARES
The following table reflects average annual total returns for one year and
since inception (June 5, 1995) periods ending June 30, 1998 for Class A shares
of the Fund and Class A shares of High Yield assuming the effect of the
applicable sales charge:
<TABLE>
<CAPTION>
PERIOD FUND HIGH YIELD
- ---------------------- ------------- -----------
<S> <C> <C>
One Year ........... (5.21)% 4.89%
Since Inception .... 4.68% 9.50%
</TABLE>
15
<PAGE>
AVERAGE ANNUAL TOTAL RETURN -- CLASS B SHARES
The following table reflects average annual total returns for the one year
and since inception (June 5, 1995) periods ending June 30, 1998 for Class B
shares of the Fund and Class B shares of High Yield assuming the effect of the
applicable sales charge:
<TABLE>
<CAPTION>
PERIOD FUND HIGH YIELD
- ---------------------- ------------- -----------
<S> <C> <C>
One Year ........... (5.89)% 4.45%
Since Inception .... 5.00% 9.95%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN -- CLASS C SHARES
The following table reflects average annual total returns for the one year
and since inception (June 5, 1995) periods ending June 30, 1998 for Class C
shares of the Fund and Class C shares of High Yield assuming the effect of the
applicable sales charge:
<TABLE>
<CAPTION>
PERIOD FUND HIGH YIELD
- ---------------------- ------------- -----------
<S> <C> <C>
One Year ........... (2.14)% 8.32%
Since Inception .... 5.54% 10.44%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN -- CLASS T SHARES
The following table reflects average annual total returns for the one-year
and since inception (July 1, 1994 for the Fund and May 30, 1989 for High Yield)
periods ending June 30, 1998 for Class T shares of the Fund and Class T shares
of High Yield assuming the effect of the applicable sales charge:
<TABLE>
<CAPTION>
PERIOD FUND HIGH YIELD
- ----------------------- ------------- -----------
<S> <C> <C>
One Year ............ (4.79)% 5.79%
Five Years .......... N/A 9.45
Since Inception ..... 6.88% 10.83%
</TABLE>
Current yield reflects the income per share earned by a fund's portfolio
investments. Yield for each class will be computed by annualizing net
investment income per share for a recent 30-day period and dividing that amount
by the maximum public offering price, which in the case of Class A shares
includes the sales load, of the relevant class (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last trading
day of that period.
YIELD
The yield of the Class A, Class B, Class C and Class T shares of the Fund
for the 30-day period ended June 30, 1998 was 7.91%, 7.56%, 7.57% and 7.68%,
respectively. The yield of the Class A, Class B, Class C and Class T shares of
High Yield for the 30-day period ended June 30, 1998 was 7.03%, 6.66%, 6.65%
and 7.07%, respectively.
INFORMATION CONCERNING THE MEETING
Proxies in the form enclosed with this Proxy Statement/ Prospectus are
being solicited by the Trustees of the Fund for use at the special meeting of
shareholders of the Fund (the "Meeting"). It is anticipated that this Proxy
Statement/Prospectus will first be mailed to shareholders on or about October
5, 1998.
The costs of preparing, printing and mailing the accompanying Notice of
Special Meeting and this Proxy Statement/Prospectus and the costs of the
Meeting will be borne by the Fund. Such costs will come to approximately
$10,000. Proxy materials may be distributed through brokers, custodians and
nominees to beneficial owners and the Fund may reimburse such parties for
reasonable charges and expenses. In addition, proxies may be solicited by
telephone or telegraph by officers, employees and agents of the Fund on behalf
of the Trustees, or by independent solicitors, the expenses of which may be
charged to the Fund. The Fund has not yet retained a proxy solicitor and does
not currently intend to do so. If the Fund does retain a proxy solicitor,
however, such a solicitor would typically be paid a fee of $5,000 for a
solicitation of this size. The mailing address of the Fund is 300 First
Stamford Place, Stamford, Connecticut 06902.
16
<PAGE>
DATE, TIME AND PLACE OF MEETING
The Meeting will be held on November 12, 1998 at the offices of the Fund,
300 First Stamford Place, Stamford, Connecticut 06902, at 10:00 a.m., Eastern
Time.
SOLICITATION, REVOCATION AND USE OF PROXIES
A shareholder executing and returning a proxy has the power to revoke it
any time prior to its exercise by executing a superseding proxy or by
submitting a notice of revocation to the Secretary of the Fund. Although mere
attendance at the Meeting will not revoke a proxy, a shareholder present at the
Meeting may withdraw his proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
have previously been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated, the shares will be
voted FOR the approval of the Reorganization.
3. RECORD DATE AND OUTSTANDING SHARES
Only holders of record of the Fund's shares of beneficial interest, par
value $0.01 per share, at the close of business on September 14, 1998 (the
"Record Date") are entitled to vote at the Meeting and any adjournment thereof.
The holders of greater than 50% of the Fund shares outstanding at the close of
business on the Record Date present in person or represented by proxy will
constitute a quorum for the Meeting. For purposes of determining the presence
of a quorum for transacting business at the Meeting, abstentions and broker
"non-votes" will be treated as shares that are present, but which have not been
voted. Broker "non-votes" are proxies received by the Fund from brokers or
nominees when the broker or nominee neither has received instructions from the
beneficial owner(s) or other person(s) entitled to vote nor has discretionary
power to vote on a particular matter. Abstentions and broker "non-votes" will
have the effect of a vote AGAINST the proposed Reorganization, which proposal
requires the affirmative vote of a majority of all of the votes entitled to be
cast at the Meeting.
In the event that a quorum is not present at the Meeting, or a quorum is
present, but sufficient votes to approve the Reorganization are not received,
the persons named as proxies may propose one or more adjournments of the
meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares represented at the
meeting in person or by proxy. If a quorum is present, the persons named as
proxies will vote those proxies which they are entitled to vote FOR the
Reorganization in favor of such an adjournment and will vote those proxies
which they are required to vote AGAINST the Reorganization against any such
adjournment. At the close of business on the Record Date, there were shares of
beneficial interest of the Fund outstanding and entitled to vote.
VOTING RIGHTS AND REQUIRED VOTE
Each share of beneficial interest of the Fund is entitled to one vote. See
"Security Ownership of Certain Shareholders and Management." Approval of the
Reorganization requires the affirmative vote of a majority of the Fund's shares
of beneficial interest outstanding and entitled to vote at the Meeting (as the
term "majority" is defined in the 1940 Act). If the Reorganization is not
approved by the shareholders of the Fund, Trustees of the Fund, will consider
other possible courses of action, including operating the Fund as it presently
operates, terminating future sales of shares of the Fund, or seeking
shareholder approval to liquidate the Fund. The votes of the shareholders of
High Yield are not being solicited because their approval or consent is not
necessary for the Reorganization to take place. On September 14, 1998 there
were shares of High Yield outstanding. No person was known by management of
High Yield to own beneficially or of record more than 5% of the outstanding
shares of High Yield on that date. All of the officers and directors of High
Yield as a group own less than 1% of High Yield's shares.
SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS AND MANAGEMENT
As of September 14, 1998, ReliaStar Financial Corporation, 20 Washington
Avenue South, Minneapolis, Minnesota 55401,which was organized in Minnesota,
and Northern Life Insurance Company, 1110 Third Avenue, Seattle, Washington
98101, which was organized in Washington, were the record owner of % and of
%, respectively, of the Fund's outstanding shares. No other persons were
known by management to own beneficially or of record more than 5% of the
outstanding shares of the Fund.
17
<PAGE>
Trustees and officers as a group owned beneficially or of record less than
1% of the outstanding shares of the Fund as of September 14, 1998.
FINANCIAL STATEMENTS
The financial statements of the funds contained in their annual report to
shareholders for the fiscal year ended December 31, 1997 have been audited by
PricewaterhouseCoopers LLP, the funds' independent auditors. These financial
statements and the unaudited semi-annual reports to shareholders of High Yield
and the Fund for the six-month periods ended June 30, 1998, are incorporated by
reference in the SAI to this Proxy Statement/ Prospectus and are incorporated
by reference herein. Such financial statements will be provided upon request of
the SAI to this Proxy Statement/Prospectus.
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
The funds are subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith, file
reports, proxy material and other information with the Commission. Such
reports, proxy material and other information can be inspected and copied at
the Public Reference Room maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such material can also be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549, at
prescribed rates.
OTHER MATTERS
The Trustees of the Fund know of no other matters that may come before the
Meeting. If any such matters should properly come before the Meeting, it is the
intention of the persons named in the enclosed form of proxy to vote such proxy
in accordance with their best judgment. Please mark, sign, date and return the
enclosed proxy promptly. No postage is required on the enclosed envelope if
mailed in the United States.
By Order of the Trustees,
Stephanie L. Beckner
SECRETARY
Stamford, Connecticut
October 5, 1998
18
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this first day of September, 1998, by and between NORTHSTAR HIGH YIELD FUND
(the "Acquiring Fund"), a Massachusetts business trust with its principal place
of business at 300 First Stamford Place, Stamford, Connecticut 06902 and
NORTHSTAR STRATEGIC INCOME FUND (the "Acquired Fund"), a Massachusetts business
trust with its principal place of business at 300 First Stamford Place,
Stamford, Connecticut 06902.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all or
substantially all of the assets of the Acquired Fund to the Acquiring Fund in
exchange solely for Class A, Class B, Class C and Class T voting shares of
beneficial interest (no par value per share) of the Acquiring Fund (the
"Acquiring Fund Shares"), the assumption by the Acquiring Fund of certain
identified liabilities of the Acquired Fund, and the distribution of the
Acquiring Fund Shares to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are open-end, registered
investment companies of the management type and the Acquired Fund owns
securities which generally are assets of the character in which the Acquiring
Fund is permitted to invest;
WHEREAS, the Trustees of the Acquiring Fund have determined that the
exchange of all or substantially all of the assets of the Acquired Fund for
Acquiring Fund Shares and the assumption of certain identified liabilities of
the Acquired Fund by the Acquiring Fund is in the best interests of the
Acquiring Fund and its shareholders and that the interests of the existing
shareholders of the Acquiring Fund would not be diluted as a result of this
transaction;
WHEREAS, the Trustees of the Trust, on behalf of the Acquired Fund, have
determined that the exchange of all or substantially all of the assets of the
Acquired Fund for Acquiring Fund Shares and the assumption of certain
identified liabilities of the Acquired Fund by the Acquiring Fund is in the
best interests of the Acquired Fund and its shareholders and that the interests
of the existing shareholders of the Acquired Fund would not be diluted as a
result of this transaction; and
WHEREAS, the purpose of the Reorganization is to combine the assets of the
Acquiring Fund with those of the Acquired Fund in an attempt to achieve greater
operating economies and increased portfolio diversification;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF CERTAIN IDENTIFIED
ACQUIRED FUND LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund
agrees to transfer all of the Acquired Fund's assets, as set forth in paragraph
1.2, to the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor
(i) to deliver to the Acquired Fund the number of full and fractional Class A,
Class B, Class C and Class T Acquiring Fund Shares determined by dividing the
value of the Acquired Fund's net assets with respect to each class, computed in
the manner and as of the time and date set forth in paragraph 2.1, by the net
asset value of one Acquiring Fund Share of the same class, computed in the
manner and as of the time and date set forth in paragraph 2.2; and (ii) to
assume certain identified liabilities of the Acquired Fund, as set forth in
paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing").
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all property, including, without limitation, all cash,
securities, commodities and futures interests and dividends or interests
receivable that are owned by the Acquired Fund and any deferred or prepaid
expenses shown as an asset on the books of the Acquired Fund on the closing
date provided for in paragraph 3.1 (the "Closing Date").
<PAGE>
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
assume all liabilities, expenses, costs, charges and reserves reflected on an
unaudited statement of assets and liabilities of the Acquired Fund prepared by
the administrator of the Acquiring Fund and the Acquired Fund, as of the
Valuation Date (as defined in paragraph 2.1) in accordance with generally
accepted accounting principles ("GAAP") consistently applied from the prior
audited period. The Acquiring Fund shall assume only those liabilities of the
Acquired Fund reflected on that unaudited statement of assets and liabilities,
and shall not assume any other liabilities.
1.4 Immediately after the transfer of assets provided for in paragraph
1.1, the Acquired Fund will distribute to the Acquired Fund's shareholders of
record with respect to each class of its shares, determined as of immediately
after the close of business on the Closing Date (the "Acquired Fund
Shareholders"), on a pro rata basis within that class, the Acquiring Fund
Shares of the same class received by the Acquired Fund pursuant to paragraph
1.1, and will completely liquidate. Such distribution and liquidation will be
accomplished, with respect to each class of the Acquired Fund's shares, by the
transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Class A, Class B, Class C and Class T
Acquiring Fund Shares to be so credited to Class A, Class B, Class C and Class
T Acquired Fund Shareholders shall, with respect to each class, be equal to the
aggregate net asset value of the Acquired Fund shares of that same class owned
by such shareholders on the Closing Date. All issued and outstanding shares of
the Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund, although share certificates representing interests in Class A, Class B,
Class C and Class T shares of the Acquired Fund will represent a number of the
same class of Acquiring Fund Shares after the Closing Date, as determined in
accordance with Section 2.3. The Acquiring Fund shall not issue certificates
representing the Class A, Class B, Class C and Class T Acquiring Fund Shares in
connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's then-current prospectus and
statement of additional information.
1.6 Any reporting responsibility of the Acquired Fund including, but not
limited to, the responsibility for filing of regulatory reports, tax returns,
or other documents with the Securities and Exchange Commission (the
"Commission"), any state securities commission, and any federal, state or local
tax authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Acquired Fund.
2. VALUATION
2.1 The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of
immediately after the close of business of the New York Stock Exchange and
after the declaration of any dividends on the Closing Date (such time and date
being hereinafter called the "Valuation Date"), using the valuation procedures
set forth in the Acquiring Fund's Amended and Restated Declaration of Trust and
then-current prospectus or statement of additional information.
2.2 The net asset value of a Class A, Class B, Class C or Class T
Acquiring Fund Share shall be the net asset value per share computed with
respect to that class as of immediately after the close of business of the New
York Stock Exchange and after the declaration of any dividends on the Valuation
Date, using the valuation procedures set forth in the Acquiring Fund's Amended
and Restated Declaration of Trust and then-current prospectus or statement of
additional information.
2.3 The number of the Class A, Class B, Class C and Class T Acquiring Fund
Shares to be issued (including fractional shares, if any) in exchange for the
Acquired Fund's assets shall be determined with respect to each such class by
dividing the value of the net assets with respect to the Class A, Class B,
Class C and Class T shares of the Acquired Fund, as the case may be, determined
using the same valuation procedures referred to in paragraph 2.1, by the net
asset value of an Acquiring Fund Share, determined in accordance with paragraph
2.2.
2.4 All computations of value shall be made by Northstar Investment
Management Corporation ("Northstar") or its designated agent.
<PAGE>
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be November 13, 1998, or such other date as the
parties may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the Closing Date unless otherwise agreed to by the parties. The
close of business on the Closing Date shall be as of 4:00 p.m., Eastern Time.
The Closing shall be held at the offices of Northstar, 300 First Stamford
Place, Stamford, Connecticut, or at such other time and/or place as the parties
may agree.
3.2 State Street Bank and Trust Company, as custodian for the Acquired
Fund (the "Custodian"), shall deliver, at the Closing, a certificate of an
authorized officer stating that the Acquired Fund's portfolio securities, cash,
and any other assets shall have been delivered in proper form to the Acquiring
Fund within two business days prior to or on the Closing Date.
3.3 First Data Investor Services Group, Inc. (the "Transfer Agent"), on
behalf of the Acquired Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Acquired Fund Shareholders and the number and percentage ownership of
outstanding Class A, Class B, Class C and Class T shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue
and deliver a confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Secretary of the Acquired Fund, or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund, represents and warrants to the Acquiring Fund as
follows:
(a) The Acquired Fund is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power under
the Trust's Declaration of Trust to own all of its properties and assets and,
to the knowledge of the Trust, to carry on its business as it is now being
conducted;
(b) The Acquired Fund is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act of 1940,
as amended ("1940 Act"), and the registration of its shares under the
Securities Act of 1933, as amended ("1933 Act"), are in full force and effect;
(c) To the knowledge of the Acquired Fund, no consent, approval,
authorization, or order of any court or governmental authority is required for
the consummation by the Acquired Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act") and the 1940 Act and such as may be
required by state securities laws;
(d) The Acquired Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in a material
violation of its Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it prior
to the Closing Date;
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or, to its knowledge, threatened against the Acquired Fund or any of its
properties or assets that, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its business. The
Acquired Fund knows of no facts which might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially
and adversely affects its business or its ability to consummate the
transactions herein contemplated;
(g) The Statement of Assets and Liabilities of the Acquired Fund at
December 31, 1997 has been audited by PricewaterhouseCoopers LLP, independent
accountants, and is in accordance with GAAP consistently applied, and such
statement (a copy of which has been furnished to the Acquiring Fund) presents
fairly, in all material respects, the financial condition of the Acquired Fund
as of such date in accordance with GAAP, and there are no
<PAGE>
known contingent liabilities of the Acquired Fund required to be reflected on a
balance sheet (including the notes thereto) in accordance with GAAP as of such
date not disclosed therein;
(h) Since December 31, 1997, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business, other than changes occurring in the ordinary course of business, or
any incurrence by the Acquired Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (g),
a decline in net asset value per share of the Acquired Fund, the discharge of
Acquired Fund liabilities, or the redemption of Acquired Fund shares by
Acquired Fund Shareholders shall not constitute a material adverse change;
(i) On the Closing Date, all material Federal and other tax returns and
reports of the Acquired Fund required by law to have been filed by such date
(including any extensions) shall have been filed and are or will be correct in
all material respects, and all Federal and other taxes shown as due or required
to be shown as due on said returns and reports shall have been paid, provision
shall have been made for the payment thereof, and to the best of the Acquired
Fund's knowledge, no such return is currently under audit and no assessment has
been asserted with respect to such returns;
(j) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company
and has elected to be treated as such, has been eligible to and has computed
its federal income tax under Section 852 of the Code, and will have distributed
all of its investment company taxable income and net capital gain (as defined
in the Code) that has accrued through the Closing Date;
(k) All issued and outstanding shares of the Acquired Fund are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Acquired Fund (recognizing that, under Massachusetts law,
Acquired Fund Shareholders could, under certain circumstances, be held
personally liable for obligations of the Acquired Fund). All of the issued and
outstanding shares of the Acquired Fund will, at the time of closing, be held
by the persons and in the amounts set forth in the records of the Transfer
Agent, on behalf of the Acquired Fund, as provided in paragraph 3.3. The
Acquired Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund shares;
(l) On the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to paragraph 1.2 and full right, power, and authority to sell, assign,
transfer and deliver such assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such assets, the Acquiring Fund
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act, other than as disclosed to the Acquiring Fund;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of the Acquired Fund's Trustees, and, subject to the approval of the
Acquired Fund Shareholders, this Agreement will constitute a valid and binding
obligation of the Acquired Fund, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(n) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents filed or to be
filed with any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects
with Federal securities and other laws and regulations thereunder applicable
thereto; and
(o) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in paragraph 5.6 , insofar
as it relates to the Acquired Fund, will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading.
4.2 The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
<PAGE>
(a) The Acquiring Fund is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power under
the Acquiring Fund's Amended and Restated Declaration of Trust to own all of
its properties and assets and, to the knowledge of the Acquiring Fund, to carry
on its business as it is now being conducted;
(b) The Acquiring Fund is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act and the registration of
its shares under the 1933 Act, are in full force and effect;
(c) To the knowledge of the Acquiring Fund, no consent, approval,
authorization, or order of any court or governmental authority is required for
the consummation by the Acquiring Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the 1940
Act and such as may be required by state securities laws;
(d) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the
Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets;
(f) The Acquiring Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in a material
violation of the Acquiring Fund's Amended and Restated Declaration of Trust or
By-Laws or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which it is bound;
(g) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to its
knowledge, threatened against the Acquiring Fund or any of its properties or
assets, except as previously disclosed in writing to the Acquired Fund. The
Acquiring Fund knows of no facts which might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially
and adversely affects its business or its ability to consummate the
transactions contemplated herein;
(h) The Statement of Assets and Liabilities of the Acquiring Fund at
December 31, 1997 has been audited by PricewaterhouseCoopers LLP, independent
accountants, and is in accordance with GAAP consistently applied, and such
statement (a copy of which has been furnished to the Acquired Fund) presents
fairly, in all material respects, the financial position of the Acquiring Fund
as of such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquiring Fund required to be reflected on a balance sheet
(including the notes thereto) in accordance with GAAP as of such date not
disclosed therein;
(i) Since December 31, 1997, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business, other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred. For purposes of this
subparagraph (i), a decline in net asset value per share of the Acquiring Fund,
the discharge of Acquiring Fund liabilities, or the redemption of Acquiring
Fund Shares by Acquiring Fund Shareholders, shall not constitute a material
adverse change;
(j) On the Closing Date, all material Federal and other tax returns and
reports of the Acquiring Fund required by law to have been filed by such date
(including any extensions) shall have been filed and are or will be correct,
and all Federal and other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision shall have been made
for the payment thereof, and to the best of the Acquiring Fund's knowledge no
such return is currently under audit and no assessment has been asserted with
respect to such returns;
(k) For each taxable year of its operation, the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such, has been eligible to
and has computed its federal income tax under Section 852 of the Code, and will
do so for the taxable year including the Closing Date;
<PAGE>
(l) All issued and outstanding Acquiring Fund Shares are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Acquiring Fund (recognizing that, under Massachusetts
law, Acquiring Fund Shareholders could, under certain circumstances, be held
personally liable for obligations of the Acquiring Fund). The Acquiring Fund
does not have outstanding any options, warrants or other rights to subscribe
for or purchase any Acquiring Fund Shares, nor is there outstanding any
security convertible into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement will have
been fully authorized prior to the Closing Date by all necessary action, if
any, on the part of the Trustees of the Acquiring Fund and this Agreement will
constitute a valid and binding obligation of the Acquiring Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The Class A, Class B, Class C and Class T Acquiring Fund Shares to be
issued and delivered to the Acquired Fund, for the account of the Acquired Fund
Shareholders, pursuant to the terms of this Agreement, will on the Closing Date
have been duly authorized and, when so issued and delivered, will be duly and
validly issued Acquiring Fund Shares, and will be fully paid and non-assessable
by the Acquiring Fund (recognizing that, under Massachusetts law, Acquiring
Fund Shareholders could, under certain circumstances, be held personally liable
for obligations of the Acquiring Fund);
(o) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the
Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(p) The information to be furnished by the Acquiring Fund for use in the
registration statements, proxy materials and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto;
(q) The Proxy Statement to be included in the Registration Statement (only
insofar as it relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statement therein, in light of the
circumstances under which such statements were made not materially misleading;
and
(r) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state blue sky or securities laws as may be necessary in order to continue
its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date,
it being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distribution that may be advisable.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Class A, Class B, Class C and
Class T Acquiring Fund Shares to be issued hereunder are not being acquired for
the purpose of making any distribution thereof, other than in accordance with
the terms of this Agreement.
5.4 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably request concerning the beneficial
ownership of the Acquired Fund shares.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
<PAGE>
5.6 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(o), all to
be included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the 1934 Act and
the 1940 Act, in connection with the meeting of the Acquired Fund Shareholders
to consider approval of this Agreement and the transactions contemplated
herein.
5.7 As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Class A, Class B, Class C and Class T Acquiring Fund Shares received at the
Closing.
5.8 The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent
to effect the transactions contemplated by this Agreement as promptly as
practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at the Acquired Fund's election, to the
performance by the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date, and, in addition thereto, the
following further conditions:
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the same force and
effect as if made on and as of the Closing Date.
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the
Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement and as to such other matters
as the Acquired Fund shall reasonably request.
6.3 The Acquired Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquired
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquiring Fund is a business trust, duly organized and validly
existing under the laws of the Commonwealth of Massachusetts;
(b) the Acquiring Fund has the power under its Amended and Restated
Declaration of Trust, to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently conducted in
accordance with the description thereof in the Acquiring Fund's registration
statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by the
Acquiring Fund, and constitutes a valid and legally binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
laws of general applicability relating to or affecting creditors' rights and to
general equity principles;
(d) the execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated thereby will not, result in the
violation of the Acquiring Fund's Amended and Restated Declaration of Trust and
By-laws or of any agreement to which the Acquiring Fund is a party or by which
it is bound; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquiring Fund under the Federal laws of the United States or the laws of the
Commonwealth of Massachusetts for the consummation of the transactions
contemplated in the Agreement have been obtained or made.
6.4 The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
<PAGE>
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at the Acquiring Fund's election to the
performance by the Acquired Fund of all of the obligations to be performed by
it hereunder on or before the Closing Date and, in addition thereto, the
following conditions:
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the same force and
effect as if made on and as of the Closing Date;
7.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, as of the Closing
Date, certified by the Treasurer of the Acquired Fund;
7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquired Fund made in
this Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement, and as
to such other matters as the Acquiring Fund shall reasonably request;
7.4 The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquired Fund is a business trust, duly organized and validly
existing under the laws of the Commonwealth of Massachusetts;
(b) the Acquired Fund, has the power under its Declaration of Trust, to
own all of its properties and assets and, to the knowledge of such counsel, to
carry on its business as presently conducted in accordance with the description
thereof in the Acquired Fund's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by the
Acquired Fund, on behalf of the Acquired Fund, and constitutes a valid and
legally binding obligation of the Acquired Fund, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated thereby will not, result in the
violation of the Acquired Fund's Declaration of Trust and By-laws or of any
agreement to which the Acquired Fund is a party or by which it is bound; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquired Fund under the Federal laws of the United States or the laws of the
Commonwealth of Massachusetts for the consummation of the transactions
contemplated in the Agreement have been obtained or made; and
7.5 The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Fund's
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Acquired Fund may waive the conditions set forth in this paragraph 8.1;
<PAGE>
8.2 On the Closing Date no action, suit or other proceeding shall be
pending or, to its knowledge, threatened before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or
other relief in connection with, this Agreement or the transactions
contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act; and
8.5 The parties shall have received the opinion of Dechert Price & Rhoads
addressed to the Acquiring Fund and Acquired Fund substantially to the effect
that the transaction contemplated by this Agreement shall constitute a tax-free
reorganization for Federal income tax purposes, unless, based on the
circumstances existing at the time of the Closing, Dechert Price & Rhoads
determines that the transaction contemplated by this Agreement does not qualify
as such. The delivery of such opinion is conditioned upon receipt by Dechert
Price & Rhoads of representations it shall request of the Acquiring Fund and
the Acquired Fund. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the condition set forth in this
paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund represents and warrants to the other that there are
no brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2 Each party to this Agreement shall bear its own expenses in connection
with carrying out the terms of this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder. The covenants to be performed after the Closing shall survive the
Closing.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by either party by resolution of the party's Trustees, at any
time prior to the Closing Date, if circumstances should develop that, in the
opinion of such board, make proceeding with the Agreement inadvisable.
12. AMENDMENTS
This agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund Shareholders called by the Acquired Fund pursuant
to paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Class A, Class B,
Class C and Class T Acquiring Fund Shares to be issued to the Acquired Fund
Shareholders under this Agreement to the detriment of such shareholders without
their further approval.
<PAGE>
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the Acquiring Fund, 300
First Stamford Place, Stamford, Connecticut 06902, or to the Acquired Fund, 300
First Stamford Place, Stamford, Connecticut 06902.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 It is expressly agreed that the obligations of the Acquiring Fund
hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents, or employees of the Acquiring Fund personally, but
shall bind only the trust property of the Acquiring Fund, as provided in the
Amended and Restated Declaration of Trust of the Acquiring Fund. The execution
and delivery by such officers shall not be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Acquiring Fund as provided in the
Amended and Restated Declaration of Trust of the Acquiring Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Attest: NORTHSTAR HIGH YIELD FUND
------------------------------ By: _______________________________
SECRETARY
Its: ______________________________
Attest: NORTHSTAR STRATEGIC INCOME FUND
------------------------------ By: _______________________________
SECRETARY
Its: ______________________________
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 5, 1998
acquisition of the assets of
NORTHSTAR STRATEGIC INCOME FUND
300 First Stamford Place
Stamford, Connecticut 06902
Telephone: (800) 595-7827
by and in exchange for Class A, Class B, Class C and Class T shares of
NORTHSTAR HIGH YIELD FUND
300 First Stamford Place
Stamford, Connecticut 06902
Telephone: (800) 595-7827
This Statement of Additional Information, relating specifically to the
proposed acquisition of all of the assets of the Northstar Strategic Income
Fund (the "Fund") by the Northstar High Yield Fund ("High Yield"), in exchange
for shares of High Yield, consists of this cover page and the following
described documents, each of which is attached hereto and incorporated by
reference herein:
(1) The combined Prospectus for the Funds dated March 1, 1998;
(2) The Statement of Additional Information of High Yield dated March 1,
1998; and
(3) Pro forma combining financial statements (unaudited) of the Fund and
High Yield as of June 30, 1998.
This Statement of Additional Information also consists of the following
documents, each of which is incorporated by reference herein as follows:
(1) The Annual Report of the Fund and High Yield for the fiscal year ended
December 31, 1997 (incorporated by reference herein to the filing thereof
with the SEC on March 4, 1998) and
(2) The Semi-Annual Report of the Fund and High Yield for the six-month
period ended June 30, 1998 (incorporated by reference herein to the
filing thereof with the SEC on August 27, 1998).
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated October 5, 1998 relating to the above-referenced
matter may be obtained from the Northstar High Yield Fund at the number and
address listed above. This Statement of Additional Information relates to, and
should be read in conjunction with, such Proxy Statement/Prospectus.
<PAGE>
THE
NORTHSTAR
FUNDS
PROSPECTUS
March 1, 1998
[Star Graphic]
This prospectus contains important information about investing in the Northstar
Funds. In this prospectus, we have divided our Funds into three categories:
GROWTH FUNDS: Growth Fund, Growth + Value Fund, Special Fund, International
Value Fund and Emerging Markets Value Fund; INCOME AND GROWTH FUNDS: the Income
and Growth Fund and Balance Sheet Opportunities Fund; and INCOME FUNDS: the High
Yield Fund, High Total Return Fund II, Strategic Income Fund and Government
Securities Fund. Please read the prospectus carefully before you invest and keep
it for future reference. Your investment: is not a bank deposit, is not insured
or guaranteed by the FDIC, the Federal Reserve Board or any other government
agency, is affected by market fluctuations -- there is no guarantee that the
funds will achieve their objectives. Like all mutual funds, these securities
have not been approved or disapproved by the Securities and Exchange Commission
or any state securities commission nor has the Securities and Exchange
Commission or any state securities commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
WHAT'S
INSIDE
<TABLE>
<S> <C>
[LOGO] OBJECTIVES
INVESTMENT
[LOGO] STRATEGY
[LOGO] HOLDINGS
[LOGO] RISKS
WHAT
YOU PAY
[LOGO] TO INVEST
HOW THE
FUND HAS
[LOGO] PERFORMED
</TABLE>
These pages contain a description of each of our
funds, including its objective, investment strategy,
types of holdings, risks and portfolio manager(s).
You'll also find:
WHAT YOU PAY TO INVEST. A list of the fees and
expenses you pay -- both directly and indirectly --
when you invest in the fund.
HOW THE FUND HAS PERFORMED.
A chart that shows the fund's financial performance
for up to ten years, by share class.
<TABLE>
<S> <C>
AN INTRODUCTION TO THE
NORTHSTAR FAMILY OF FUNDS 3
NORTHSTAR GROWTH FUNDS
Growth Fund 4
Growth + Value Fund 6
Special Fund 8
International Value Fund 10
Emerging Markets Value Fund 12
NORTHSTAR INCOME AND GROWTH FUNDS
Income and Growth Fund 14
Balance Sheet Opportunities Fund 16
NORTHSTAR INCOME FUNDS
High Yield Fund 18
High Total Return Fund II 20
Strategic Income Fund 22
Government Securities Fund 24
MEET THE PORTFOLIO MANAGERS 26
YOUR GUIDE TO BUYING, SELLING AND
EXCHANGING SHARES OF NORTHSTAR
FUNDS 32
MUTUAL FUND EARNINGS AND YOUR
TAXES 39
THE BUSINESS OF MUTUAL FUNDS 41
THE RISKS OF INVESTING IN MUTUAL
FUNDS 43
WHERE TO GO FOR MORE INFORMATION 47
</TABLE>
<PAGE>
INTRODUCTION TO
THE NORTHSTAR
FAMILY OF FUNDS
Risk is the potential that your investment will lose money or not earn as much
as you hope. All mutual funds have varying degrees of risk, depending on the
securities they invest in. Please read this prospectus carefully to be sure you
understand the risks and potential benefits associated with each of our funds.
This prospectus has been designed to help you make informed decisions about your
investments. As noted below, the Northstar family of funds is divided into three
categories.
[ICON]
GROWTH FUNDS
If you have any questions about the Northstar family of funds or about choosing
suitable investments, please call us at 1-800-595-7827.
Our Growth Funds focus on long-term growth by investing primarily in equities.
They will suit you if you:
- are investing for the long-term -- at least several years
- are willing to accept higher risk in exchange for potentially higher
long-term returns.
INCOME AND GROWTH FUNDS
Our Income and Growth Funds seek income and growth of capital in varying
combinations.
They will suit you if you:
- want both regular income and capital appreciation
- are looking for potentially higher returns than those offered by the Income
Funds, but don't feel comfortable with the level of risk associated with the
Growth Funds.
INCOME FUNDS
Northstar offers both aggressive and conservative Income Funds. Both offer
regular income, but some take higher risks to attain higher returns.
They will suit you if you:
- want a regular stream of income
- want higher potential returns than a money market fund
- are willing to accept more risk than a money market fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
3
<PAGE>
Registrant
NORTHSTAR Northstar Growth
GROWTH Fund
FUND Portfolio manager
Geoffrey Wadsworth
OBJECTIVE
This fund seeks long-term growth of capital by investing primarily in domestic
common stocks.
INVESTMENT
STRATEGY
The fund invests in large and mid-sized companies that the portfolio manager
feels have above average prospects for growth.
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. The fund also holds preferred stocks and convertible securities.
It may invest up to 20% of its net assets in foreign issuers, but only 10% can
be in securities that are not listed on a U.S. securities exchange. It may also
invest in other higher-risk securities and engage in other investment practices.
These are described in the section beginning on page 42.
RISKS
Because it invests in equities, the fund is affected by changes in the stock
market. This fund is also subject to the risks associated with investing in
foreign securities. Please refer to the section beginning on page 42, THE RISKS
OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee % 0.75 0.75 0.75 0.75
12b-1 fee(3) % 0.30 1.00 1.00 0.95
Other expenses % 0.32 0.39 0.42 0.33
TOTAL FUND OPERATING EXPENSES % 1.37 2.14 2.17 2.03
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 61 89 119 204
..........................................................................................................................
Class B
with redemption $ 72 97 135 227(4)
without redemption $ 22 67 115 227(4)
..........................................................................................................................
Class C
with redemption $ 32 68 116 250
without redemption $ 22 68 116 250
..........................................................................................................................
Class T
with redemption $ 61 84 109 219 (5)
without redemption $ 21 64 109 219 (5)
..........................................................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
4 Growth Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS GROWTH
PERFORMED The following Audited by other FUND
[ICON] chart shows the independent
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., these trading
independent symbols: GRWTHA or
accountants. GRWTHT.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(5) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Growth Fund 5
<PAGE>
REGISTRANT
NORTHSTAR Northstar Growth
GROWTH Fund
FUND PORTFOLIO MANAGER
Geoffrey Wadsworth
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 17.92 15.53 17.59 17.76 15.50 17.59
Net investment income (loss) $ 0.03 0.02 0.08 (0.15) (0.06) 0.06
Net realized and unrealized gain on
investments $ 4.16 3.18 1.95 4.17 3.13 1.92
TOTAL FROM INVESTMENT OPERATIONS $ 4.19 3.20 2.03 4.02 3.07 1.98
Dividends from net investment income $ -- -- (0.10) -- -- (0.08)
Dividends from net realized gain on
investments sold $ (0.85) (0.81) (3.99) (0.85) (0.81) (3.99)
TOTAL DISTRIBUTIONS $ (0.85) (0.81) (4.09) (0.85) (0.81) (4.07)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 21.26 17.92 15.53 20.93 17.76 15.50
TOTAL INVESTMENT RETURN(2) % 23.59 20.54 11.55 22.84 19.74 11.27
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 9,334 4,750 1,355 8,815 4,444 1,987
Ratio of expenses to average net assets % 1.37 150 1.42(3) 2.14 2.20 2.07(3)
Ratio of expense reimbursement to
average net assets % 0.03 0.06 -- -- 0.04 --
Ratio of net investment income (loss)
to average net assets % 0.04 0.11 0.63(3) (0.95) (0.55) 0.06(3)
Average commissions per share $ 0.0609 0.0593 -- 0.0609 0.0593 --
Portfolio turnover rate % 32 62 134 32 62 134
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1)
- ----------------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period 17.76 15.50 17.59
Net investment income (loss) (0.13) (0.05) 0.04
Net realized and unrealized gain on
investments 4.13 3.12 1.92
TOTAL FROM INVESTMENT OPERATIONS 4.00 3.07 1.96
Dividends from net investment income -- -- (0.06)
Dividends from net realized gain on
investments sold (0.85) (0.81) (3.99)
TOTAL DISTRIBUTIONS (0.85) (0.81) (4.05)
NET ASSET VALUE AT THE END OF THE
PERIOD 20.91 17.76 15.50
TOTAL INVESTMENT RETURN(2) 22.73 19.74 11.17
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 1,152 365 69
Ratio of expenses to average net assets 2.17 220 2.11(3)
Ratio of expense reimbursement to
average net assets -- 0.15 --
Ratio of net investment income (loss)
to average net assets (1.00) (0.57) 0.02(3)
Average commissions per share 0.0609 0.0593 --
Portfolio turnover rate 32 62 134
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 17.82 15.53 15.75 17.33 16.36 16.37 12.49
Net investment income (loss) $ (0.17) (0.06) 0.07 0.08 0.02 0.02 0.09
Net realized and unrealized gain (loss)
on investments $ 4.22 3.16 3.77 (1.41) 1.67 1.30 4.62
TOTAL FROM INVESTMENT OPERATIONS $ 4.05 3.10 3.84 (1.33) 1.69 1.32 4.71
Dividends from net investment income $ -- -- (0.07) (0.08) (0.04) (0.02) (0.08)
Dividends from net realized gain on
investments sold $ (0.85) (0.81) (3.99) (0.15) (0.67) (1.31) (0.75)
Distributions from capital $ -- -- -- (0.02) (0.01) -- --
TOTAL DISTRIBUTIONS $ (0.85) (0.81) (4.06) (0.25) (0.72) (1.33) (0.83)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 21.02 17.82 15.53 15.75 17.33 16.36 16.37
TOTAL INVESTMENT RETURN(2) % 22.94 19.90 24.40 (7.66) 10.36 8.05 38.10
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 73,674 70,406 76,343 76,391 80,759 56,759 40,884
Ratio of expenses to average net assets % 2.03 2.00 2.00 2.00 2.04 2.15 2.25
Ratio of expense reimbursement to
average net assets % -- 0.04 -- -- -- -- --
Ratio of net investment income (loss)
to average net assets % (0.81) (3.05) 0.37 0.49 0.13 0.09 0.66
Average commissions per share $ 0.0609 0.0593 -- -- -- -- --
Portfolio turnover rate % 32 62 134 54 42 47 64
<CAPTION>
YEAR ENDED DECEMBER 31, 1990 1989 1988
- ----------------------------------------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period 13.85 11.96 10.47
Net investment income (loss) 0.10 0.20 0.16
Net realized and unrealized gain (loss)
on investments (0.83) 2.66 1.58
TOTAL FROM INVESTMENT OPERATIONS (0.73) 2.86 1.74
Dividends from net investment income (0.10) (0.20) (0.17)
Dividends from net realized gain on
investments sold (0.51) (0.76) (0.08)
Distributions from capital (0.02) (0.01) --
TOTAL DISTRIBUTIONS (0.63) (0.97) (0.25)
NET ASSET VALUE AT THE END OF THE
PERIOD 12.49 13.85 11.96
TOTAL INVESTMENT RETURN(2) (5.24) 24.25 16.70
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 24,927 29,842 25,359
Ratio of expenses to average net assets 2.33 2.33 2.46
Ratio of expense reimbursement to
average net assets -- -- --
Ratio of net investment income (loss)
to average net assets 0.80 1.39 1.40
Average commissions per share -- -- --
Portfolio turnover rate 54 75 59
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
6 Growth Fund
<PAGE>
Registrant
NORTHSTAR GROWTH + Northstar Trust
VALUE FUND Portfolio manager
Louis Navellier
OBJECTIVE
This fund seeks capital appreciation by investing in a diversified portfolio of
equity securities.
INVESTMENT
STRATEGY
The fund invests primarily in companies the portfolio manager identifies as
either GROWTH or VALUE through quantitative analysis.
Growth companies have above average earnings or sales growth and higher price to
earnings ratios. Value companies are temporarily undervalued or out of favor,
and tend to have lower price to book ratios, higher earnings or dividend yields
and higher returns on equity. The percentage of fund assets allocated to the two
different kinds of companies varies depending on the portfolio manager's
assessment of economic conditions and investment opportunities.
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. The fund also holds preferred stocks and convertible securities.
It may invest up to 20% of its net assets in foreign issuers, but only 10% can
be in securities that are not listed on a U.S. securities exchange. It may also
invest in other higher-risk securities and engage in other investment practices.
These are described in the section beginning on page 40.
RISKS
Because it invests in equities, the fund is affected by changes in the stock
market. This fund is also subject to the risks associated with investing in
foreign securities. Please refer to the section beginning on page 40, THE RISKS
OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee % 1.00 1.00 1.00
12b-1 fee(3) % 0.30 1.00 1.00
Other expenses % 0.54 0.55 0.56
TOTAL FUND OPERATING EXPENSES % 1.84 2.55 2.56
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 65 103 142 253
..........................................................................................................................
Class B
with redemption $ 76 109 156 271(4)
without redemption $ 26 79 136 271(5)
..........................................................................................................................
Class C
with redemption $ 36 80 136 290
without redemption $ 26 80 136 290
..........................................................................................................................
</TABLE>
- ----------------------------
6 Northstar Growth + Value Fund
<PAGE>
HOW THE
FUND HAS NORTHSTAR GROWTH +
PERFORMED The following The fund's VALUE FUND
[ICON] chart shows the performance is
fund's financial also reported in
performance by national
share class. These newspapers under
figures have been these trading
audited by Coopers symbols: GR+VALA,
& Lybrand L.L.P., GR+VALB or
independent GR+VALC.
accountants.
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Northstar Growth + Value Fund 7
<PAGE>
REGISTRANT
NORTHSTAR GROWTH + Northstar Trust
VALUE FUND PORTFOLIO MANAGER
Louis Navellier
<TABLE>
<CAPTION>
CLASS A(1) CLASS B(1) CLASS C(1)
YEAR ENDED OCTOBER 31, 1997 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 10.00 10.00 10.00
Net investment loss $ (0.05) (0.08) (0.08)
Net realized and unrealized gain on
investments $ 2.20 2.16 2.16
TOTAL FROM INVESTMENT OPERATIONS $ 2.15 2.08 2.08
NET ASSET VALUE AT THE END OF THE PERIOD $ 12.15 12.08 12.08
TOTAL INVESTMENT RETURN(2) % 21.50 20.80 20.80
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period ($000s) $ 34,346 76,608 26,962
Ratio of expenses to average net assets(3) % 1.84 2.55 2.56
Ratio of expense reimbursement to average
net assets(3) % 0.02 0.02 0.02
Ratio of net investment loss to average net
assets(3) % (0.94) (1.68) (1.70)
Average commissions per share $ 0.0394 0.0394 0.0394
Portfolio turnover rate % 144 144 144
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A, B and C commenced operations on November 18, 1996.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
8 Northstar Growth + Value Fund
<PAGE>
Registrant
NORTHSTAR Northstar Special
SPECIAL Fund
FUND Portfolio manager
Louis Navellier
OBJECTIVE
This fund seeks capital appreciation by investing primarily in a diversified
portfolio of domestic equity securities on the basis of their potential for
growth.
INVESTMENT
STRATEGY
The fund focuses on smaller, lesser-known companies, including emerging growth
companies.
HOLDINGS
The fund holds common stocks, preferred stocks, convertible securities, warrants
and other stock purchase rights, private placements and other restricted equity
securities, equity interests in trusts, limited partnerships and joint ventures
and interests in real estate investment trusts. It may invest up to 20% of its
net assets in foreign issuers, but only 10% can be in securities that are not
listed on a U.S. securities exchange. It may also invest in other higher-risk
securities and engage in other investment practices. These are described in the
section beginning on page 40.
RISKS
Because it invests in equities, the fund is affected by changes in the stock
market. This fund is also subject to the risks associated with investing in
smaller companies, emerging growth companies and foreign securities. Please
refer to the section beginning on page 40, THE RISKS OF INVESTING IN MUTUAL
FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee % 0.75 0.75 0.75 0.75
12b-1 fee(3) % 0.30 1.00 1.00 0.95
Other expenses % 0.38 0.40 0.43 0.29
TOTAL FUND OPERATING EXPENSES % 1.43 2.15 2.18 1.99
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 61 91 122 211
..........................................................................................................................
Class B
with redemption $ 72 97 135 230(4)
without redemption $ 22 67 115 230(4)
..........................................................................................................................
Class C
with redemption $ 32 68 117 251
without redemption $ 22 68 117 251
..........................................................................................................................
Class T
with redemption $ 60 82 107 217 (5)
without redemption $ 20 62 107 217 (5)
..........................................................................................................................
</TABLE>
- -------------------------
(1) Except for purchases of $1 million or more, when you sell
8 Special Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS SPECIAL
PERFORMED The following Audited by other FUND
[ICON] chart shows the independent
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., these trading
independent symbols: SPECLA,
accountants. SPECLB, SPECLC or
SPECLT.
any of the shares within 18 months of when you bought them. Please see page 31
for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(5) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Special Fund 9
<PAGE>
REGISTRANT
NORTHSTAR Northstar Special
SPECIAL Fund
FUND PORTFOLIO MANAGER
Louis Navellier
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 24.72 20.92 19.56 24.46 20.84 19.56
Net investment loss $ (0.02) (0.04) (0.09) (0.19) (0.12) (0.12)
Net realized and unrealized gain on
investments $ 3.68 3.84 2.48 3.61 3.74 2.43
TOTAL FROM INVESTMENT OPERATIONS $ 3.66 3.80 2.39 3.42 3.62 2.31
Dividends from net realized gain on
investments sold $ (0.61) -- (1.03) (0.61) -- (1.03)
TOTAL DISTRIBUTIONS $ (0.61) -- (1.03) (0.61) -- (1.03)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 27.77 24.72 20.92 27.77 24.46 20.84
TOTAL INVESTMENT RETURN(2) % 14.92 18.16 12.20 14.10 17.37 11.79
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 78,160 65,660 2,335 169,516 126,859 1,491
Ratio of expenses to average net
assets % 1.43 1.46 1.50(3) 2.15 2.17 2.20(3)
Ratio of expense reimbursement to
average net assets % -- 0.01 -- -- 0.01 0.01
Ratio of net investment loss to
average net assets % (0.07) (0.30) (0.91)(3) (0.78) (1.01) (1.64)(3)
Average commissions per share $ 0.0383 0.0392 -- 0.0383 0.0392 --
Portfolio turnover rate % 175 140 71 175 140 71
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1)
- --------------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 24.46 20.84 19.56
Net investment loss (0.20) (0.13) (0.15)
Net realized and unrealized gain on
investments 3.61 3.75 2.46
TOTAL FROM INVESTMENT OPERATIONS 3.41 3.62 2.31
Dividends from net realized gain on
investments sold (0.61) -- (1.03)
TOTAL DISTRIBUTIONS (0.61) -- (1.03)
NET ASSET VALUE AT THE END OF THE
PERIOD 27.26 24.46 20.84
TOTAL INVESTMENT RETURN(2) 14.06 17.37 11.79
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 51,460 37,342 62
Ratio of expenses to average net
assets 2.18 2.20 21.20(3)
Ratio of expense reimbursement to
average net assets -- 0.01 0.03
Ratio of net investment loss to
average net assets (0.82) (1.03) (1.60)(3)
Average commissions per share 0.0383 0.0392 --
Portfolio turnover rate 175 140 71
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 24.48 20.84 19.64 20.79 17.40 15.74 10.64
Net investment loss $ (0.18) (0.21) (0.34) (0.25) (0.32) (0.33) (0.21)
Net realized and unrealized gain
(loss) on investments $ 3.65 3.85 2.57 (0.76) 3.83 2.61 6.24
TOTAL FROM INVESTMENT OPERATIONS $ 3.47 3.64 2.23 (1.01) 3.51 2.28 6.03
Dividends from net realized gain on
investments sold $ (0.61) -- (1.03) (0.14) (0.12) (0.62) (0.93)
TOTAL DISTRIBUTIONS $ (0.61) -- (1.03) (0.14) (0.12) (0.62) (0.93)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 27.34 24.48 20.84 19.64 20.79 17.40 15.74
TOTAL INVESTMENT RETURN(2) % 14.29 17.47 11.34 (4.86) 20.16 14.54 57.27
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 32,800 35,670 33,557 38,848 28,838 11,336 5,480
Ratio of expenses to average net
assets % 1.99 2.07 2.16 2.16 2.34 2.84 2.95
Ratio of expense reimbursement to
average net assets % -- 0.04 -- -- -- -- 0.74
Ratio of net investment loss to
average net assets % (0.62) (0.89) (1.50) (1.25) (1.66) (2.12) (1.57)
Average commissions per share $ 0.0383 0.0392 -- -- -- -- --
Portfolio turnover rate % 175 140 71 39 35 40 85
<CAPTION>
YEAR ENDED DECEMBER 31, 1990 1989 1988
- --------------------------------------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 11.67 9.55 7.90
Net investment loss (0.20) (0.06) (0.13)
Net realized and unrealized gain
(loss) on investments (0.83) 2.18 1.78
TOTAL FROM INVESTMENT OPERATIONS (1.03) 2.12 1.65
Dividends from net realized gain on
investments sold -- -- --
TOTAL DISTRIBUTIONS -- -- --
NET ASSET VALUE AT THE END OF THE
PERIOD 10.64 11.67 9.55
TOTAL INVESTMENT RETURN(2) (8.83) 22.20 20.89
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 3,024 3,958 3,330
Ratio of expenses to average net
assets 2.95 2.95 2.96
Ratio of expense reimbursement to
average net assets 2.03 1.94 3.05
Ratio of net investment loss to
average net assets (0.97) (0.44) (1.06)
Average commissions per share -- -- --
Portfolio turnover rate 72 85 40
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
10 Special Fund
<PAGE>
Registrant
NORTHSTAR Northstar Trust
INTERNATIONAL Portfolio managers
VALUE FUND Charles Brandes,
Jeff Busby
OBJECTIVE
This fund's investment objective is long-term capital appreciation.
INVESTMENT
STRATEGY
The fund invests primarily in foreign companies with a market capitalization of
greater than $1 billion, but it may hold up to 25% of its assets in companies
with smaller market capitalization.
The portfolio managers apply the technique of "value investing" by seeking
stocks that their research indicates are priced below their long-term value.
This gives the fund both a possible margin of safety against price declines and
an opportunity for profit.
HOLDINGS
The fund holds common stocks, preferred stocks, American, European and Global
depository receipts, as well as convertible securities. It may also invest in
other higher-risk securities and engage in other investment practices. These are
described in the section beginning on page 40.
Under normal circumstances, it will invest at least 65% of its total assets in
securities of companies located in at least three countries other than the U.S.,
located in Western Europe, North and South America, Australia, Asia and other
nations. The fund may invest the greater of either 20% of its assets in any one
country or industry or 150% of the weighting of such country represented in the
Morgan Stanley Capital International European Australasian Far Eastern (MSCI
EAFE) Index, subject to any and all restrictions regarding industry
concentration or diversification requirements under the Investment Company Act.
RISKS
Because it invests in equities, the fund is affected by changes in the stock
market. It is also subject to the risks associated with investing in smaller
companies, foreign securities and emerging markets. Please refer to the section
beginning on page 40, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your initial
investment (as a % of offering price) % 4.75 none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee % 1.00 1.00 1.00
12b-1 fee(3) % 0.30 1.00 1.00
Other expenses % 0.50 0.50 0.50
TOTAL FUND OPERATING EXPENSES % 1.80 2.50 2.50
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 65 101 140 249
................................................................................
Class B
with redemption $ 75 108 153 266(4)
without redemption $ 25 78 133 266(4)
................................................................................
Class C
with redemption $ 35 78 133 284
without redemption $ 25 78 133 284
................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
10 International Value Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS INTERNATIONAL
PERFORMED The following The 1995 and 1996 VALUE FUND
[ICON] chart shows the figures have been
fund's financial audited by Ernst &
performance by Young, L.L.P. The
share class.(1) fund's performance
The 1997 figures is also reported
have been audited in national
by Coopers & newspapers under
Lybrand L.L.P., these trading
independent symbols: INTVALA,
accountants. INTVALB or
INTVALC.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
YEAR ENDED OCTOBER 31, 1997 1996 1995(1) 1997(2) 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the
beginning of the period $ 9.05 8.10 7.64 10.00 8.93 8.05 7.61
Net investment income (loss) $ (0.09) 0.14 0.09 (0.02) (0.06) 0.05 0.06
Net realized and unrealized
gain on investments $ 2.30 0.85 0.37 0.89 2.20 0.86 0.38
TOTAL FROM INVESTMENT
OPERATIONS $ 2.21 0.99 0.46 0.87 2.14 0.91 0.44
Dividends from net investment
income $ (0.14) (0.04) -- 0.00 (0.04) (0.03) --
Dividends from net realized
gain on investments sold $ (0.22) -- -- 0.00 (0.17) -- --
TOTAL DISTRIBUTIONS $ (0.36) (0.04) -- 0.00 (0.21) (0.03) --
NET ASSET VALUE AT THE END OF
THE PERIOD $ 10.90 9.05 8.10 10.87 10.86 8.93 8.05
TOTAL INVESTMENT RETURN(3) % 27.59 12.15 9.39(4) 8.70 25.92 11.39 8.89(4)
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) $ 60,539 16,777 5,188 59,185 62,103 14,530 5,749
Ratio of expenses to average
net assets % 1.80(4) 1.85 1.85(4) 2.50(4) 2.50(4) 2.50 2.50(4)
Ratio of expense
reimbursement to average net
assets % 0.27(4) 0.97 6.08(4) 0.08(4) 0.24(4) 1.21 6.08(4)
Ratio of net investment
income to average net assets % 0.46(4) 1.52 1.67(4) (0.71)(4) (0.23)(4) 0.62 1.13(4)
Average commissions per share $ 0.0218 0.0314 -- 0.0218 0.0218 0.0314 --
Portfolio turnover rate % 26 74 -- 26 26 74 --
</TABLE>
- --------------------------------------------------------------------------------
(1) The mutual fund commenced operations on March 6, 1995 as the Brandes
International Fund, a series of the Brandes Investment Trust. At the close
of business on April 18, 1997 (the "Closing"), the Northstar International
Value Fund ("International Value Fund") acquired the net assets of the
Brandes International Fund, pursuant to an Agreement of Reorganization dated
February 4, 1997. In accordance with the agreement, the International Value
Fund, at the closing, issued 4,152,725 shares having an aggregate value of
$41,569,860 which included unrealized appreciation on investments of
$4,321,823. As a result, the International Value Fund issued 1.637 shares
for each Brandes International Fund Class A share and 1.643 shares for each
Brandes International Fund Class C share. The transaction was structured for
tax purposes to qualify as a tax-free reorganization under the Internal
Revenue Code. Directly after the merger the combined net assets in the
International Value Fund were $41,569,860 with a net asset value of $10.00
for Class A and Class C shares. On April 21, 1997, the Brandes International
Fund was reorganized as the Northstar International Value Fund.
(2) Class B commenced operations on April 18, 1997.
(3) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(4) Annualized.
[ICON]
If you have any questions, please call 1-800-595-7827.
International Value Fund 11
<PAGE>
Registrant
NORTHSTAR Northstar Trust
EMERGING Portfolio managers
MARKETS VALUE FUND Charles Brandes,
Ian Sunder
OBJECTIVE
This fund's investment objective is long-term capital appreciation.
INVESTMENT
STRATEGY
The fund invests primarily in companies located in countries with emerging
markets.
The portfolio managers apply the technique of "value investing" by seeking
stocks that their research indicates are priced below their long-term value.
This gives the fund both a possible margin of safety against price declines and
an opportunity for profit.
HOLDINGS
The fund holds primarily common stocks, preferred stocks, American, European and
Global depository receipts, shares of closed-end investment companies, as well
as convertible securities. It may also invest in other higher-risk securities
and engage in other investment practices. These are described in the section
beginning on page 42.
Under normal market conditions, it will invest at least 65% of its total assets
in securities of companies located in countries with emerging markets. Countries
with emerging markets include those countries that are generally considered to
be emerging countries by the international financial community. The fund may
invest the greater of either 20% of its assets in any one country or industry or
150% of the weighting of such country or industry represented in the Morgan
Stanley Capital International Emerging Markets Free (MSCI EMF) Index, subject to
any and all restrictions regarding industry concentration or diversification
requirements under the Investment Company Act.
RISKS
Because it invests in equities, the fund is affected by changes in stock
markets. It is also subject to the risks associated with investing in smaller
companies, foreign securities and emerging markets. Please refer to the section
beginning on page 42, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares,
and operating expenses paid each year by the fund.
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your initial
investment (as a % of offering price) % 4.75 none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee(3) % 1.00 1.00 1.00
12b-1 fee(4) % 0.30 1.00 1.00
Other expenses(3) % 0.50 0.50 0.50
TOTAL FUND OPERATING EXPENSES(3) % 1.80 2.50 2.50
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average return of 5%, and
annual operating expenses remained at the current level. Keep in mind that this
is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 65 101 140 249
................................................................................
Class B
with redemption $ 75 108 153 266(5)
without redemption $ 25 78 133 266(5)
................................................................................
Class C
with redemption $ 35 78 133 284
without redemption $ 25 78 133 284
................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 33 for details.
(2) This charge decreases over time. Please see page 33 for details.
- -------------------------------
(3) The adviser, subadviser and administrator have agreed to waive or reimburse
fees until the net assets of the fund exceed $25 million or until April 1,
1998, whichever comes first. These figures are after the adviser reimbursed
certain expenses. Before reimbursement, management fee would have been 1.00%
for Class A, Class B and Class C; other expenses would have been 0.70% for
Class A, Class B and Class C; and total fund operating expenses would have
been 2.00% for Class A and 2.70% for Class B and Class C.
(4) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- -------------------------------
(5) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
<PAGE>
(This page intentionally left blank.)
[ICON]
If you have any questions, please call 1-800-595-7827.
13
<PAGE>
NORTHSTAR Registrant
INCOME AND Northstar Trust
GROWTH FUND Portfolio manager
Geoffrey Wadsworth
OBJECTIVE
This fund seeks current income balanced with capital appreciation primarily by
investing in dividend paying equity securities, convertible securities, and
investment grade debt securities.
INVESTMENT
STRATEGY
The fund invests in a mix of equity and investment grade debt securities
designed to provide both current income and long-term growth of capital.
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in income-producing securities. It generally holds no more than 30% of
its assets in convertible securities. It may invest up to 20% of its net assets
in foreign issuers, but only 10% can be in securities that are not listed on a
U.S. securities exchange. The fund may invest in interests in real estate
investment trusts. It may also invest in other higher-risk securities and engage
in other investment practices. These are described in the section beginning on
page 40.
RISKS
Because it is an income and growth fund, the fund is affected by changes in
interest rates. It is also subject to the risks associated with investing in
foreign securities. Please refer to the section beginning on page 40, THE RISKS
OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your initial
investment (as a % of offering price) % 4.75 none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee(3) % 0.75 0.75 0.75
12b-1 fee(4) % 0.30 1.00 1.00
Other expenses % 0.42 0.43 0.40
TOTAL FUND OPERATING EXPENSES % 1.47 2.18 2.15
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 62 92 124 215
................................................................................
Class B
with redemption $ 72 98 137 233(5)
without redemption $ 22 68 117 233(5)
................................................................................
Class C
with redemption $ 32 67 115 248
without redemption $ 22 67 115 248
................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) This is the maximum management fee. The actual fee charged reduces with
asset size: 0.75% on the first $250 million, 0.70% on the next $250 million,
0.65% on the next $250 million, 0.60% on the next $250 million and 0.55% on
assets over $1 billion.
(4) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(5) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
14 Income and Growth Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS INCOME AND
PERFORMED The following The fund's GROWTH FUND
[ICON] chart shows the performance is
fund's financial also reported in
performance by national
share class. These newspapers under
figures have been these trading
audited by Coopers symbols: INCGRA,
& Lybrand L.L.P., INCGRB or INCGRC.
independent
accountants.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
YEAR ENDED OCTOBER 31, 1997 1996 1995 1994(1) 1997 1996 1995 1994(1) 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the
beginning of the period $ 12.16 10.86 10.00 10.00 12.13 10.84 9.99 10.64 12.12
Net investment income $ 0.38 0.32 0.35 0.30 0.27 0.24 0.27 0.20 0.28
Net realized and unrealized
gain (loss) on investments $ 1.53 1.29 0.84 (0.05) 1.55 1.28 0.85 (0.65) 1.54
TOTAL FROM INVESTMENT
OPERATIONS $ 1.91 1.61 1.19 0.25 1.82 1.52 1.12 (0.45) 1.82
Dividends from net investment
income $ (0.34) (0.31) (0.33) (0.25) (0.25) (0.23) (0.27) (0.20) (0.26)
Dividends from net realized
gain on investments sold $ (1.26) -- -- -- (1.26) -- -- -- (1.26)
TOTAL DISTRIBUTIONS $ (1.60) (0.31) (0.33) (0.25) (1.51) (0.23) (0.27) (0.20) (1.52)
NET ASSET VALUE AT THE END OF
THE PERIOD $ 12.47 12.16 10.86 10.00 12.44 12.13 10.84 9.99 12.42
TOTAL INVESTMENT RETURN(2) % 17.02 14.48 13.19 2.48 15.06 13.60 12.31 (4.20) 15.04
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) $ 53,805 85,250 76,031 72,223 73,829 71,123 60,347 37,767 69,494
Ratio of expenses to average
net assets % 1.47 1.52 1.51 1.50(3) 2.18 2.26 2.23 2.20(3) 2.15
Ratio of expense
reimbursement to average net
assets % -- -- -- 0.47(3) -- -- -- 0.16(3) --
Ratio of net investment
income to average net assets % 2.90 2.78 3.39 3.73(3) 2.18 2.04 2.66 3.00(3) 2.21
Average commissions per share $ 0.0600 0.0600 -- -- 0.0600 0.0600 -- -- 0.0600
Portfolio turnover rate % 56 147 91 26 56 147 91 26 56
<CAPTION>
YEAR ENDED OCTOBER 31, 1996 1995 1994(1)
- ------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the
beginning of the period 10.83 9.99 10.37
Net investment income 0.24 0.27 0.20
Net realized and unrealized
gain (loss) on investments 1.28 0.85 (0.38)
TOTAL FROM INVESTMENT
OPERATIONS 1.52 1.12 (0.18)
Dividends from net investment
income (0.23) (0.28) (0.20)
Dividends from net realized
gain on investments sold -- -- --
TOTAL DISTRIBUTIONS (0.23) (0.28) (0.20)
NET ASSET VALUE AT THE END OF
THE PERIOD 12.12 10.83 9.99
TOTAL INVESTMENT RETURN(2) 13.68 12.33 (1.75)
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) 60,458 53,661 4,823
Ratio of expenses to average
net assets 2.20 2.22 2.20(3)
Ratio of expense
reimbursement to average net
assets -- -- 0.06(3)
Ratio of net investment
income to average net assets 2.10 2.67 2.87(3)
Average commissions per share 0.0600 -- --
Portfolio turnover rate 147 91 26
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A commenced operations on November 8, 1993. Class B commenced
operations on February 9, 1994. Class C commenced operations on March 31,
1994.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[ICON]
If you have any questions, please call 1-800-595-7827.
Income and Growth Fund 15
<PAGE>
Registrant
NORTHSTAR Northstar Balance
BALANCE SHEET Sheet
OPPORTUNITIES Opportunities Fund
FUND Portfolio manager
Thomas Ole Dial
OBJECTIVE
This fund seeks income, with a secondary objective of capital appreciation,
primarily by investing in domestic debt and equity securities.
INVESTMENT
STRATEGY
The portfolio manager reviews various factors relating to a potential issuer,
especially its financial statements, to determine which type of security -- debt
or equity -- offers the best potential for high current income combined with the
potential for capital growth.
HOLDINGS
Under normal market conditions, the fund invests at least 51% of its total
assets in income-producing securities. It may hold up to 50% of its assets in
debt securities rated as low as B by Moody's or S&P (junk bonds). Equity
securities include common stocks, preferred stocks, convertible securities and
warrants and other stock purchase rights. Income-producing securities have
varying maturities and pay fixed, floating or adjustable interest rates. The
fund may also hold pay-in-kind securities and discount obligations, including
zero coupon securities. The fund may invest up to 20% of its net assets in
foreign issuers, but only 10% of its net assets can be in securities that are
not listed on a U.S. securities exchange. It may also invest in other
higher-risk securities and engage in other investment practices. These are
described in the section beginning on page 40.
RISKS
Because it is an income and growth fund, the fund is affected by changes in
interest rates. It is also subject to the risks associated with investing in
junk bonds and foreign securities. Please refer to the section beginning on page
40, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee % 0.65 0.65 0.65 0.65
12b-1 fee(3) % 0.30 1.00 1.00 0.75
Other expenses % 0.55 0.50 0.60 0.43
TOTAL FUND OPERATING EXPENSES % 1.50 2.15 2.25 1.83
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 62 93 125 218
..........................................................................................................................
Class B
with redemption $ 72 97 135 232(4)
without redemption $ 22 67 115 232(4)
..........................................................................................................................
Class C
with redemption $ 33 70 120 258
without redemption $ 23 70 120 258
..........................................................................................................................
Class T
with redemption $ 59 78 99 206 (5)
without redemption $ 19 58 99 206 (5)
..........................................................................................................................
</TABLE>
- ----------------------------
16 Balance Sheet Opportunities Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS BALANCE SHEET
PERFORMED The following Audited by other OPPORTUNITIES
[ICON] chart shows the independent FUND
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., this trading
independent symbol: BASHOPT.
accountants.
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(5) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Balance Sheet Opportunities Fund 17
<PAGE>
REGISTRANT
NORTHSTAR Northstar Balance
BALANCE SHEET Sheet
OPPORTUNITIES Opportunities Fund
FUND PORTFOLIO MANAGER
Thomas Ole Dial
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 11.78 12.53 12.77 11.74 12.51 12.77
Net investment income $ 0.52 0.56 0.43 0.44 0.50 0.35
Net realized and unrealized gain on
investments $ 2.27 0.74 1.06 2.25 0.71 1.09
TOTAL FROM INVESTMENT OPERATIONS $ 2.79 1.30 1.49 2.69 1.21 1.44
Dividends from net investment income $ (0.54) (0.57) (0.48) (0.46) (0.50) (0.45)
Dividends from net realized gain on
investments sold $ (1.03) (1.48) (1.25) (1.03) (1.48) (1.25)
TOTAL DISTRIBUTIONS $ (1.57) (2.05) (1.73) (1.49) (1.98) (1.70)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 13.00 11.78 12.53 12.94 11.74 12.51
TOTAL INVESTMENT RETURN(2) % 24.31 10.54 11.95 23.48 9.76 11.56
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 1,281 1,100 797 4,969 3,765 1,759
Ratio of expenses to average net
assets % 1.50 1.40 1.27(3) 2.15 2.10 1.95(3)
Ratio of expense reimbursement to
average net assets % 0.02 0.09 -- 0.02 0.07 --
Ratio of net investment income to
average net assets % 4.01 4.30 4.99(3) 3.37 3.64 4.38(3)
Average commissions per share $ 0.0629 0.0690 -- 0.0629 0.0690 --
Portfolio turnover rate % 130 107 131 130 107 131
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1)
- --------------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 11.75 12.52 12.77
Net investment income 0.43 0.49 0.38
Net realized and unrealized gain on
investments 2.25 0.70 1.07
TOTAL FROM INVESTMENT OPERATIONS 2.68 1.19 1.45
Dividends from net investment income (0.45) (0.48) (0.45)
Dividends from net realized gain on
investments sold (1.03) (1.48) (1.25)
TOTAL DISTRIBUTIONS (1.48) (1.96) 1.70
NET ASSET VALUE AT THE END OF THE
PERIOD 12.95 11.75 12.52
TOTAL INVESTMENT RETURN(2) 23.41 9.72 11.49
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 756 372 231
Ratio of expenses to average net
assets 2.25 2.10 1.91(3)
Ratio of expense reimbursement to
average net assets -- 0.10 --
Ratio of net investment income to
average net assets 3.30 3.61 4.49(3)
Average commissions per share 0.0629 0.0690 --
Portfolio turnover rate 130 107 131
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 11.79 12.54 11.54 12.94 12.05 11.66 10.13
Net investment income $ 0.50 0.53 0.57 0.57 0.49 0.55 0.57
Net realized and unrealized gain
(loss) on investments $ 2.24 0.73 2.27 (1.25) 1.20 0.36 1.53
TOTAL FROM INVESTMENT OPERATIONS $ 2.74 1.26 2.84 (0.68) 1.69 0.91 2.10
Dividends from net investment income $ (0.49) (0.53) (0.59) (0.54) (0.49) (0.52) (0.57)
Dividends from net realized gain on
investments sold $ (1.03) (1.48) (1.25) (0.16) (0.31) -- --
Distributions from capital $ -- -- -- (0.02) -- -- --
TOTAL DISTRIBUTIONS $ (1.52) (2.01) (1.84) (0.72) (0.80) (0.52) (0.57)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 13.01 11.79 12.54 11.54 12.94 12.05 11.66
TOTAL INVESTMENT RETURN(2) % 23.91 10.18 25.11 (5.33) 14.08 8.06 21.17
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 53,201 59,490 72,472 73,764 80,841 56,823 49,367
Ratio of expenses to average net
assets % 1.83 1.69 1.68 1.69 1.77 2.02 2.06
Ratio of expense reimbursement to
average net assets % 0.04 0.06 -- -- -- -- --
Ratio of net investment income to
average net assets % 3.70 3.99 4.44 4.36 3.99 4.73 5.21
Average commissions per share $ 0.0629 0.0690 -- -- -- -- --
Portfolio turnover rate % 130 107 131 59 38 59 77
<CAPTION>
YEAR ENDED DECEMBER 31, 1990 1989 1988
- --------------------------------------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 10.71 9.71 9.11
Net investment income 0.61 0.68 0.62
Net realized and unrealized gain
(loss) on investments (0.54) 1.00 0.58
TOTAL FROM INVESTMENT OPERATIONS 0.07 1.68 1.20
Dividends from net investment income (0.63) (0.68) (0.60)
Dividends from net realized gain on
investments sold -- -- --
Distributions from capital (0.02) -- --
TOTAL DISTRIBUTIONS (0.65) (0.68) (0.60)
NET ASSET VALUE AT THE END OF THE
PERIOD 10.13 10.71 9.71
TOTAL INVESTMENT RETURN(2) 0.78 17.70 13.39
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 44,750 58,006 57,425
Ratio of expenses to average net
assets 2.10 2.04 2.10
Ratio of expense reimbursement to
average net assets -- -- --
Ratio of net investment income to
average net assets 5.73 6.38 6.30
Average commissions per share -- -- --
Portfolio turnover rate 57 56 25
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
18 Balance Sheet Opportunities Fund
<PAGE>
Registrant
NORTHSTAR Northstar High
HIGH YIELD Yield Fund
FUND Portfolio manager
Jeffrey Aurigemma
OBJECTIVE
This fund seeks high current income by investing primarily in long-term and
intermediate-term fixed income securities, with emphasis on high-yield corporate
debt instruments of domestic and foreign issuers.
INVESTMENT
STRATEGY
The fund invests mostly in high-yield bonds (junk bonds) to achieve high current
income.
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in high-yield or junk bonds rated below investment grade. It can hold up
to 100% of its assets in debt securities rated as low as Ca by Moody's or CC by
S&P or in securities that aren't rated but Northstar considers to be of
equivalent quality, and up to 1% of its assets in bonds in the lowest rating
categories. It may invest up to 35% of its net assets in foreign issuers, but
only 10% can be in securities that are not listed on a U.S. securities exchange.
The fund may also hold up to 25% of its assets in equity or equity-related
instruments, such as preferred stocks, convertible securities and rights and
warrants associated with debt instruments. It may also invest in other
higher-risk securities and engage in other investment practices. These are
described in the section beginning on page 40.
RISKS
Because it is an income fund, the fund is affected by changes in interest rates.
It is also subject to the risks associated with investing in lower-rated bonds
that are speculative in nature and foreign securities. Please refer to the
section beginning on page 40, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee % 0.60 0.60 0.60 0.60
12b-1 fee(3) % 0.30 1.00 1.00 0.65(4)
Other expenses % 0.30 0.31 0.32 0.22
TOTAL FUND OPERATING EXPENSES % 1.20 1.91 1.92 1.47
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 59 84 110 186
..........................................................................................................................
Class B
with redemption $ 69 90 123 205(5)
without redemption $ 19 60 103 205(5)
..........................................................................................................................
Class C
with redemption $ 29 60 104 224
without redemption $ 19 60 104 224
..........................................................................................................................
Class T
with redemption $ 55 66 80 168 (6)
without redemption $ 15 46 80 168 (6)
..........................................................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
(4) The Class T 12b-1 Plan provides for payments up to 0.95%.
- ----------------------------
(5) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(6) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
18 High Yield Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS HIGH YIELD
PERFORMED The following Audited by other FUND
[ICON] chart shows the independent
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., these trading
independent symbols: HIYLDB or
accountants. HIYLDT.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
High Yield Fund 19
<PAGE>
REGISTRANT
NORTHSTAR Northstar High
HIGH YIELD Yield Fund
FUND PORTFOLIO MANAGER
Jeffrey Aurigemma
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 8.94 8.56 8.68 8.95 8.57 8.68
Net investment income $ 0.73 0.76 0.48 0.67 0.71 0.44
Net realized and unrealized gain
(loss) on investments $ 0.23 0.44 (0.10) 0.23 0.43 (0.09)
TOTAL FROM INVESTMENT OPERATIONS $ 0.96 1.20 0.38 0.90 1.14 0.35
Dividends from net investment income $ (0.76) (0.75) (0.50) (0.70) (0.69) (0.46)
Dividends from capital $ -- (0.07) -- -- (0.07) --
TOTAL DISTRIBUTIONS $ (0.76) (0.82) (0.50) (0.70) (0.76) (0.46)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 9.14 8.94 8.56 9.15 8.95 8.57
TOTAL INVESTMENT RETURN(2) % 11.18 14.74 4.48 10.38 13.94 4.17
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 16,213 13,146 7,466 108,469 79,199 29,063
Ratio of expenses to average net
assets % 1.20 1.11 1.02(4) 1.91 1.81 1.71(4)
Ratio of net investment income to
average net assets % 8.06 8.60 9.83(4) 7.35 7.88 9.18(4)
Average commissions per share $ -- 0.0777 -- -- 0.0777 --
Portfolio turnover rate % 134 128 103 134 128 103
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1)
- --------------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 8.95 8.57 8.68
Net investment income 0.67 0.72 0.44
Net realized and unrealized gain
(loss) on investments 0.23 0.42 (0.09)
TOTAL FROM INVESTMENT OPERATIONS 0.90 1.14 0.35
Dividends from net investment income (0.70) (0.76) (0.46)
Dividends from capital -- (0.07) --
TOTAL DISTRIBUTIONS (0.70) (0.76) (0.46)
NET ASSET VALUE AT THE END OF THE
PERIOD 9.15 8.95 8.57
TOTAL INVESTMENT RETURN(2) 10.37 13.93 4.17
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 21,393 14,275 3,410
Ratio of expenses to average net
assets 1.92 1.82 1.72(4)
Ratio of net investment income to
average net assets 7.35 7.85 9.29(4)
Average commissions per share -- 0.0777 --
Portfolio turnover rate 134 128 103
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 8.94 8.56 8.29 9.31 9.09 7.94 6.27
Net investment income $ 0.71 0.73 0.84 0.81 0.85 0.92 1.08
Net realized and unrealized gain
(loss) on investments $ 0.23 0.45 0.26 (0.99) 0.80 1.19 1.67
TOTAL FROM INVESTMENT OPERATIONS $ 0.94 1.18 1.10 (0.18) 1.65 2.11 2.75
Dividends from net investment income $ (0.74) (0.73) (0.83) (0.83) (0.83) (0.94) (1.08)
Dividends from net realized gain $ -- -- -- (0.01) (0.60) (0.02) --
Distributions from capital $ -- (0.07) -- -- -- -- --
TOTAL DISTRIBUTIONS $ (0.74) (0.80) (0.83) (0.84) (1.43) (0.96) (1.08)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 9.14 8.94 8.56 8.29 9.31 9.09 7.94
TOTAL INVESTMENT RETURN(2) % 10.86 14.49 13.71 (2.18) 18.89 27.57 46.49
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 109,320 124,431 139,711 136,426 125,095 64,063 25,651
Ratio of expenses to average net
assets % 1.47 1.31 1.33 1.34 1.40 1.50 1.50
Ratio of expense reimbursement to
average net assets % -- -- -- -- -- 0.05 0.46
Ratio of net investment income (loss)
to average net assets % 7.77 8.43 9.69 9.08 8.84 10.30 14.84
Average commissions per share $ -- 0.0777 -- -- -- -- --
Portfolio turnover rate % 134 128 103 86 176 122 57
<CAPTION>
YEAR ENDED DECEMBER 31, 1990 1989(3)
- --------------------------------------
<S> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 8.55 10.00
Net investment income 1.12 0.60
Net realized and unrealized gain
(loss) on investments (2.30) (1.45)
TOTAL FROM INVESTMENT OPERATIONS (1.18) (0.85)
Dividends from net investment income (1.10) (0.60)
Dividends from net realized gain -- --
Distributions from capital -- --
TOTAL DISTRIBUTIONS (1.10) (0.60)
NET ASSET VALUE AT THE END OF THE
PERIOD 6.27 8.55
TOTAL INVESTMENT RETURN(2) (14.59) (8.81)
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 11,342 11,045
Ratio of expenses to average net
assets 1.44 1.35(4)
Ratio of expense reimbursement to
average net assets 0.81 1.30(4)
Ratio of net investment income (loss)
to average net assets 15.15 11.44(4)
Average commissions per share -- --
Portfolio turnover rate 156 40
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Class T commenced operations on May 30, 1989.
(4) Annualized.
20 High Yield Fund
<PAGE>
Registrant
NORTHSTAR Northstar Trust
HIGH TOTAL Portfolio managers
RETURN FUND II Thomas Ole Dial,
Jeffrey Aurigemma
OBJECTIVE
This fund seeks high income and capital appreciation.
INVESTMENT
STRATEGY
The fund invests primarily in higher-yielding, lower-rated bonds (junk bonds) to
achieve high current income with potential for capital growth.
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of
U.S. and foreign issuers. It may also invest up to 35% of its total assets in
securities denominated in foreign currencies. No more than 50% of its assets can
be in securities of foreign issuers, including 35% in emerging market debt. Most
of the debt securities the fund invests in are lower-rated and considered
speculative, including bonds in the lowest rating categories and unrated bonds.
It can invest up to 10%, and can hold up to 25% of its assets in securities
rated below Caa by Moody's or CCC by S&P. It also holds debt securities that pay
fixed, floating or adjustable interest rates and may hold pay-in-kind securities
and discount obligations, including zero coupon securities. The fund may also
invest in equity or equity-related securities, such as common stock, preferred
stock, convertible securities and rights and warrants attached to debt
instruments. It may also invest in other higher-risk securities and engage in
other investment practices. These are described in the section beginning on page
40.
RISKS
Because it is an income fund, the fund is affected by changes in interest rates.
It is also subject to the risks associated with investing in lower-rated bonds
that are speculative in nature and foreign securities. Please refer to the
section beginning on page 40, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your
initial
investment (as a % of
offering price) % 4.75 none none
Maximum deferred sales
charge % none(1) 5.00(2) 1.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee % 0.75 0.75 0.75
12b-1 fee(3) % 0.30 1.00 1.00
Other expenses % 0.21 0.20 0.20
TOTAL FUND OPERATING EXPENSES % 1.26 1.95 1.95
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 60 86 113 193
................................................................................
Class B
with redemption $ 70 91 125 209(4)
without redemption $ 20 61 105 209(4)
................................................................................
Class C
with redemption $ 30 61 105 227
without redemption $ 20 61 105 227
................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
- ----------------------------
(4) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
<PAGE>
HOW THE NORTHSTAR
FUND HAS HIGH TOTAL
PERFORMED The following The fund's RETURN FUND II
chart shows the performance is [ICON]
fund's financial also reported in
performance by national
share class. These newspapers under
figures have been this trading
audited by Coopers symbol: HTR 2 B.
& Lybrand L.L.P.,
independent
accountants.
<TABLE>
<CAPTION>
CLASS A(1) CLASS B(1) CLASS C(1)
YEAR ENDED OCTOBER 31, 1997 1997 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the
beginning of the period $ 5.00 5.00 5.00
Net investment income $ 0.28 0.25 0.25
Net realized and unrealized
loss on investments $ 0.53 0.53 0.54
TOTAL FROM INVESTMENT
OPERATIONS $ 0.81 0.78 0.79
Dividends from net investment
income $ (0.28) (0.25) (0.25)
DIVIDENDS FROM NET REALIZED
GAIN (LOSS) ON INVESTMENTS
SOLD $ (0.04) (0.04) (0.04)
TOTAL DISTRIBUTIONS $ (0.32) (0.29) (0.29)
NET ASSET VALUE AT THE END OF
THE PERIOD $ 5.49 5.49 5.50
TOTAL INVESTMENT RETURN(2) % 16.53 15.91 16.12
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the
period ($000s) $ 8,548 38,076 12,334
Ratio of expenses to average
net assets(3) % 1.26 1.95 1.95
Ratio of expense
reimbursement to average net
assets(3) % 3.36 0.75 0.78
Ratio of net investment
income to average net
assets(3) % 5.89 5.20 5.17
Portfolio turnover rate % 164 164 164
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B and C commenced operations on January 31, 1997.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[ICON]
If you have any questions, please call 1-800-595-7827.
High Total Return Fund II 21
<PAGE>
Registrant
NORTHSTAR Northstar
STRATEGIC Strategic Income
INCOME Fund
FUND Portfolio manager
Ryan Johanson
OBJECTIVE
This fund seeks high current income and a net asset value with limited
volatility by allocating substantially all of its assets among (i) U.S.
Government Securities, (ii) high-yield securities, including preferred stocks,
convertible securities, zero coupon, pay-in-kind securities and lower-rated
foreign government securities, (iii) investment grade corporate debt securities,
and (iv) investment grade securities (or unrated securities that Northstar
determines to be of equivalent quality) issued by foreign governments or their
agencies or instrumentalities, or supranational entities.
INVESTMENT
STRATEGY
The portfolio manager rotates the allocation of assets between the four sectors
based on the economic outlook, to maximize current income without assuming undue
risk. To control risk, the fund will never allocate more than 60% of its assets
to a single sector.
HOLDINGS
In addition to the securities listed above, the fund holds debt securities rated
as low as Ca by Moody's or CC by S&P or in securities that aren't rated but
Northstar considers to be equivalent quality (junk bonds). Up to 10% of the
assets allocated to the high-yield sector can be in bonds in the lowest rating
categories (C by Moody's and D by S&P) including bonds in default. It may also
invest in other higher-risk securities and engage in other investment practices.
These are described in the section beginning on page 40.
RISKS
Because it is an income fund, the fund is affected by changes in interest rates.
It is also subject to the risks associated with investing in junk bonds and
foreign securities, but the fund also attempts to limit these risks by investing
in less volatile securities. Please refer to the section beginning on page 40,
THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a %
of offering price) % 4.75 none none none
Maximum deferred sales
charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee % 0.65 0.65 0.65 0.65
12b-1 fee(3) % 0.30 1.00 1.00 0.95(4)
Other expenses % 0.50 0.53 0.52 0.43
TOTAL FUND OPERATING
EXPENSES % 1.45 2.18 2.17 2.03
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 62 91 123 213
..........................................................................................................................
Class B
with redemption $ 72 98 137 233(5)
without redemption $ 22 68 117 233(5)
..........................................................................................................................
Class C
with redemption $ 32 68 116 250
without redemption $ 22 68 116 250
..........................................................................................................................
Class T
with redemption $ 61 84 109 221 (6)
without redemption $ 21 64 109 221 (6)
..........................................................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
(4) The Class T 12b-1 Plan provides for payments up to 1.00%.
- ----------------------------
(5) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
22 Strategic Income Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS STRATEGIC
PERFORMED The following Audited by other INCOME
[ICON] chart shows the independent FUND
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., these trading
independent symbols: STRINCA,
accountants. STRINCB or STRINT.
(6) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Strategic Income Fund 23
<PAGE>
REGISTRANT
NORTHSTAR Northstar
STRATEGIC Strategic Income
INCOME Fund
FUND PORTFOLIO MANAGER
Ryan Johanson
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 12.67 12.40 12.24 12.67 12.39 12.24
Net investment income $ 1.00 0.93 0.63 0.87 0.85 0.55
Net realized and unrealized gain (loss) on
investments $ (0.69) 0.35 0.13 (0.66) 0.36 0.15
TOTAL FROM INVESTMENT OPERATIONS $ 0.31 1.28 0.76 0.21 1.21 0.70
Dividends from net investment income $ (0.94) (1.01) (0.60) (0.85) (0.93) (0.55)
TOTAL DISTRIBUTIONS $ (0.94) (1.01) (0.60) (0.85) (0.93) (0.55)
NET ASSET VALUE AT THE END OF THE PERIOD $ 12.04 12.67 12.40 12.03 12.67 12.39
TOTAL INVESTMENT RETURN(2) % 2.50 10.88 6.40 1.67 10.18 5.89
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 12,523 17,293 21,790 29,921 30,733 22,143
Ratio of expenses to average net assets % 1.45 1.40 1.36 (3) 2.18 2.10 2.06(3)
Ratio of expense reimbursement to average
net assets % 0.03 0.05 0.07 (3) 0.02 0.09 0.06(3)
Ratio of net investment income to average
net assets % 7.75 7.55 7.03 (3) 7.02 6.82 6.47(3)
Portfolio turnover rate % 225 130 153 225 130 153
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1)
- -------------------------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period 12.65 12.38 12.24
Net investment income 0.88 0.85 0.55
Net realized and unrealized gain (loss) on
investments (0.65) 0.35 0.14
TOTAL FROM INVESTMENT OPERATIONS 0.23 1.20 0.69
Dividends from net investment income (0.86) (0.93) (0.55)
TOTAL DISTRIBUTIONS (0.86) (0.93) (0.55)
NET ASSET VALUE AT THE END OF THE PERIOD 12.02 12.65 12.38
TOTAL INVESTMENT RETURN(2) 1.75 10.11 5.81
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 4,397 4,222 2,172
Ratio of expenses to average net assets 2.17 2.10 2.02 (3)
Ratio of expense reimbursement to average
net assets 0.02 0.11 0.06 (3)
Ratio of net investment income to average
net assets 7.03 6.79 6.48 (3)
Portfolio turnover rate 225 130 153
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994(4)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period $ 12.67 12.39 11.71 12.00
Net investment income $ 0.94 0.88 0.98 0.51
Net realized and unrealized gain (loss) on
investments $ (0.70) 0.35 0.66 (0.25)
TOTAL FROM INVESTMENT OPERATIONS $ 0.24 1.23 1.64 0.26
Dividends from net investment income $ (0.87) (0.95) (0.96) (0.49)
Dividends from net realized gain on
investments sold $ -- -- -- (0.05)
Distributions from capital $ -- -- -- (0.01)
TOTAL DISTRIBUTIONS $ (0.87) (0.95) (0.96) (0.55)
NET ASSET VALUE AT THE END OF THE PERIOD $ 12.04 12.67 12.39 11.71
TOTAL INVESTMENT RETURN(2) % 1.89 10.39 14.54 2.14
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 20,172 27,350 30,228 25,252
Ratio of expenses to average net assets % 2.03 1.90 1.90 1.90(3)
Ratio of expense reimbursement to average
net assets % 0.05 0.09 0.28 0.63(3)
Ratio of net investment income to average
net assets % 7.17 7.07 6.86 7.92(3)
Portfolio turnover rate % 225 130 153 156
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------
<S> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of the
period
Net investment income
Net realized and unrealized gain (loss) on
investments
TOTAL FROM INVESTMENT OPERATIONS
Dividends from net investment income
Dividends from net realized gain on
investments sold
Distributions from capital
TOTAL DISTRIBUTIONS
NET ASSET VALUE AT THE END OF THE PERIOD
TOTAL INVESTMENT RETURN(2)
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s)
Ratio of expenses to average net assets
Ratio of expense reimbursement to average
net assets
Ratio of net investment income to average
net assets
Portfolio turnover rate
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
(4) Class T commenced operations on July 1, 1994.
24 Strategic Income Fund
<PAGE>
Registrant
NORTHSTAR Northstar
GOVERNMENT Government
SECURITIES Securities Fund
FUND Portfolio manager
Ryan Johanson
OBJECTIVE
This fund seeks high current income and conservation of principal by investing
primarily in debt obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities.
INVESTMENT
STRATEGY
The portfolio manager selects U.S. Government Securities of various terms
depending on interest rates and market opportunities. This fund is managed so it
qualifies as an investment for federal credit unions. Shareholders will be
notified 60 days before making any change to this policy.
HOLDINGS
Under normal conditions, the fund holds at least 65% of its total assets in
securities supported by the full faith and credit of the U.S. Government. No
more than 20% of its assets may be in securities issued by a single
instrumentality or agency not supported by the full faith and credit of the U.S.
Government. It may also invest in mortgage-backed, zero coupon and other
higher-risk securities and engage in other investment practices. These are
described in the section beginning on page 40.
To the extent that any investment or investment practice under the fund's
investment policies described in this prospectus or the SAI is not permissable
for federal credit unions, the fund shall refrain from purchasing such
investment or engaging in such practices.
RISKS
Because it is an income fund, the fund is affected by changes in interest rates.
Shares of this fund are not insured or guaranteed by the U.S. Government or its
agencies or instrumentalities, but the fund's holdings are not subject to the
credit risks associated with corporate securities. Please refer to the section
beginning on page 40, THE RISKS OF INVESTING IN MUTUAL FUNDS.
- --------------------------------------------------------------------------------
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your
initial investment (as a % of
offering price) % 4.75 none none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2) 4.00(2)
</TABLE>
OPERATING EXPENSES PAID EACH YEAR BY THE FUND
(as a % of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee(5) % 0.50 0.50 0.50 0.50
12b-1 fee(3) % 0.30 1.00 1.00 0.65(4)
Other expenses % 0.35 0.39 0.35 0.30
TOTAL FUND OPERATING EXPENSES
AFTER WAIVER(5) % 1.15 1.89 1.85 1.45
</TABLE>
EXAMPLE
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
<TABLE>
<CAPTION>
YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
with redemption $ 59 82 108 181
..........................................................................................................................
Class B
with redemption $ 69 89 122 202(6)
without redemption $ 19 59 102 202(6)
..........................................................................................................................
Class C
with redemption $ 29 58 100 217
without redemption $ 19 58 100 217
..........................................................................................................................
Class T
with redemption $ 55 66 79 165 (7)
without redemption $ 15 46 79 165 (7)
..........................................................................................................................
</TABLE>
- ----------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 31 for details.
(2) This charge decreases over time. Please see page 31 for details.
- ----------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
24 Government Securities Fund
<PAGE>
HOW THE NORTHSTAR
FUND HAS GOVERNMENT
PERFORMED The following Audited by other SECURITIES
[ICON] chart shows the independent FUND
fund's financial accountants prior
performance by to 1995.
share class. The The fund's
1995, 1996 and performance is
1997 figures have also reported in
been audited by national
Coopers & Lybrand newspapers under
L.L.P., this trading
independent symbol: GOVTT.
accountants.
(4) The Class T 12b-1 plan provides for payment up to 0.95%.
(5) After management fee waiver of 0.15% effective June 2, 1997. Without the
waiver, the management fee would be 0.65% and the total fund operating
expenses would be 1.30% for Class A, 2.04% for Class B, 2.00% for Class C
and 1.60% for Class T.
- ----------------------------
(6) Class B shares convert to Class A shares after year 8. This figure uses
Class A expenses for years 9 and 10.
(7) Class T shares convert to Class A shares after year 8 or on June 2, 1998,
whichever is later. This figure uses Class A expenses for years 9 and 10.
[ICON]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
Government Securities Fund 25
<PAGE>
REGISTRANT
NORTHSTAR Northstar
GOVERNMENT Government
SECURITIES Securities Fund
FUND PORTFOLIO MANAGER
Ryan Johanson
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1997 1996 1995(1) 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 9.48 10.07 9.51 9.48 10.07 9.51 9.47
Net investment income $ 0.68 0.63 0.34 0.52 0.57 0.30 0.59
Net realized and unrealized gain
(loss) on investments $ -- (0.60) 0.59 0.11 (0.60) 0.59 0.04
TOTAL FROM INVESTMENT OPERATIONS $ 0.68 0.03 0.93 0.63 (0.03) 0.89 0.63
Dividends from net investment income $ (0.63) (0.62) (0.37) (0.56) (0.56) (0.33) (0.56)
TOTAL DISTRIBUTIONS $ (0.63) (0.62) (0.37) (0.56) (0.56) (0.33) (0.56)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 9.53 9.48 10.07 9.55 9.48 10.07 9.54
TOTAL INVESTMENT RETURN(2) % 7.46 0.57 10.04 6.93 (0.15) 9.61 6.93
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 1,744 14,185 3,235 13,503 9,135 2,790 542
Ratio of expenses to average net
assets % 1.15 1.09 1.20(3) 1.89 1.80 1.70(3) 1.85
Ratio of expense reimbursement to
average net assets % 0.17 0.20 0.20(3) 0.17 0.20 0.20(3) 0.17
Ratio of net investment income to
average net assets % 6.44 6.85 6.01(3) 5.50 6.05 5.20(3) 5.67
Portfolio turnover rate % 129 101 295 129 101 295 129
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995(1)
- --------------------------------------
<S> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 10.07 9.51
Net investment income 0.58 0.30
Net realized and unrealized gain
(loss) on investments (0.62) 0.59
TOTAL FROM INVESTMENT OPERATIONS (0.04) 0.89
Dividends from net investment income (0.56) (0.33)
TOTAL DISTRIBUTIONS (0.56) (0.33)
NET ASSET VALUE AT THE END OF THE
PERIOD 9.47 10.07
TOTAL INVESTMENT RETURN(2) (0.21) 9.61
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 1,147 8
Ratio of expenses to average net
assets 1.80 1.68(3)
Ratio of expense reimbursement to
average net assets 0.21 0.20(3)
Ratio of net investment income to
average net assets 6.22 5.28(3)
Portfolio turnover rate 101 295
</TABLE>
<TABLE>
<CAPTION>
CLASS T
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period $ 9.48 10.07 8.74 10.32 9.22 8.99 8.47
Net investment income $ 0.57 0.60 0.58 0.56 0.59 0.61 0.67
Net realized and unrealized gain
(loss) on investments $ 0.10 (0.59) 1.35 (1.56) 1.09 0.23 0.52
TOTAL FROM INVESTMENT OPERATIONS $ 0.67 0.01 1.93 (1.00) 1.68 0.84 1.19
Dividends from net investment income $ (0.60) (0.60) (0.60) (0.57) (0.58) (0.61) (0.67)
Distributions from capital $ -- -- -- (0.01) -- -- --
TOTAL DISTRIBUTIONS $ (0.60) (0.60) (0.60) (0.58) (0.58) (0.61) (0.67)
NET ASSET VALUE AT THE END OF THE
PERIOD $ 9.55 9.48 10.07 8.74 10.32 9.22 8.99
Total investment return(2) % 7.38 0.32 22.90 (9.82) 18.48 9.77 14.73
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) $ 89,939 112,126 150,951 152,608 184,156 144,144 121,389
Ratio of expenses to average net
assets % 1.45 1.30 1.30 1.29 1.31 1.39 1.44
Ratio of expense reimbursement and
waiver to average net assets % 0.20 0.21 0.20 0.20 0.20 0.20 0.20
Ratio of net investment income (loss)
to average net assets % 5.99 6.37 6.23 6.00 5.83 6.81 7.68
Portfolio turnover rate % 129 101 295 315 81 120 87
<CAPTION>
YEAR ENDED DECEMBER 31, 1990 1989 1988
- --------------------------------------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning of
the period 8.47 8.26 8.80
Net investment income 0.68 0.72 0.75
Net realized and unrealized gain
(loss) on investments -- 0.21 (0.48)
TOTAL FROM INVESTMENT OPERATIONS 0.68 0.93 0.27
Dividends from net investment income (0.68) (0.72) (0.75)
Distributions from capital -- -- (0.06)
TOTAL DISTRIBUTIONS (0.68) (0.72) (0.81)
NET ASSET VALUE AT THE END OF THE
PERIOD 8.47 8.47 8.26
Total investment return(2) 8.57 11.73 2.97
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
($000s) 108,420 123,735 169,421
Ratio of expenses to average net
assets 1.43 1.45 1.88
Ratio of expense reimbursement and
waiver to average net assets 0.20 0.20 --
Ratio of net investment income (loss)
to average net assets 8.23 8.57 8.47
Portfolio turnover rate 17 74 494
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges. Prior to 1992, not covered by auditor's report.
(3) Annualized.
26 Government Securities Fund
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
JEFFREY AURIGEMMA
Jeffrey Aurigemma has managed the Northstar High Yield Fund since May 1997 and
has co-managed the Northstar High Total Return Fund II and the Northstar High
Total Return Fund since March 1998. He joined Northstar in October 1993.
Mr. Aurigemma has over eight years of experience in the management of high-yield
fixed-income investments. From October 1993 through May 1997 he was a senior
credit analyst for the Northstar High Total Return Fund. Before joining
Northstar, he was a Senior Analyst -- Fixed Income for National Securities &
Research Corporation.
CHARLES BRANDES
Charles Brandes has co-managed the Northstar International Value Fund and the
Northstar Emerging Markets Value Fund since inception. Mr. Brandes has over 30
years of investment management experience. He founded the general partner of
Brandes Investment Partners, L.P. in 1974 and owns a controlling interest in it.
At Brandes Investment Partners, L.P., he serves as a Managing Partner and senior
member of the investment committee.
Mr. Brandes earned his BA in Economics from Bucknell University. He is a
Chartered Financial Analyst and a member of the Association for Investment
Management and Research.
Charles Brandes and Jeff Busby structure the portfolio of the Northstar
International Value Fund from a buy list determined by Brandes' Investment
Committee, of which they are senior members.
JEFF BUSBY
Jeff Busby has been co-manager of the Northstar International Value Fund since
its inception. Mr. Busby has over 12 years of investment management experience.
At Brandes Investment Partners, L.P., he serves as a Managing Partner and senior
member of the Investment Committee. He is also responsible for overseeing all
trading activities for the firm.
Mr. Busby earned his BS in Chemical Engineering from Northwestern University and
his MBA in Finance from the University of California, Berkeley. He is a
Chartered Financial Analyst and a member of the Association for Investment
Management and Research and the Financial Analysts Society.
THOMAS OLE DIAL
Thomas Ole Dial has managed the Northstar High Total Return Fund II since its
inception, and has managed the Northstar Balance Sheet Opportunities Fund since
May 1997. He has managed the Northstar High Total Return Fund since its
inception in November 1993. Mr. Dial, who has over 11 years of investment
management experience, joined Northstar in October 1993.
Before joining Northstar, Mr. Dial was Executive Vice President, Chief
Investment Officer-Fixed Income of National Securities & Research Corporation,
and Senior Portfolio Manager of the National Bond Fund from August 1990 through
July 1993.
RYAN JOHANSON
Ryan Johanson has managed the Northstar Government Securities Fund since March
1997, and has managed the Northstar Strategic Income Fund since March 1997. He
joined Northstar in March 1997.
Mr. Johanson has over 11 years of experience in fixed-income investments. Before
joining Northstar, he was Director of Global Market Risk Management -- Asia for
Barclays Bank, Senior Manager of Banque Indosuez, and Chief Investment Officer
at Fidelity Federal Bank.
LOUIS NAVELLIER
Louis Navellier has managed the Northstar Growth + Value Fund since its
inception and has managed the Northstar Special Fund since February 1996.
Mr. Navellier has been managing assets since 1985 and is the sole owner of
Navellier & Associates, Inc., a registered investment adviser that manages
investments for high net worth individuals, institutions and pension funds.
IAN SUNDER
Ian Sunder has co-managed the Northstar Emerging Markets Value Fund since its
inception. Mr. Sunder has over eight years of investment management experience.
At Brandes Investment Partners, L.P., he serves as a Portfolio Manager and
member of the Investment Committee.
Mr. Sunder earned his BA in Commerce from Karnatak University, India and his
Master of Accountancy from Bowling Green State University. He is a Chartered
Financial Analyst and a member of the Association for Investment Management and
Research and the Financial Analysts Society.
Charles Brandes and Ian Sunder structure the portfolio of the Northstar Emerging
Markets Value Fund from a buy list determined by Brandes' Investment Committee,
of which Mr. Brandes is a senior member and Mr. Sunder is a member.
GEOFFREY WADSWORTH
Geoffrey Wadsworth has managed the Northstar Growth Fund since February 1996,
and has managed the Northstar Income and Growth Fund since January 1997. Mr.
Wadsworth, who has over 26 years of investment management experience, joined
Northstar in October 1993.
Before joining Northstar, Mr. Wadsworth was a Vice President of National
Securities & Research Corporation. He was portfolio manager of the National
Stock Fund and assistant manager of the National Income and Growth Fund,
National Worldwide Opportunities Fund and National Total Return Fund.
26
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
SUB-ADVISERS
BRANDES INVESTMENT PARTNERS, L.P.
A registered investment adviser, Brandes Investment Partners, L.P. serves as
sub-adviser to the Northstar International Value Fund and the Northstar Emerging
Markets Value Fund. The company was formed in May 1996 as the successor to its
general partner, Brandes Investment Partners, Inc. which has been (through
various predecessor entities) providing investment advisory services since 1974.
Brandes Investment Partners, L.P. currently manages over $15 billion in
international and global portfolios. Brandes receives a monthly fee for its
services based on the average daily net assets of each of the funds it manages.
The fee for each fund is paid by Northstar, and not by either of the funds, at a
rate of 50% of the management fee that each of the funds pay Northstar.
NAVELLIER FUND MANAGEMENT, INC.
A registered investment adviser, Navellier Fund Management was established to
provide sub-advisory investment services for various Northstar portfolios. It
currently serves as sub-adviser to the Northstar Growth + Value Fund and the
Northstar Special Fund and manages over $2 billion in aggressive growth and
growth portfolios. The company is wholly-owned by Louis Navellier.
Navellier Fund Management receives a monthly fee for its services based on the
average daily net assets of each of the funds it manages. The fee for each fund
is paid by Northstar, and not by either of the funds, at a rate of 0.64% for the
Northstar Growth + Value Fund and 0.48% for the Northstar Special Fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
27
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
PERFORMANCE
PROFILE:
The charts below show the average annual return and the cumulative total return
since inception for
BRANDES
the Northstar International Value Fund. The fund INVESTMENT PARTNERS
commenced operations on March 6, 1995 as the Brandes International Fund, a
series of the Brandes Investment Trust. It was reorganized on April 21, 1997 as
the Northstar International Value Fund, a series of the Northstar Trust.
These figures reflect changes in the share prices and reinvestment of dividends
and distributions, and are after deduction of all fees and expenses. Included
for comparison are performance figures of the MSCI EAFE Index, an unmanaged
index of securities listed on exchanges in markets in Europe, Australia and the
Far East. It has been adjusted to reflect reinvestment of dividends. The results
presented below may not equate with the return experienced by any shareholder as
a result of timing of investments and the effects of taxes on any shareholder.
<TABLE>
<CAPTION>
NORTHSTAR
INTERNATIONAL MSCI
VALUE FUND EAFE
(%) INDEX (%)
<S> <C> <C>
One year, ended
December 31, 1997 17.86 1.78
Cumulative total
return since March 6,
1995 52.30 25.18
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NORTHSTAR VALUE MSCI EAFE
<S> <C> <C>
International
Fund Index
Mar 1995 1.02 1.06
1.05 1.1
1.06 1.09
1.06 1.07
1.1 1.14
1.09 1.09
1.09 1.11
1.06 1.08
1.09 1.12
1.12 1.16
1996 1.15 1.18
1.14 1.17
1.13 1.19
1.18 1.23
1.17 1.21
1.18 1.21
1.14 1.18
1.16 1.18
1.19 1.21
1.19 1.2
1.27 1.25
1.29 1.23
1997 1.33 1.19
1.33 1.21
1.38 1.21
1.37 1.22
1.44 1.3
1.53 1.37
1.57 1.39
1.47 1.29
1.6 1.36
1.48 1.25
1.47 1.24
12/97 1.52 1.25
</TABLE>
28
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
PERFORMANCE
PROFILE:
The charts below show the past performance of
BRANDES
Brandes Investment Partners, L.P. in managing all INVESTMENT PARTNERS
accounts with investment objectives, policies,
These figures demonstrate the historical track record of Brandes Investment
Partners, L.P. The figures have been provided by Brandes Investment Partners,
L.P. and have not been verified or audited by Northstar. They do not indicate
how the Northstar International Value Fund or Brandes Investment Partners, L.P.
will perform in the future.
techniques and restrictions substantially similar,
(a) The annual returns presented (right) were calculated on a time-weighted and
asset-though not identical to those of the Northstar weighted, total return
basis, including International Value Fund. The charts show reinvestments of all
dividends, interest and income, realized and unrealized gain or losses average
annual returns and the cumulative total and are net of applicable investment
advisory fees, brokerage commissions and execution return since July 1990 for a
composite of the costs, custodial fees and any applicable foreign withholding
taxes, without provision actual performance of all international equity for
federal and state income taxes, if any. accounts managed by Brandes Investment
Partners This total return method differs from the SEC method of calculating
total return. The from July 1990 until the present.
Brandes composite results include all actual, fee-paying, fully discretionary
international equity accounts under management for at least one month beginning
July 1, 1990 having substantially similar investment objectives, policies,
techniques and restrictions to those of the Northstar International Value Fund.
The weighted-average management fee during the period from July 1, 1990 through
December 31, 1997 was 0.91% per year. Securities transactions are accounted for
on the trade date and cash accounting is utilized. Cash and cash equivalents are
included in performance results. Net annual returns for the composite for
calendar year 1991 have been arrested by an independent accounting firm.
Starting with calendar year 1992 through calendar year 1996, the composite has
been examined by a Big Six accounting firm in accordance with AIMR Level II
verification standards. The examination for calendar year 1997 has not been
completed as of the date of this prospectus. Copies of the reports of
independent accountants and a complete list and description of Brandes'
composites are available on request. Brandes has prepared the performance data
in compliance with the Performance Presentation Standards of the Association for
Investment Management and Research (AIMR-PPS-TM-). AIMR did not prepare or
review this data. The Fund agrees to conform the performance presentation to any
changes in the SEC staff position relating to prior performance presentations.
The accounts were not subject to the same types of expenses as the fund or the
requirements of the Investment Company Act of 1940 or the Internal Revenue Code,
the limitations of which might have adversely affected performance results.
Included for comparison purposes are performance figures of the MSCI EAFE Index.
The results presented below may not equate with the return experienced by any
particular account as a result of timing of investments and the effect of taxes
on any client.
<TABLE>
<CAPTION>
BRANDES
INTERNATIONAL MSCI
EQUITY COMPOSITE EAFE
(%)(A) INDEX (%)
<S> <C> <C>
One year,
ended December
31, 1997 20.00 1.78
Three years,
ended December
31, 1997 16.67 6.27
Five years,
ended December
31, 1997 16.76 11.39
Cumulative
total return
since
July 1, 1990 319 147
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
BRANDES
INTERNATIONAL MSCI EAFE
[ICON]
If you have any questions, please call 1-800-595-7827.
29
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
<TABLE>
<S> <C> <C>
Equity Index
1990 0.98 0.79
0.99 0.87
1991 1.10 0.94
1.13 0.88
1.26 0.96
1.38 0.98
1992 1.43 0.86
1.52 0.88
1.47 0.89
1.47 0.86
1993 1.58 0.96
1.65 1.06
1.82 1.13
2.07 1.14
1994 2.01 1.18
1.96 1.24
2.11 1.24
2.01 1.23
1995 2.01 1.25
2.13 1.26
2.20 1.31
2.29 1.36
1996 2.31 1.40
2.41 1.42
2.44 1.42
2.66 1.45
1997 2.82 1.42
3.16 1.61
3.34 1.60
3.19 1.47
</TABLE>
30
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
PERFORMANCE
PROFILE:
The charts below show the average annual return
LOUIS NAVELLIER
and the cumulative total return since inception for the Northstar Growth + Value
Fund.
<TABLE>
<CAPTION>
NORTHSTAR
GROWTH +
VALUE FUND S&P 500
(%) INDEX (%)
<S> <C> <C>
One year, ended
December 31, 1997 18.10 33.35
Cumulative total
return since November
18, 1996 14.80 30.92
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NORTHSTAR GROWTH + VALUE
FUND S&P 500 INDEX
<S> <C> <C>
Dec-96 0.97 0.98
Jan-97 1.00 1.04
Feb-97 0.95 1.05
Mar-97 0.92 1.01
Apr-97 0.94 1.07
May-97 1.02 1.13
Jun-97 1.08 1.18
Jul-97 1.18 1.28
Aug-97 1.19 1.21
Sep-97 1.30 1.27
Oct-97 1.21 1.23
Nov-97 1.18 1.29
Dec-97 1.15 1.31
Unit value
</TABLE>
In addition to owning Navellier Fund Management, Inc., Louis Navellier is the
sole owner of Navellier & Associates, Inc., a registered investment adviser that
has been managing large pools of private assets since 1985.
Mr. Navellier and his staff use a computer-based system he developed to analyze
over 9,000 stocks as a basis for making buying and selling decisions.
The charts on page 33 show his past performance in managing accounts with
investment policies and objectives substantially similar to the Northstar Growth
+ Value Fund.
The charts show average annual returns and the cumulative total return since
January 1985 for a composite of the actual performance of all equity accounts
managed by Navellier & Associates from 1985 to present, calculated according to
AIMR standards. This total return method differs from the SEC method of
calculating total return. Navellier has prepared the performance data in
compliance with the Performance Presentation Standards of the Association for
Investment Management and Research (AIMR-PPS-TM-). AIMR did not prepare or
review this data. The Fund agrees to conform the performance presentation to any
changes in the SEC staff position relating to prior performance presentations.
The accounts were not subject to the requirements of the Investment Company Act
of 1940 or the Internal Revenue Code, the limitations of which might have
adversely affected performance results.
[ICON]
If you have any questions, please call 1-800-595-7827.
31
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
PERFORMANCE
PROFILE:
LOUIS NAVELLIER
These figures demonstrate the historical track record of Navellier & Associates.
The figures have been provided by Navellier & Associates and have not been
verified or audited by Northstar. They do not indicate how the Northstar Growth
+ Value Fund or Navellier & Associates will perform in the future.
(a) Results are after deduction of fees and expenses. Prior to January 1, 1993,
any account expenses not deducted from the accounts, such as management fees
paid outside the accounts, are not reflected in the performance results. If
these fees had been deducted from the accounts, they would have reduced
performance. Fees were not materially different from the Growth + Value Fund's
expense ratio, but were generally higher than the expense ratio for Class A
shares and lower than the expense ratios for Class B and C shares.
<TABLE>
<CAPTION>
NAVELLIER AND
ASSOCIATES
COMPOSITE S&P 500
(%)(A) INDEX (%)
<S> <C> <C>
1985 49.95 31.84
1986 31.20 18.66
1987 8.05 5.24
1988 11.40 16.51
1989 22.20 31.58
1990 12.51 (3.15)
1991 66.41 30.50
1992 3.12 7.61
1993 16.83 10.09
1994 1.53 1.31
</TABLE>
<TABLE>
<CAPTION>
NAVELLIER AND
ASSOCIATES
COMPOSITE S&P 500
(%)(A) INDEX (%)
<S> <C> <C>
1995 43.80 37.59
1996 10.68 22.31
1997 13.05 33.32
</TABLE>
32
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
<TABLE>
<S> <C> <C>
Three years, ended
December 31, 1997 21.61 30.88
Five years, ended
December 31, 1997 16.37 20.13
Ten years, ended
December 31, 1997 18.82 17.96
Cumulative total
return since
January 1, 1985 1,092 759
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NAVELLIER AND ASSOCIATES
COMPOSITE S&P 500 INDEX
<S> <C> <C>
1985 1.00 1.00
1985 1.50 1.32
1986 1.97 1.56
1987 2.13 1.65
1988 2.37 1.92
1989 2.89 2.52
1990 3.26 2.44
1991 5.42 3.19
1992 5.59 3.43
1993 6.53 3.78
1994 6.63 3.83
1995 9.53 5.27
1996 10.55 6.44
1997 11.92 8.59
Unit value
</TABLE>
[ICON]
If you have any questions, please call 1-800-595-7827.
33
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
THERE ARE THREE STEPS TO TAKE WHEN
YOU WANT TO BUY, SELL OR EXCHANGE SHARES OF OUR FUNDS:
- - first, choose a share class
- - second, open a Northstar account and make your first investment
- - third, choose one of several ways to buy, sell or exchange shares.
- --------------------------------------------------------------------------------
CHOOSING A
SHARE CLASS
All Northstar funds are available in Class A, Class B and Class C shares.
The chart below summarizes the differences between the share classes -- your
choice of share class will depend on how much you are investing and for how
long. Large investments qualify for a reduced Class A sales charge and avoid the
higher distribution fees of classes B and C. Investments in Class B and Class C
shares don't have a front-end sales charge but there is a restriction on the
amount you can invest at one time. Your financial consultant can help you, or
feel free to call us for more information.
Some of our funds also have Class T shares. You can no longer buy Class T shares
unless you are reinvesting income, or exchanging Class T shares you already own,
including Class T shares of the Cash Management Fund of Salomon Brothers
Investment Series (a money market fund that's available through Northstar, but
isn't one of the Northstar funds).
In addition to Class A, Class B and Class C shares, the Northstar Growth Fund
offers Class I shares. Class I shares are only available to certain defined
benefit plans, insurance companies and foundations investing for their own
account. Class I shares may have different sales charges and other expenses,
which may affect performance. You can obtain additional information concerning
Class I shares by calling us at 1-800-595-7827.
We've listed actual expenses charged to the funds beginning on page 4.
<TABLE>
<S> <C> <C>
Maximum CLASS A no limit
amount you CLASS B $500,000
can buy CLASS C $750,000
CLASS T can only be purchased by reinvesting income or exchanging
other Class T shares
Front-end CLASS A yes, varies by size of investment
sales CLASS B none
charge CLASS C none
CLASS T none
Deferred CLASS A only on investments of $1 million or more if you sell within
sales CLASS B 18 months
charge CLASS C yes, if you sell within 5 years
CLASS T yes, if you sell within 1 year
yes, if you sell within 4 years
Service CLASS A 0.25% per year
fee CLASS B 0.25% per year
CLASS C 0.25% per year
CLASS T 0.25% per year
CLASS A 0.05% per year
Distribution CLASS B 0.75% per year
fee CLASS C 0.75% per year
CLASS T from 0.40% to 0.75% per year (varies by fund)
Conversion CLASS B Class B shares convert to Class A shares after 8 years
CLASS T Class T shares convert to Class A shares after 8 years or on
June 2, 1998 (whichever is later)
</TABLE>
32
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
FRONT-END SALES
CHARGES
(Class A shares only)
<TABLE>
<CAPTION>
AMOUNT RETAINED BY
- ---------------------------------------------------------------------------------------------------
FRONT-END SALES CHARGE DEALERS
as a percentage as a percentage as a percentage
YOUR INVESTMENT of your net investment of offering price of offering price
<S> <C> <C> <C>
up to $99,999 4.99 4.75 4.00
$100,000 to $249,000 3.90 3.75 3.10
$250,000 to $499,000 2.83 2.75 2.30
$500,000 to $999,000 2.04 2.00 1.70
$1,000,000 and over -- -- --
</TABLE>
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
THERE ARE THREE WAYS YOU CAN REDUCE YOUR FRONT-END SALES CHARGES.
1. TAKE ADVANTAGE OF PURCHASES YOU'VE ALREADY MADE
Rights of accumulation let you combine the value of all the Class A shares
you already own with your current investment to calculate your sales charge.
2. TAKE ADVANTAGE OF PURCHASES YOU INTEND TO MAKE
By signing a non-binding letter of intent, you can combine investments you
plan to make over a 13 month period to calculate the sales charge you'll pay
on each investment.
3. BUY AS PART OF A GROUP OF INVESTORS
You can combine your investments with others in a recognized group when
calculating your sales charge. The following is a general list of the groups
Northstar recognizes for this benefit:
- you, your spouse and your children under the age of 21
- a trustee or fiduciary for a single trust, estate or fiduciary account
(including qualifying pension, profit sharing and other employee benefit
trusts)
- any other organized group that has been in existence for at least six
months, and wasn't formed solely for the purpose of investing at a
discount.
YOU MAY NOT HAVE TO PAY FRONT-END SALES CHARGES OR A CDSC IF YOU ARE:
- an active or retired trustee, director, officer, partner or employee
(including immediate family) of
- Northstar or of any of its affiliated companies
- any Northstar affiliated investment company
- a dealer that has a sales agreement with the distributor
- a trustee or custodian of any qualified retirement plan or IRA established
for the benefit of anyone in the point above
- a dealer, broker or registered investment adviser who has entered into an
agreement with the distributor providing for the use of shares of the fund
in particular investment products such as "wrap accounts" or other similar
managed accounts for the benefit of your clients
- a service provider for Northstar, any Northstar affiliated company, or any
Northstar affiliated investment company
- a Brandes employee, officer or partner
- an owner, participant or beneficiary of life insurance and/or annuity
contracts with ReliaStar Life Insurance Company (ReliaStar) or any
ReliaStar affiliated life insurance company to the extent they invest
payments made to them under the contracts in one or more Northstar Funds
within sixty days of payment under the contracts.
You won't pay a sales charge when you buy Class A shares of a Northstar fund
through a dealer by transferring the proceeds of the sale of another open-end
fund, so long as:
- you have held the shares in the fund you're selling for at least six
months, and you paid a sales charge when you bought them
- you send the proceeds of the sale directly to Northstar or our agent or
hold them in cash or a money market fund
- you buy the shares of the fund within 60 days of the sale, and
- the fund has the same or a similar investment objective.
Pension, profit sharing and other benefit plans created pursuant to a plan
qualified under Section 401 of the Code or plans under Section 456 of the Code
don't pay a front-end sales charge or a CDSC, as long as the shares are
purchased by an employer sponsored plan with at least 50 eligible employees.
Investment Advisors or Financial Planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisors or financial planners who place trades for their own accounts don't pay
a front-end sales charge or a CDSC if the accounts are linked to the master
account of such investment advisor or financial planner on the books and records
of the broker or agent.
[ICON]
If you have any questions, please call 1-800-595-7827.
33
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
If you think you might be eligible to reduce your sales charges using any of
these methods, please call us or consult the Statement of Additional Information
(SAI).
34
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
DEFERRED SALES
CHARGES
(Classes A, B, C & T)
We deduct a contingent deferred sales charge (CDSC) from the proceeds when you
sell shares as indicated below. A CDSC is charged on the current market value of
the shares, or on the price you paid for them, whichever is less. You aren't
charged a CDSC on shares you acquired by reinvesting your dividends, or on
amounts representing appreciation.
When you ask us to sell shares, we will sell those that are exempt from the CDSC
first, and then sell the shares you have held the longest. This helps keep your
CDSC as low as possible.
CLASS A SHARES
There is generally no CDSC on Class A shares, except for purchases of $1 million
or more, when you sell them within 18 months of when you bought them.
<TABLE>
<CAPTION>
YOUR INVESTMENT CDSC ON SHARES BEING
SOLD
<S> <C>
First $1,000,000 to $2,499,999 1.00%
$2,500,000 to $4,999,999 0.50%
$5,000,000 and over 0.25%
</TABLE>
CLASS B, C & T SHARES
<TABLE>
<CAPTION>
YEARS AFTER YOU
BOUGHT THE SHARES CLASS B CLASS C CLASS T
<S> <C> <C> <C>
1st year 5.00% 1.00% 4.00%
2nd year 4.00% -- 3.00%
3rd year 3.00% -- 2.00%
4th year 2.00% -- 1.00%
5th year 2.00% -- --
after 5 years -- -- --
</TABLE>
WHEN THE CDSC MIGHT BE WAIVED
We may waive the CDSC for Class B and Class C shares if:
- - the shareholder dies or becomes disabled
- - you're selling your shares through our systematic withdrawal program
- - you're selling shares of a retirement plan and you are over 70 1/2 years old
- - you're exchanging Class B, C or T shares for the same class of shares of
another Northstar fund
- - you fall into any of the waiver categories listed on page 32.
If you think you might be eligible for a CDSC waiver, please call us or consult
the SAI.
[ICON]
If you have any questions, please call 1-800-595-7827.
35
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
OPENING A
NORTHSTAR
ACCOUNT
Once you've chosen the funds you would like to invest in and the share class you
prefer, you're ready to open an account.
First, determine how much money you want to invest. The minimum initial
investment for Northstar funds is:
- - $2,500 for non-retirement accounts (we reserve the right to accept smaller
amounts)
- - $250 for retirement accounts
- - $25 if you are investing using our automatic investment plan (see page 34).
Next, open an account in one of two ways:
- - give a check to your financial consultant, who will open an account for you,
or
- - complete the application enclosed with this prospectus and mail it to us,
along with your check made payable to Northstar Funds.
TAX-SHELTERED RETIREMENT PLANS
Call or write to us about opening your Northstar account as any one of the
following retirement plans:
- - Roth IRAs,
- - IRAs,
- - SEP-IRAs,
- - Simple IRAs.
- --------------------------------------------------------------------------------
BUYING, SELLING
AND EXCHANGING
Once you've opened an account and made your first investment, you can choose one
of three ways to buy, sell or exchange shares of Northstar funds:
- - through your financial consultant
- - directly, by mail or over the telephone
- - using one of our automatic plans.
We'll send you a confirmation statement every time you make a transaction that
affects your account balance, except when we pay distributions.
Some broker-dealers or agents might charge you a fee if you buy or sell shares
through them.
Instructions for each option appear in the chart on page 34, but here are a few
things you should know before you begin.
- --------------------------------------------------------------------------------
HOW SHARES ARE
PRICED
The price you pay or receive when you buy, sell or exchange shares is determined
by the fund's net asset value (NAV) per share and share class. NAV is calculated
each business day at the close of regular trading on the New York Stock Exchange
(usually 4:00 EST) by dividing the net assets of each fund class by the number
of shares outstanding. To calculate NAV, we determine the fair market value of
the fund's portfolio securities using the method described in the SAI.
When you're buying shares, you'll pay the NAV that is next calculated after we
receive your order in proper form, plus any sales charges that apply. When
you're selling shares, you'll receive the NAV that is next calculated after we
receive your order in proper form, less any deferred sales charges that apply.
- --------------------------------------------------------------------------------
SOME RULES FOR
BUYING
- - The minimum amount of each investment after your first one is:
- $100 for non-retirement accounts
- $25 for retirement accounts
- $25 if you are investing using our automatic investment plan (see page 34).
- - We record most shares on our books electronically. We will issue a certificate
if you ask us to in writing, however most of our shareholders prefer not to
have their shares in certificate form because certificated shares can't be
sold or exchanged by telephone or using the systematic withdrawal program.
- - We have the right to refuse a request to buy shares.
36
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
SOME RULES FOR
SELLING
- - Selling your shares may result in a deferred sales charge. Please refer to the
table on page 31.
- - We'll pay you within three days from the time we receive your request to sell,
unless you're selling shares you recently paid for by check. In that case,
we'll pay you when your check has cleared, which may take up to 15 days.
- - If you are a corporation, partnership, executor, administrator, trustee,
custodian, guardian or you are selling shares of a retirement plan, you'll
need to complete special documentation and give us your request in writing.
Please call us for information.
- - You can reinvest part or all of the proceeds of any shares you sell without
paying a sales charge. You must let us know in writing 30 days from the day
you sold the shares, and buy the same class of shares you sold. We will
reimburse you for any CDSC you paid. Please see page 36 for information about
how this can affect your taxes.
- - If selling shares results in the value of your account falling below $500, we
have the right to close your account, so long as your account has been open
for at least a year. We'll let you know 60 days in advance, and if you don't
bring the account balance above $500, we'll sell your shares, mail the
proceeds to you and close your account. We may also close your account if you
give us an incorrect social security number or taxpayer identification number.
- - In unusual circumstances, we may temporarily suspend the processing of
requests to sell.
- --------------------------------------------------------------------------------
SOME RULES FOR
EXCHANGING
- - When you exchange shares, you are selling shares of one fund and using the
proceeds to buy shares of another fund. Please see page 36 for information
about how this can affect your taxes.
- - Before you make an exchange, be sure to request and read the sections of the
prospectus of the fund you are exchanging to that discuss the shares you're
exchanging to.
- - You can exchange shares of any fund for the same class of shares of any other
fund, or for shares of the Cash Management Fund without a sales charge. You
will, however, pay a sales charge if you buy shares of the Cash Management
Fund, and then exchange them for Class A shares of any of the funds.
- - For the purposes of calculating CDSC, shares you exchange will continue to age
from the day you first purchased them, even if you're exchanging into the Cash
Management Fund.
- - We'll let you know 60 days in advance if we want to make any changes to these
rules.
[ICON]
If you have any questions, please call 1-800-595-7827.
37
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
<TABLE>
<CAPTION>
WAYS TO BUY, SELL OR EXCHANGE WHEN TO USE THIS OPTION
<S> <C> <C>
- -------------------------------------------- --------------------------------------------
THROUGH YOUR FINANCIAL CONSULTANT - buy
- sell
- exchange
<CAPTION>
- -------------------------------------------- --------------------------------------------
<S> <C> <C>
BY MAIL
Please call us if you have any questions -- - buy
we can't process your request until we have - sell
all of the documents we need. - exchange
<CAPTION>
- -------------------------------------------- --------------------------------------------
<S> <C> <C>
BY TELEPHONE
To sign up for this service, complete - sell
section 9 of the application or call us at - exchange
1-800-595-7827.
<CAPTION>
- -------------------------------------------- --------------------------------------------
<S> <C> <C>
AUTOMATIC INVESTMENT PLAN
To sign up for this service, complete - buy
section 7 of the application or call us at
1-800-595-7827.
<CAPTION>
- -------------------------------------------- --------------------------------------------
<S> <C> <C>
SYSTEMATIC WITHDRAWAL PROGRAM
To sign up for this service, complete - sell
section 8 of the application or call us at
1-800-595-7827.
</TABLE>
38
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
HOW TO USE IT
- --------------------------------------------------------------------------------
If you're BUYING shares, make your check payable to Northstar Funds and give it
to your financial consultant, who will forward it to us.
When you're SELLING, give your written request to your financial consultant, who
may charge you a fee for this service.
- --------------------------------------------------------------------------------
Send your request to buy, sell or exchange in writing to:
Northstar Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5131
Westborough MA 01581-5131
Your letter should tell us:
- - your account number
- - your social security number or taxpayer identification number
- - the name the account is registered in
- - the fund name and share class you're buying or selling, and, for exchanges,
the fund name and share class you're exchanging to
- - the dollar value or number of shares you want to buy, sell or exchange.
If you're BUYING include a check payable to Northstar Funds with your request.
If you're SELLING or EXCHANGING, your request must be signed by all registered
owners of the account.
We'll ask you to guarantee the signatures if:
- - you are selling more than $50,000 worth of shares
- - your address of record has changed in the past 30 days
- - you want us to send the payment to someone other than the registered owner, to
an address other than the address of record, or in any form other than by
check.
Signatures can be guaranteed by a bank, a member of the national stock exchange
or another eligible institution.
- --------------------------------------------------------------------------------
You can SELL or EXCHANGE up to $50,000 of your shares by telephone.
Call us at 1-800-595-7827 between 8:30 a.m. and 4:00 p.m. EST.
When you're calling with your request, we'll ask you for your name, social
security number, broker of record or other identification. If we don't ask for
these things and process an unauthorized telephone transaction, we are
responsible for any losses to your account. Otherwise you are responsible for
any unauthorized use of the telephone transaction service.
We'll mail the proceeds of the sale to the address of record or wire $1,000 or
more to any commercial bank in the U.S. that is a member of the Federal Reserve
System. Northstar does not charge a fee for this service, but your bank may
charge you a fee for receiving a wire transfer.
- --------------------------------------------------------------------------------
You can authorize us to automatically withdraw a minimum of $25 each month from
your bank account and use it to buy shares in Northstar funds.
There's no charge for this service, but your bank may charge you a small set-up
or transaction fee. You can cancel the program at any time.
- --------------------------------------------------------------------------------
You can ask us to automatically transfer money from your Northstar account into
your bank account.
We will sell shares or share fractions on your behalf monthly, quarterly or
annually and automatically deposit the proceeds into your bank account. There
may be a sales charge on shares we sell on your behalf.
You must have at least $5,000 worth of shares in your account to participate in
this program. The minimum transfer amount is $25.
It isn't to your advantage to buy and sell shares of the same fund at the same
time, so you can't set up a systematic withdrawal program for an account you've
already signed up on an automatic investment plan.
38
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
HOW THE FUNDS
PAY DISTRIBUTIONS
Each Northstar fund distributes virtually all of its net investment income and
net capital gains to shareholders at least annually in the form of dividends.
The funds pay dividends as follows:
<TABLE>
<S> <C>
Growth Funds annually
Income and Growth Funds quarterly
Income Funds monthly
</TABLE>
As a shareholder, you are entitled to a share of the income and capital gains a
fund distributes. The amount you receive is based on the number of shares you
own.
DISTRIBUTION OPTIONS
You can take your distributions as cash or reinvest them in the same class of
shares of any of our funds. You specify your preference when you open your
account. Distribution options vary by share class, as follows.
CLASS A, B & C SHARES
- - reinvest both income dividends and capital gain distributions to buy
additional Class A, B or C shares of any fund you choose
- - receive income dividends in cash and reinvest capital gain distributions to
buy additional Class A, B or C shares of any fund you choose
- - receive both income dividends and capital gain distributions in cash.
You can change your distribution instructions at any time by notifying us by
phone (if going to the address of record), or in writing.
If you don't specify how you would like to receive your distributions, we'll
automatically reinvest both income dividends and capital gain distributions in
additional shares of the same fund.
CLASS T SHARES
You must receive all distributions in the same way, either in cash or by
reinvesting them in additional shares of the same fund.
[ICON]
If you have any questions, please call 1-800-595-7827.
39
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
HOW YOUR
DISTRIBUTIONS
ARE TAXED
Each Northstar fund intends to meet the requirements for being a tax-qualified
regulated investment company, which means they generally do not pay federal
income tax on the earnings they distribute to shareholders.
As a result, distributions that you receive will generally be considered to be
taxable in your hands. Income distributions, whether you take them as cash or
reinvest them, are taxable as ordinary income. Capital gain distributions are
taxable as long-term capital gains, regardless of how long you've held the
shares.
Distributions may also be subject to state, local or foreign taxes.
If income distributed to you includes dividends paid by U.S. corporations, part
of the dividends the fund pays may be eligible for the corporate
dividends-received deduction.
TIMING YOUR PURCHASE
If you buy shares of a fund just before it makes a distribution, you will pay
the full price but part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax- deferred account, such as an
IRA, this is not to your advantage because you'll pay tax on the dividend but
will not have shared in the increase in the net asset value of the fund.
WHEN DISTRIBUTIONS ARE DECLARED
For tax purposes, distributions declared by the fund in October, November or
December and paid to you in January are taxable in the calendar year in which
they were declared.
BACKUP WITHHOLDING TAX
We'll notify you each year of the tax status of dividends and distributions. If
we don't have your tax identification number, or if you have been told by the
IRS that you are subject to backup withholding tax, we may be required to
withhold U.S. federal income tax on any distributions at the rate of 31%.
WHEN YOU SELL YOUR SHARES
When you sell or exchange shares you will realize a capital gain or loss,
depending on the difference between what your shares cost you and what you
receive for them. A capital gain or loss will be long-term or short-term,
depending on the length of time you held the shares.
In your federal income tax return you report a capital gain as income and a
capital loss as a deduction.
CONSULT YOUR TAX ADVISER
The information above is general in nature. You should consult your tax adviser
to discuss how investing in Northstar funds affects your personal tax situation.
40
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
HOW THE FUNDS
ARE ORGANIZED
AND MANAGED
Each of the Northstar funds is a diversified mutual fund. The Northstar Growth +
Value Fund, Northstar International Value Fund, Northstar Emerging Markets Value
Fund, Northstar Income and Growth Fund, and Northstar High Total Return Fund II
are all series of the Northstar Trust (formerly the Northstar Advantage Trust),
which is registered as an investment company with the SEC. All of the other
funds are trusts registered separately with the SEC.
The trustees of each SEC-registered trust oversee the business affairs of the
funds and are responsible for major decisions about each fund's investment
objectives and policies.
The funds do not hold regular shareholder meetings, but may hold special
meetings. A special meeting is called if investors holding at least 10% of the
outstanding shares of a fund request it. Certain objectives and policies of the
funds may only be changed by shareholder vote. A shareholder vote is required to
change the investment objective of a Northstar fund because the fund investment
objectives are fundamental.
The day-to-day management of the funds is handled by the following companies and
advisers appointed by the trustees:
INVESTMENT ADVISER
Oversees the investment management of the sub-advisers for the funds which are
managed by a sub-adviser and provides advice and recommendations about
investments made by all of the funds. The investment adviser is paid out of each
fund's management fee, which are listed beginning on page 4.
Northstar Investment Management Corporation
2 Pickwick Plaza
Greenwich, CT 06830
ADMINISTRATOR
Provides administrative, compliance and accounting services to the funds. The
administrator receives an annual administrative services fee from each fund of
0.10% of the fund's average daily net assets, plus $5 per account per year.
Northstar Administrators Corporation
2 Pickwick Plaza
Greenwich, CT 06830
DISTRIBUTOR
Markets the funds and distributes shares through financial consultants and other
financial representatives.
Northstar Distributors, Inc.
2 Pickwick Plaza
Greenwich, CT 06830
CUSTODIAN
Holds all the funds' assets.
Custodian and fund accounting agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
TRANSFER AGENT
Handles shareholder record-keeping and statements, distribution of dividends and
processing of orders to buy and sell shares.
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581-5120
PORTFOLIO MANAGERS AND SUB-ADVISERS
You'll find profiles of all of our portfolio managers and sub-advisers to the
funds beginning on page 26.
[ICON]
If you have any questions, please call 1-800-595-7827.
41
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
HOW DEALERS ARE
COMPENSATED
Dealers receive payment for selling shares of Northstar funds in three ways:
THEY RECEIVE A COMMISSION WHEN
YOU BUY SHARES
The amount of the commission depends on the amount you invest and the share
class you buy. Sales commissions are detailed in the chart below.
- - CLASS A INVESTMENTS
(% OF OFFERING PRICE)
<TABLE>
<CAPTION>
COMMISSION AMOUNT
RECEIVED BY DEALERS PAID
OUT OF SALES CHARGES BY THE
YOU PAY DISTRIBUTOR
<S> <C> <C>
up to $99,999 4.00 --
$100,000 to $249,999 3.10 --
$250,000 to $499,999 2.30 --
$500,000 to $999,999 1.70 --
$1,000,000 to -- 1.00
$2,499,999
$2,500,000 to -- 0.50
$4,999,999
$5,000,000 and over -- 0.25
</TABLE>
- - CLASS B INVESTMENTS
Receives 4% of the sale price from the distributor
- - CLASS C INVESTMENTS
Receives 1% of the sale price from the distributor
THEY ARE PAID A FEE BY THE DISTRIBUTOR
FOR SERVICING YOUR ACCOUNT
They receive a service fee depending on the average net asset value of the class
of shares their clients hold in Northstar funds. These fees are paid from the
12b -1 fee deducted from each fund class. In addition to covering the cost of
commissions and service fees, the 12b -1 fee is used to pay for other expenses
such as sales literature, prospectus printing and distribution and compensation
to the distributor and its wholesalers. You'll find the 12b -1 fees listed in
the fund information beginning on page 4. Service and distribution fee
percentages appear on page 31.
THEY MAY RECEIVE ADDITIONAL BENEFITS
AND REWARDS
Selling shares of Northstar funds may make dealers eligible for awards or to
participate in sales programs sponsored by Northstar. The costs of these
benefits and rewards are not deducted from the assets of the funds -- they are
paid from the distributor's own resources.
The distributor may also pay additional compensation to dealers including
Advest, Inc. out of its own resources for marketing and other services to
shareholders. All payments it receives for Class T shares are paid to Advest,
Inc.
42
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
Risk is the potential that your investment will lose money or not earn as much
as you hope. Mutual funds have varying degrees of risk, depending on the
securities they invest in. There is no guarantee that a fund will achieve its
investment objective.
You'll find a discussion of the risk factors associated with each fund beginning
on page 4.
This section provides information about the risks associated with different
kinds of securities. It also lists additional investment practices that may
involve elements of risk.
- --------------------------------------------------------------------------------
EQUITIES
- - Give the buyer ownership rights in the issuer. Common and preferred stocks,
convertible securities, stock purchase rights and interests in real estate
investment trusts are types of equities. Real estate investment trusts are
companies that manage a portfolio of real estate to earn profits for
shareholders.
- - The market value of an equity security may go up or down rapidly depending on
market conditions. This affects the value of the shares of a fund, and the
value of your investment.
- - Securities of smaller companies may be subject to more abrupt or erratic
market movements because they are traded in lower volume and are subject to
greater changes in earnings and
growth prospects. Such securities may include securities of emerging growth
companies. Emerging growth companies may:
- be in a relatively early stage of development, but will usually have
consistent or accelerating earnings growth
- occupy a profitable market niche
- have products or technologies that are new, unique or proprietary
- be in an industry that has a favorable long-term growth outlook.
- --------------------------------------------------------------------------------
DEBT SECURITIES
- - Obligations to repay borrowed money within a certain time with or without
interest. Zero-coupon securities, pay-in-kind securities, discount
obligations, mortgage-backed securities, convertible securities and high-yield
securities are types of debt securities.
- - Debt securities are affected by changes in interest rates. In general, when
interest rates go up, the value of a debt security decreases; when interest
rates go down, the value of a debt security increases.
- - There is also the risk that the borrower won't be able to fulfill its
obligation, resulting in loss or a lower price than anticipated.
LOWER-RATED OR JUNK BONDS
The chart on page 44 indicates which funds invest in high-yield securities (junk
bonds). In addition to general risks listed above that are associated with debt
securities, junk bonds have special risks:
- - They fluctuate more in value than higher-rated securities.
- - They are more subject to the risk that the borrower won't fulfill its
obligation.
- - There may not be a market to sell them at a reasonable price, resulting in
loss or a lower price than anticipated.
- - The fund's ability to achieve its investment objective may be more dependent
on Northstar's credit analysis than is the case for higher-rated securities.
[ICON]
If you have any questions, please call 1-800-595-7827.
43
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
<TABLE>
<CAPTION>
BALANCE
SHEET
HIGH YIELD HIGH TOTAL STRATEGIC OPPORTUNITIES
QUALITY RATING FUND(1) RETURN FUND II(1) INCOME FUND(1) FUND(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment grade -- -- 13.3 --
BB 33.8 10.0 23.6 4.4
B 59.8 50.9 22.0 29.4
CCC -- 4.7 2.7 4.5
CC -- -- -- --
C -- -- -- --
D -- -- -- --
Non-rated -- 19.2 28 16.2
U.S. Governments, equities & 6.4 15.2 35.6 45.5
others
Total 100% 100% 100% 100%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Data as of December 31, 1997.
- --------------------------------------------------------------------------------
FOREIGN
INVESTMENTS
- - Securities issued by companies or governments of foreign countries. May
include equities and debt securities including sovereign debt obligations
(securities issued to refinance foreign government bank loans and other debt
also known as Brady Bonds).
- - Subject to all of the risks associated with equity and debt securities. There
are also other risks that can affect the value of a foreign investment.
- foreign markets may be less regulated, may have less volume and be less
liquid
- foreign securities may be less liquid and more volatile
- the value of the securities are affected by changes in currency exchange
rates and exchange control regulations
- the value of foreign securities may be affected by adverse political and
economic developments, seizure or nationalization of foreign deposits, and
government restrictions
- there is often less information available about foreign companies and many
countries do not have the accounting, auditing and financial reporting that
we have in the United States.
EMERGING MARKETS
- - Investment in emerging markets have additional risks: developing countries
have economic structures that are less mature, they have less stable political
systems and may have high inflation, rapidly changing interest and currency
exchange rates, and their securities markets are substantially less developed.
DEPOSITORY RECEIPTS
- - American Depository Receipts (ADRs) are typically issued by U.S. banks or
trust companies. They are based on ownership of securities issued by foreign
companies, and are traded on U.S. exchanges. European Depository Receipts
(EDRs) and Global Depository Receipts (GDRs) are typically issued by foreign
banks or trust companies, although they also may be issued by U.S. banks or
trust companies. They are based on ownership of securities issued by foreign
or U.S. companies, and are traded on stock exchanges around the world.
44
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
OTHER, HIGHER
RISK SECURITIES
ILLIQUID SECURITIES -- FUNDS ARE LIMITED TO 15% OF NET ASSET VALUE (5% OF NET
ASSET VALUE FOR INTERNATIONAL VALUE AND EMERGING MARKETS VALUE FUNDS)
- - Securities that can't be sold quickly at a reasonable price, or that can't be
sold on the open market. Includes restricted securities and private
placements.
- - Used to realize higher profits.
- - There may be fewer market players which can result in lower prices, and sales
can take longer to complete.
- - Following guidelines established by the trustees of each fund, Northstar may
consider a security than can't be sold on the open market to be liquid if it
can be sold to institutional investors (Rule 144A) or on foreign markets.
DERIVATIVE SECURITIES
- - Securities that derive their value from the performance of an underlying
asset. Usually take the form of a contract to buy or sell an asset or
commodity either now or in the future, but mortgage and other asset-backed
securities are also generally considered derivatives. Types of derivative
securities include options, futures contracts, options on futures and forward
contracts.
- - Used often to "hedge" or offset market fluctuations or changes in currency
exchange or interest rates. May also be used for speculative purposes to
increase returns.
- - In addition to the risks associated with equities and debt securities, there
are several special risks associated with the use of derivatives:
- changes in the value of the derivative may not match changes in the value of
its underlying asset
- hedging may not be successful, and may prevent the fund from making other
gains
- derivatives used for speculative purposes can result in gains or losses that
are substantially greater than the derivative's original cost.
- - The International Value and Emerging Markets Value Funds do not currently
intend to make use of any derivatives, including transactions in currency
forwards for hedging purposes.
- --------------------------------------------------------------------------------
INVESTMENT
PRACTICES
REPURCHASE AGREEMENTS -- FUNDS ARE LIMITED TO 15% OF THEIR NET ASSET VALUE
- - Buying a security from a bank or dealer who must buy it back at a fixed price
on a specified day. Repurchase agreements that mature after more than seven
days are considered to be illiquid investments. Investments in this type of
repurchase agreement can only be 5% of a fund's net asset value.
- - Used for temporary and defensive purposes or to generate income from cash
balances.
- - The bank or dealer may not be able to buy back the security.
SHORT-TERM TRADING -- NO LIMIT
- - Selling a security soon after you buy it.
- - Used when the fund needs to be more liquid, in response to changes in interest
rates and economic or other developments, or when a security has reached its
price or yield objective.
[ICON]
If you have any questions, please call 1-800-595-7827.
45
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- - May result in higher costs for brokerage commissions, dealer mark-ups and
other transactions costs, as well as taxable capital gains.
TEMPORARY INVESTMENTS -- NO LIMIT
- - Temporarily maintaining part or all of a fund's assets in cash or in U.S.
Government Securities, commercial paper, banker's acceptances, repurchase
agreements and certificates of deposit.
- - Used for temporary and defensive purposes in periods of unusual market
conditions.
- - Provides lower returns.
WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS -- NO LIMIT
- - A commitment to buy a security on a specific day in the future at a specified
price.
- - Used to realize short-term profits.
- - If made through a dealer, there is a risk that the dealer won't complete the
sale, and that the fund will lose out on a good yield or price.
- - There is also risk that the value of the security will change before the
transaction is settled, resulting in short-term losses instead of gains.
CLOSED-END INVESTMENT COMPANIES -- (EMERGING MARKETS VALUE FUND IS LIMITED TO
10% OF TOTAL ASSETS)
- - An investment company whose shares are listed on a stock exchange or are
traded in the over-the-counter market.
- - Used to invest in securities markets of certain countries where restrictions
on direct investment by foreign entities would otherwise limit the fund's
ability to invest in the securities markets of such countries, or to generate
income from cash balances.
- - The fund will indirectly bear its proportionate share of any fees and expenses
of such companies, in addition to the fund's fees and expenses.
46
<PAGE>
WHERE TO GO
FOR MORE
INFORMATION
You'll find more information about the Northstar family of funds in our:
ANNUAL REPORTS
The Annual reports contain information about fund performance, the financial
statements and the auditor's reports.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains complete information about the Northstar funds. The SAI is
legally part of this prospectus (it is incorporated by reference). A copy has
been filed with the Securities and Exchange Commission.
Prior to April 20, 1998, please write or call for a free copy of the Annual
reports or the current SAI:
The Northstar Funds
2 Pickwick Plaza
Greenwich, CT 06830
1-800-595-7827
After April 20, 1998, all written correspondence should be sent to the following
address:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
Phone inquiries should be made to the phone number noted above.
[ICON]
If you have any questions, please call 1-800-595-7827.
47
<PAGE>
(THE NORTHSTAR FUNDS LOGO)
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1998
*NORTHSTAR GROWTH FUND
*NORTHSTAR GROWTH + VALUE FUND
*NORTHSTAR SPECIAL FUND
*NORTHSTAR INTERNATIONAL VALUE FUND
*NORTHSTAR EMERGING MARKETS VALUE FUND
*NORTHSTAR INCOME AND GROWTH FUND
*NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
*NORTHSTAR HIGH YIELD FUND
*NORTHSTAR HIGH TOTAL RETURN FUND II
*NORTHSTAR STRATEGIC INCOME FUND
*NORTHSTAR GOVERNMENT SECURITIES FUND
TWO PICKWICK PLAZA
GREENWICH, CONNECTICUT 06830
(203) 863-6200
(800) 595-7827
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectuses of
the Funds dated March 1, 1998, as each may be revised from time to time. To
obtain a copy of a Prospectus for the Funds, please contact Northstar
Investment Management Corporation at the address or phone number listed above.
Northstar Investment Management Corporation ("Northstar" or the "Adviser")
serves as the Funds' investment adviser. Northstar has engaged Navellier Fund
Management, Inc. to serve as subadviser to the Northstar Growth + Value Fund
and Northstar Special Fund, subject to the supervision of Northstar. Northstar
has engaged Brandes Investment Partners, L.P. to serve as subadviser to the
Northstar International Value Fund and Northstar Emerging Markets Value Fund.
Collectively, Navellier Fund Management, Inc., and Brandes Investment Partners,
L.P. will be referred to as (the "Sub-Advisers"). Northstar Distributors, Inc.
(the "Underwriter") is the underwriter to the Funds. Northstar Administrators
Corporation (the "Administrator") is the Funds' administrator. The Underwriter
and the Administrator are affiliates of Northstar.
---------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT RESTRICTIONS .............................................. 2
INVESTMENT TECHNIQUES ................................................ 6
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION ...................... 14
SERVICES OF NORTHSTAR, THE SUB-ADVISERS AND THE ADMINISTRATOR ........ 16
NET ASSET VALUE ...................................................... 20
PURCHASES AND REDEMPTIONS ............................................ 20
DIVIDENDS, DISTRIBUTIONS AND TAXES ................................... 22
UNDERWRITER AND DISTRIBUTION SERVICES ................................ 26
TRUSTEES AND OFFICERS ................................................ 31
OTHER INFORMATION .................................................... 35
PERFORMANCE INFORMATION .............................................. 36
FINANCIAL STATEMENTS ................................................. 40
APPENDIX ............................................................. A-1
</TABLE>
<PAGE>
INVESTMENT RESTRICTIONS
NORTHSTAR GROWTH + VALUE FUND. The Fund has adopted investment
restrictions numbered 1 through 11 as fundamental policies. These restrictions
cannot be changed without approval by the holders of a majority (as defined in
the Investment Company Act of 1940, as amended) of such Fund's outstanding
voting shares. Investment restrictions numbered 12 through 15 are not
fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Fund may not:
1. Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks but only if,
immediately after such borrowing there is asset coverage of 300%, and (b) enter
into transactions in options, futures, and options on futures and other
transactions not deemed to involve the issuance of senior securities;
2. Underwrite the securities of others;
3. Purchase or sell real property, including real estate limited
partnerships (each of these Funds may purchase marketable securities of
companies that deal in real estate or interests therein, including real estate
investment trusts);
4. Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
5. Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to brokers or
dealers or other financial institutions not affiliated with the Fund or
Northstar, subject to conditions established by Northstar (See "Lending
Portfolio Securities" in this SAI), and may purchase or hold participations in
loans, in accordance with the investment objectives and policies of the Fund,
as described in the current Prospectus and SAI of the Fund;
6. Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with futures
contracts will not be deemed to be purchases of securities on margin);
7. Sell short, except that these Funds may enter into short sales against
the box;
8. Invest more than 25% of its assets in any one industry or related group
of industries;
9. With respect to 75% of the Fund's assets, purchase a security (other
than U.S. Government obligations) if, as a result, more than 5% of the value of
total assets of the Fund would be invested in securities of a single issuer;
10. Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an issuer,
would be held by the Fund;
11. Borrow money except to the extent permitted under the 1940 Act;
12. Purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except that
these Funds may purchase shares of other investment companies, subject to such
restrictions as may be imposed by the 1940 Act and rules thereunder or by any
state in which shares of the Fund are registered;
13. Make an investment for the purpose of exercising control over
management;
14. Invest more than 15% of its net assets in illiquid securities; or
15. Borrow any amount in excess of 10% of their respective assets, other
than for temporary emergency or administrative purposes. In addition, the Fund
will not make additional investments when its borrowings exceed 5% of total
assets.
NORTHSTAR INTERNATIONAL VALUE FUND AND NORTHSTAR EMERGING MARKETS VALUE
FUND. The Funds have adopted investment restrictions numbered 1 through 6 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940, as
amended) of such Fund's outstanding voting shares. Investment restrictions
numbered 7 through 12 are not fundamental policies and may be changed by vote
of a majority of the Trust's Board members at any time. The Funds may not:
2
<PAGE>
1. Issue senior securities, except to the extent permitted under the
Investment Company Act of 1940, borrow money or pledge its assets, except that
the Fund may borrow on an unsecured basis from banks for temporary or emergency
purposes or for the clearance of transactions in amounts not exceeding 10% of
its total assets (not including the amount borrowed), provided that it will not
make investments while borrowings are in excess of 5% of the value of its total
assets are outstanding;
2. Act as underwriter (except to the extent the Fund may be deemed to be
an underwriter in connection with the sale of securities in its investment
portfolio);
3. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities), except that the Fund reserves the right to invest all
of its assets in shares of another investment company;
4. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although the Fund may purchase and sell securities which
are secured by real estate, securities of companies which invest or deal in
real estate and securities issued by real estate investment trusts);
5. Purchase or sell commodities or commodity futures contracts, except
that the Fund may purchase and sell stock index futures contracts for hedging
purposes to the extent permitted under applicable federal and state laws and
regulations and except that the Fund may engage in foreign exchange forward
contracts;
6. Make loans (except for purchases of debt securities consistent with the
investment policies of the Fund and except for repurchase agreements);
7. Make short sales of securities or maintain a short position, except for
short sales against the box;
8. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
9. Write put or call options, except that the Fund may (i) write covered
call options on individual securities and on stock indices; (ii) purchase put
and call options on securities which are eligible for purchase by the Fund and
on stock indices; and (iii) engage in closing transactions with respect to its
options writing and purchases, in all cases subject to applicable federal and
state laws and regulations;
10. Purchase any security if as a result the Fund would then hold more
than 10% of any class of voting securities of an issuer (taking all common
stock issues as a single class, all preferred stock issues as a single class,
and all debt issues as a single class), except that the Fund reserves the right
to invest all of its assets in a class of voting securities of another
investment company;
11. Invest more than 10% of its assets in the securities of other
investment companies or purchase more than 3% of any other investment company's
voting securities or make any other investment in other investment companies
except as permitted by federal and state law, except that the Fund reserves the
right to invest all of its assets in another investment company;
12. Invest more than 15% of its net assets in illiquid securities.
NORTHSTAR INCOME AND GROWTH FUND AND NORTHSTAR HIGH TOTAL RETURN FUND II.
The Funds have adopted investment restrictions numbered 1 through 11 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940, as
amended) of such Fund's outstanding voting shares. Investment restrictions
numbered 12 through 17 are not fundamental policies and may be changed by vote
of a majority of the Trust's Board members at any time. The Funds may not:
1. Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks but only if,
immediately after such borrowing there is asset coverage of 300%, and (b) enter
into transactions in options, futures, and options on futures and other
transactions not deemed to involve the issuance of senior securities;
2. Underwrite the securities of others;
3. Purchase or sell real property, including real estate limited
partnerships (each of these Funds may purchase marketable securities of
companies that deal in real estate or interests therein, including real estate
investment trusts);
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4. Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
5. Make loans to other persons (but the Funds may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to brokers or
dealers or other financial institutions not affiliated with the Funds or
Northstar, subject to conditions established by Northstar) (See "Lending
Portfolio Securities" in this SAI), and may purchase or hold participations in
loans, in accordance with the investment objectives and policies of the Fund,
as described in the current Prospectus and SAI of the Fund;
6. Participate in any joint trading accounts;
7. Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with futures
contracts will not be deemed to be purchases of securities on margin);
8. Sell short, except that these Funds may enter into short sales against
the box;
9. Invest more than 25% of its assets in any one industry or related group
of industries;
10. Purchase a security (other than U.S. Government obligations) if, as a
result, more than 5% of the value of total assets of the Fund would be invested
in securities of a single issuer;
11. Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an issuer,
would be held by the Fund;
12. Invest in a security if, as a result of such investment, more than 5%
of its total assets (taken at market value at the time of such investment)
would be invested in securities of issuers (other than issuers of federal
agency obligations) having a record, together with predecessors or
unconditional guarantors, of less than three years of continuous operation;
13. Purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except that
these Funds may purchase shares of other investment companies, subject to such
restrictions as may be imposed by the 1940 Act and rules thereunder or by any
state in which shares of the Fund are registered;
14. Purchase or retain securities of any issuer if 5% of the securities of
such issuer are owned by those officers and directors or trustees of the Fund
or of Northstar who each own beneficially more than 1/2 of 1% of its
securities;
15. Make an investment for the purpose of exercising control over
management;
16. Invest more than 15% of its net assets (determined at the time of
investment) in illiquid securities, including securities subject to legal or
contractual restrictions on resale (which may include private placements and
those 144A securities for which the Trustees, pursuant to procedures adopted by
the Fund, have not determined there is a liquid secondary market), repurchase
agreements maturing in more than seven days, options traded over the counter
that a Fund has purchased, securities being used to cover options a Fund has
written, securities for which market quotations are not readily available, or
other securities that, legally or in the Adviser's or Trustees' opinion, may be
deemed illiquid; or
17. Invest in interests in oil, gas or other mineral exploration
development programs (including oil, gas or other mineral leases).
As a fundamental policy, these Funds may borrow money from banks to the
extent permitted under the 1940 Act. As an operating (non- fundamental) policy,
these Funds do not intend to borrow any amount in excess of 10% of their
respective assets, and would do so only for temporary emergency or
administrative purposes. In addition, to avoid the potential leveraging of
assets, neither of these Funds will make additional investments when its
borrowings, including those investment techniques which are regarded as a form
of borrowing, are in excess of 5% of total assets. If either of these Funds
should determine to expand its ability to borrow beyond the current operating
policy, the Fund's Prospectus would be amended and shareholders would be
notified.
NORTHSTAR GROWTH, SPECIAL, BALANCE SHEET OPPORTUNITIES, HIGH YIELD,
STRATEGIC INCOME AND GOVERNMENT SECURITIES FUNDS. The Funds have adopted
investment restrictions numbered 1 through 12 as fundamental policies. These
restrictions cannot be changed without approval by the holders of a majority
(as defined in the Investment Company Act of 1940, as amended) of such Fund's
outstanding voting shares. Investment
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restrictions numbered 13 through 21 are not fundamental policies and may be
changed by vote of a majority of the Trust's Board members at any time. Each
Fund may not:
1. Borrow money, except from a bank and as a temporary measure for
extraordinary or emergency purposes, provided the Fund maintains asset coverage
of 300% for all borrowings;
2. Purchase securities of any one issuer (except Government securities)
if, as a result, more than 5% of the Fund's total assets would be invested in
that issuer, or the Fund would own or hold more than 10% of the outstanding
voting securities of the issuer; PROVIDED, HOWEVER, that up to 25% of the
Fund's total assets may be invested without regard to these limitations;
3. Underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter;
4. Concentrate its assets in the securities of issuers all of which
conduct their principal business activities in the same industry (this
restriction does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities);
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, each of these Funds may,
from time to time, agree to additional investment restrictions for purposes of
compliance with the securities laws of those state and foreign jurisdictions
where that Fund intends to offer or sell its shares.
INVESTMENT TECHNIQUES
DERIVATIVE INSTRUMENTS. The Funds may invest in Derivative Instruments (as
defined in the Funds' Prospectus) for a variety of reasons, including to
enhance return, hedge certain market risks, or provide a substitute for
purchasing or selling particular securities. Derivatives may provide a cheaper,
quicker or more specifically focused way for the Fund to invest than
"traditional" securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (I.E., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, Northstar and the Sub-Advisers will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as they would review the credit quality of a security to be purchased by
a Fund. Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the Derivative to be interested in bidding for
it.
FUTURES TRANSACTIONS -- IN GENERAL. A Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the United States, such as the London International
Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may
have greater
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risk potential than domestic markets. For example, some foreign exchanges are
principal markets so that no common clearing facility exists and an investor
may look only to the broker for performance of the contract. In addition, any
profits that the Fund might realize in trading could be eliminated by adverse
changes in the exchange rate, or the Fund could incur losses as a result of
those changes. Transactions on foreign exchanges may include both commodities
which are traded on domestic exchanges and those which are not. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that
limit or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's or
Sub-Adviser's ability to predict correctly movements in the direction of the
relevant market, and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract. For example, if
the Fund uses futures to hedge against the possibility of a decline in the
market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit of
the increased value of securities which it has hedged because it will have
offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. The Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission (the "SEC"), the Fund may be required to segregate cash or
high quality money market instruments in connection with its commodities
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of limiting the
Fund's ability otherwise to invest those assets.
SPECIFIC FUTURES TRANSACTIONS. The Funds may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on
the contract's last trading day and the value of the index based on the stock
prices of the securities that comprise it at the opening of trading in such
securities on the next business day.
The Funds may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
The Funds may purchase and sell currency futures. A foreign currency
future obligates the Fund to purchase or sell an amount of a specific currency
at a future date at a specific price.
The International Value Fund and Emerging Markets Value Fund will engage
in futures transactions only as a hedge against the risk of unexpected changes
in the values of securities held or intended to be held by these Funds. As a
general rule, the International Value Fund and Emerging Markets Value Fund will
not purchase or sell futures if, immediately thereafter, more than 25% of its
net assets would be hedged. In addition, these Funds will not purchase or sell
futures or related options if, immediately thereafter, the sum of the amount of
margin deposits on the Funds' existing futures positions and premiums paid for
such options would exceed 5% of the market value of the Funds' net assets.
OPTIONS -- IN GENERAL. The Funds may purchase and write (I.E., sell) call
or put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period.
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A covered call option written by a Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by a Fund is
covered when, among other things, cash or liquid securities having a value
equal to or greater than the exercise price of the option are placed in a
segregated account with the Fund's custodian to fulfill the obligation
undertaken. The principal reason for writing covered call and put options is to
realize, through the receipt of premiums, a greater return than would be
realized on the underlying securities alone. The Fund receives a premium from
writing covered call or put options which it retains whether or not the option
is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of
the clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
SPECIFIC OPTIONS TRANSACTIONS. The Funds may purchase and sell call and
put options in respect of specific securities (or groups or "baskets" of
specific securities) or stock indices listed on national securities exchanges
or traded in the over-the-counter market. An option on a stock index is similar
to an option in respect of specific securities, except that settlement does not
occur by delivery of the securities comprising the index. Instead, the option
holder receives an amount of cash if the closing level of the stock index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. Thus, the effectiveness
of purchasing or writing stock index options will depend upon price movements
in the level of the index rather than the price of a particular stock.
The Funds may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a
price which is expected to be lower or higher than the spot price of the
currency at the time the option is exercised or expires.
The Funds may purchase cash-settlement options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps in
pursuit of its investment objective. Interest rate swaps involve the exchange
by the Fund with another party of their respective commitments to pay or
receive interest (for example, an exchange of floating-rate payments for
fixed-rate payments) denominated in U.S. dollars or foreign currency. Equity
index swaps involve the exchange by the Fund with another party of cash flows
based upon the performance of an index or a portion of an index of securities
which usually includes dividends. A cash-settled option on a swap gives the
purchaser the right, but not the obligation, in return for the premium paid, to
receive an amount of cash equal to the value of the underlying swap as of the
exercise date. These options typically are purchased in privately negotiated
transactions from financial institutions, including securities brokerage firms.
Successful use by the Funds of options will be subject to the ability of
Northstar and the subadvisers to predict correctly movements in the prices of
individual stocks, the stock market generally, foreign currencies or interest
rates. To the extent the Manager's predictions are incorrect, the Funds may
incur losses.
SHORT SALES. A Fund may make short sales "against the box." A short-sale
is a transaction in which a party sells a security it does not own in
anticipation of decline in the market value of that security. A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain securities identical to those sold short. When the Fund makes a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities, and is often obligated to
pay over any accrued interest on such borrowed securities.
PRIVATELY ISSUED COLLATERALIZED MORTGAGE-BACKED OBLIGATIONS, INTEREST
OBLIGATIONS AND PRINCIPAL OBLIGATIONS. Each of High Total Return Fund II and
Income and Growth Fund may invest up to 5% of its net assets in Privately
Issued Collateralized Mortgage-Backed Obligations ("CMOs"), Interest
Obligations ("IOs") and Principal Obligations ("POs") when Northstar believes
that such investments are consistent with the Fund's
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investment objective. Collateralized mortgage obligations or "CMOs" are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, privately issued CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but also may be collateralized by whole
loans or private pass-throughs (such collateral collectively hereinafter
referred to as "Mortgage Assets"). Privately issued CMOs are per se illiquid.
Multi-class pass-through securities are equity interest in a trust composed of
Mortgage Assets. Unless the context indicates otherwise, all references herein
to CMOs include multi-class pass-through securities. Payments of principal of
and interest on the Mortgage Assets, and any reinvestment income thereon, are
the sources of funds used to pay debt service on the CMOs or make scheduled
distributions on the multi-class pass-through securities.
On a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. The principal of and interest on the Mortgage Assets may be
allocated among the several classes of a series of a CMO in innumerable ways.
The Funds may also invest in, among others, parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other
CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. PAC Bonds generally call for
payments of a specified amount of principal on each payment date.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.
SMBS are structured with two or more classes of securities that receive
different proportions of the interest and principal distributions on a pool of
Mortgage Assets. A common type of SMBS will have at least one class receiving
only a small portion of the interest and a larger portion of the principal from
the Mortgage Assets, while the other classes will receive primarily interest
and only a small portion of the principal. In the most extreme case, one class
will receive all of the interest (the interest-only or "IO" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying
Mortgage Assets, and a rapid rate of principal payments may have a material
adverse effect on such security's yield to maturity. If the underlying Mortgage
Assets experience greater than anticipated prepayments of principal, a Fund may
fail to recoup fully its initial investment in these securities. The
determination of whether a particular government-issued IO or PO backed by
fixed-rate mortgage is liquid is made by Northstar under guidelines and
standards established by the Board of Trustees. Such a security may be deemed
liquid if it can be disposed of promptly in the ordinary course of business at
a value reasonably close to that used in the calculation of net asset value per
share.
INDEX WARRANTS. The Strategic Income Fund may purchase put warrants and
call warrants whose values vary depending on the change in the value of one or
more specified securities indices ("index warrants"). Index warrants are
generally issued by banks or other financial institutions and give the holder
the right, at any time during the term of the warrant, to receive upon exercise
of the warrant a cash payment from the issuer, based on the value of the
underlying index at the time of exercise. In general, if the value of the
underlying index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash payment from the
issuer upon exercise, based on the difference between the value of the index
and the exercise price of the warrant; if the value of the underlying index
falls, the holder of a put warrant will be entitled to receive a cash payment
from the issuer upon exercise, based on the difference between the exercise
price of the warrant and the value of the index. The holder of a warrant would
not be entitled to any payments from the issuer at any time when, in the case
of a call warrant, the exercise price is greater than the value of the
underlying index, or, in the case of a put warrant, the exercise price is less
than the value of the underlying index. If the Strategic Income Fund were not
to exercise an index warrant prior to its expiration, then the Fund would lose
the amount of the purchase price paid by it for the warrant. The Strategic
Income Fund will normally use index warrants in a manner similar to its use of
options on securities indices. The risks of the Fund's use of index warrants
are
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generally similar to those relating to its use of index options. Unlike most
index options, however, index warrants are issued in limited amounts and are
not obligations of a regulated clearing agency, but are backed only by the
credit of the bank or other institution that issues the warrant. Also, index
warrants generally have longer terms than index options. Although the Strategic
Income Fund will normally invest only in exchange-listed warrants, index
warrants are not likely to be as liquid as certain index options backed by a
recognized clearing agency. In addition, the terms of index warrants may limit
the Fund's ability to exercise the warrants at such time, or in such
quantities, as the Fund would otherwise wish to do.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which a
Fund buys a money market instrument and obtains a simultaneous commitment from
the seller to repurchase the instrument at a specified time and at an agreed
upon yield. Northstar and the Sub- Advisers will use standards set by the
relevant Fund's Trustees in reviewing the creditworthiness of parties to
repurchase agreements with such Fund. In addition, no more than an aggregate of
15% of a Fund's net assets, at the time of investment, will be invested in
illiquid investments, including repurchase agreements having maturities longer
than seven days. In the event of failure of the executing bank or broker-
dealer, a Fund could experience some delay in obtaining direct ownership of the
underlying collateral and might incur a loss if the value of the security
should decline, as well as costs in disposing of the security.
Pursuant to an Exemptive Order under Section 17(d) and Rule 17d-1 obtained
by the Funds, excluding the Northstar Trust and the Strategic Income Fund, on
March 5, 1991, such Funds may deposit uninvested cash balances into a single
joint account to be used to enter into repurchase agreements.
As an alternative to using repurchase agreements, a Fund may, from time to
time, invest up to 5% of its assets in money market investment companies
sponsored by a third party for short-term liquidity purposes. Such investments
are subject to the non-fundamental investment limitations described herein.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. The Funds may
enter into reverse repurchase agreements and dollar roll agreements. Under a
reverse repurchase agreement or a dollar roll agreement, a Fund sells
securities and agrees to repurchase them, or substantially similar securities
in the case of a dollar roll agreement, at a mutually agreed upon date and
price. At the time the Fund enters into a reverse repurchase or dollar roll
agreement, it will establish and maintain a segregated account with its
custodian, containing cash, U.S. Government Securities, or other liquid assets
from its portfolio, having a value not less than the repurchase price
(including accrued interest). The Funds do not account for dollar rolls as a
borrowing.
These agreements may involve the risk that the market value of the
securities to be repurchased by a Fund may decline below the price at which the
Fund is obligated to repurchase. Also, in the event the buyer of securities
under a reverse repurchase agreement or a dollar roll agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement or the dollar roll agreement may effectively
be restricted pending such a decision.
LENDING PORTFOLIO SECURITIES. A Fund may lend portfolio securities to
broker-dealers and other financial institutions in an amount up to one-third of
the value of its total assets (30% of the value of total assets in the case of
the Northstar International Value and the Northstar Emerging Markets Value
Funds), provided that such loans are callable at any time by the Fund and are
at all times secured by collateral held by the Fund at least equal to the
market value, determined daily, of the loaned securities. A Fund will continue
to receive any income on the loaned securities, while simultaneously earning
interest on cash collateral (which will be invested in short-term debt
obligations) or a securities lending fee (in the case of collateral in the form
of U.S. Government Securities).
There may be risks of delay in recovery of the loaned securities and, in
some cases, loss of rights in the collateral should the borrower of the
securities fail financially. Loans of portfolio securities will only be made to
firms considered by Northstar to be creditworthy under guidelines adopted by
the Trustees.
FIRM COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Fund may enter into firm
commitment agreements to purchase securities at an agreed-upon price on a
specified future date. An amount of cash or short-term U.S. Government
Securities equal to the Fund's commitment will be deposited in a segregated
account at the
10
<PAGE>
Fund's custodian bank to secure the Fund's obligation. Although a Fund will
generally enter into firm commitments to purchase securities with the intention
of actually acquiring the securities for its portfolio (or for delivery
pursuant to options contracts it has entered into), the Fund may dispose of a
security prior to settlement if Northstar deems it advisable to do so. A Fund
entering into the forward commitment may realize short-term gains or losses in
connection with such sales.
A Fund may enter into To Be Announced ("TBA") sale commitments wherein the
unit price and the estimated principal amount are established upon entering
into the contract, with the actual principal amount being within a specified
range of the estimate. A Fund will enter into TBA sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns under delayed
delivery arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment is
outstanding, the Fund will maintain, in a segregated account, cash or
high-grade debt obligations in an amount sufficient to meet the purchase price.
Unsettled TBA sale commitments are valued at current market value of the
underlying securities. If the TBA sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund realizes a gain or
loss on the commitment without regard to any unrealized gain or loss on the
underlying security. If the Fund delivers securities under the commitment, the
Fund realizes a gain or loss from the sale of the securities, based upon the
unit price established at the date the commitment was entered into.
A Fund may also purchase securities on a when-issued or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date, normally within one month. The value of the security on the
settlement date may be more or less than the price paid as a result of, among
other things, changes in the level of interest rates or other market factors.
Accordingly, there is a risk of loss, which is in addition to the risk of
decline in the value of the Fund's other assets. The Fund will establish a
segregated account with its custodian in which it will maintain cash and
marketable securities equal in value to commitments for when-issued or delayed
delivery securities. While when-issued or delayed delivery securities may be
sold prior to the settlement date, it is intended that a Fund will purchase
such securities with the purpose of actually acquiring them, unless a sale
appears desirable for investment reasons.
FLOATING OR VARIABLE RATE INSTRUMENTS. The Funds may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Such bonds are
frequently secured by letters of credit or other credit support arrangements
provided by banks. Floating or variable rate instruments provide for
adjustments in the interest rate at specified intervals (weekly, monthly,
semiannually, etc.). A Fund would anticipate using these bonds as cash
equivalents, pending longer term investment of its funds. Other longer term
fixed-rate bonds, with a right of the holder to request redemption at certain
times (often annually, after the lapse of an intermediate term), may also be
purchased by a Fund. These bonds are more defensive than conventional long-term
bonds (protecting to some degree against a rise in interest rates), while
providing greater opportunity than comparable intermediate term bonds since the
Fund may retain the bond if interest rates decline. By acquiring these kinds of
bonds, a Fund obtains the contractual right to require the issuer of the
security, or some other person (other than a broker or dealer), to purchase the
security at an agreed upon price, which right is contained in the obligation
itself rather than in a separate agreement with the seller or some other
person.
ZERO COUPON SECURITIES. Zero coupon securities are fixed income securities
that have been stripped of their unmatured interest coupons. Zero coupon
securities are sold at a (usually substantial) discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. The amount of this discount is accredited over the life of the
security, and the accretion constitutes the income earned on the security for
both accounting and tax purposes. Because of these features, the market prices
of zero coupon securities are generally more volatile than the market prices of
securities that have a similar maturity but that pay interest periodically.
Zero coupon securities are likely to respond to a greater degree to interest
rate changes than are non-zero coupon securities with similar maturity and
credit qualities. Each Fund may invest a portion of its total assets in "zero
coupon" Treasury securities, which consist of Treasury bills or stripped
interest or principal components of U.S. Treasury bonds or notes.
Zero coupon Treasury bonds or notes consist of stripped interest or
principal components held in STRIPS form issued through the U.S. Treasury's
STRIPS program, which permits the beneficial ownership of the component to be
recorded directly in the Treasury book-entry system. The Funds may also
purchase custodial receipts
11
<PAGE>
evidencing beneficial ownership of direct interests in component parts of U.S.
Treasury bonds or notes held by a bank in a custodian or trust account.
ADDITIONAL INFORMATION ON GNMAS. The Funds may invest in U.S. Government
Securities, which are obligations of, or guaranteed by, the U.S. Government,
its agencies or instrumentalities. A substantial portion of the assets of the
Government Securities Fund have, at various times, been invested in obligations
of the Government National Mortgage Association (popularly called GNMAs or
Ginnie Maes). All of the other Funds may also invest in GNMAs from time to
time.
GNMAs are mortgage backed securities representing part ownership of a pool
of mortgage loans, in which the timely payment of principal and interest is
guaranteed by the full faith and credit of the U.S. Government. GNMA may borrow
U.S. Treasury funds to the extent needed to make payments under the guarantee.
The Funds purchase "modified pass-through" type GNMA Certificates for which
principal and interest are guaranteed, rather than the "straight pass through"
Certificates for which such guarantee is not available. The Funds also purchase
"variable rate" GNMA Certificates and may purchase other types that may be used
with GNMA's guarantee.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagors or when foreclosure occurs, such principal payments are passed
through to the Certificate holders (such as a Fund). Accordingly, the life of
the GNMA Certificate is likely to be substantially shorter than the stated
maturity of the mortgages in the underlying pool, which will have maturities of
up to 30 years. Because of such variation in prepayment rights, it is not
possible to accurately predict the life of a particular GNMA Certificate.
Payments to holders of GNMA Certificates consist of the monthly
distributions of interest and principal, less the GNMA and issuer's fees. The
portion of the monthly payment that represents a return of principal may be
reinvested by a Fund holding the GNMA in then-available GNMA obligations, which
may bear interest at a rate higher or lower than the obligation from which the
payment was received, or in a differing security. The actual yield to be earned
by the holder of a GNMA Certificate is calculated by dividing such payments by
the purchase price paid for the GNMA Certificate (which may be at a premium or
a discount from the face value of the Certificate). Unpredictable prepayments
of principal, however, can greatly change realized yields. In a period of
declining interest rates it is more likely that mortgages contained in GNMA
pools will be prepaid, thus reducing the effective yield. Moreover, any premium
paid on the purchase of a GNMA Certificate will be lost if the obligation is
prepaid. In periods of falling interest rates, this potential for prepayment
may reduce the general upward price increase of GNMA Certificates that might
otherwise occur. As with other debt instruments, the price of GNMA Certificates
is likely to decrease in times of rising interest rates. Price changes of the
GNMA Certificates held by a Fund have a direct impact on the net asset value
per share of the Fund.
When interest rates rise, the value of a GNMA Certificate will generally
decline. Conversely, when rates fall, the GNMA Certificate value may rise,
although not as much as other debt issues, due to the prepayment feature. As a
result, the price per share the shareholder receives on redemption may be more
or less than the price paid for the shares. The dividends per share paid by the
Government Securities Fund may also vary.
RISKS OF INTERNATIONAL INVESTING
Investments in foreign securities involve special risks, including
currency fluctuations, political or economic instability in the country of
issue and the possible imposition of exchange controls or other laws or
restrictions. In addition, securities prices in foreign markets are generally
subject to different economic, financial, political and social factors than are
the prices of securities in U.S. markets. With respect to some foreign
countries there may be the possibility of expropriation or confiscatory
taxation, limitations on liquidity of securities or political or economic
developments which could affect the foreign investments of a Fund. Moreover,
securities of foreign issuers generally will not be registered with the SEC,
and such issuers will generally not be subject to the SEC's reporting
requirements. Accordingly, there is likely to be less publicly available
information concerning certain of the foreign issuers of securities held by the
Fund than is available concerning U.S. companies. Foreign companies are also
generally not subject to uniform accounting, auditing and financial reporting
standards or to practices and requirements comparable to those applicable to
U.S. companies. There may also be less government supervision and regulation of
foreign broker-dealers, financial institutions and listed companies than exists
in the U.S. Commission rates in foreign countries, which are generally fixed
rather than subject to negotiation as in the U.S., are likely to be higher.
These factors could make foreign investments, especially those in developing
countries, more volatile. All of the above issues should be considered before
investing in the Fund.
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<PAGE>
EMERGING MARKETS AND RELATED RISKS
The International Value Fund may invest up to 25% of its assets and the
Emerging Markets Value Fund may invest greater than 65% of its assets in
securities of companies located in countries with emerging securities markets.
Emerging markets are the capital markets of any country that is generally
considered a developing country by the international financial community.
Currently, these markets include, but are not limited to, the markets of
Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hong
Kong, Hungary, India, Indonesia, Jordon, Malaysia, Mexico, Pakistan, Peru,
Philippines, Poland, Portugal, Russia, Singapore, South Africa, Thailand,
Turkey, Venezuela and Zaire. As opportunities to invest in other emerging
markets countries develop, the Fund expects to expand and diversify further the
countries in which it invests.
Investing in emerging market securities involves risks which are in
addition to the usual risks inherent in foreign investments. Some emerging
markets countries may have fixed or managed currencies that are not free-
floating against the U.S. dollar. Further, certain currencies may not be traded
internationally. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Fund's portfolio securities are denominated may have a detrimental
impact on the Fund.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be
greater difficulties or restrictions with respect to investments made in
emerging markets countries.
Emerging securities markets typically have substantially less volume than
U.S. markets, securities in many of such markets are less liquid, and their
prices often are more volatile than securities of comparable U.S. companies.
Such markets often have different clearance and settlement procedures for
securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets which the Fund desires to invest in emerging
markets may be uninvested. Settlement problems in emerging markets countries
also could cause the Fund to miss attractive investment opportunities.
Satisfactory custodial services may not be available in some emerging markets
countries, which may result in the Fund incurring additional costs and delays
in the transportation and custody of such securities.
ADDITIONAL INFORMATION ON FOREIGN SECURITIES. Each Fund, except Government
Securities Fund, may invest in securities of foreign issuers. Each of these
Funds other than International Value, Emerging Markets Value, High Yield,
Strategic Income, and High Total Return Fund II may invest up to 20% of its net
assets in foreign securities, of which 10% of its net assets may be invested in
foreign securities that are not listed on a U.S. securities exchange. Strategic
Income may invest up to 60% of its assets in securities of foreign issuers,
High Total Return Fund II may invest up to 50% and High Yield up to 35% of its
total assets. The International Value Fund may invest up to 100% of its total
assets in securities of foreign issuers. Eurodollar certificates of deposit are
excluded for purposes of this limitation for Strategic Income.
ADDITIONAL INFORMATION ON HIGH YIELD SECURITIES. Balance Sheet
Opportunities Fund, High Yield Fund, High Total Return Fund II, and Strategic
Income Fund, each may invest in lower-rated fixed income securities to the
extent described in the Prospectus. The lower ratings of certain securities
held by these Funds reflect a greater possibility that adverse changes in the
financial condition of the issuer or economic conditions in general, or both,
or an unanticipated rise in interest rates, may impair the ability of the
issuer to make payments of interest and principal. The inability (or perceived
inability) of issuers to make timely payment of interest and principal would
likely make the values of securities held by these Funds more volatile and
could limit a Fund's ability to sell its securities at prices approximating the
values the Fund had placed on such securities. In the absence of a liquid
trading market for the securities held by it, a Fund may be unable at times to
establish the fair value of such securities. The rating assigned to a security
by Moody's Investors Service, Inc. or S & P (or by any other nationally
recognized securities rating organization) does not reflect an assessment of
the volatility of the security's market value or the liquidity of an investment
in the security. See the Appendix for a description of a security.
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<PAGE>
Like those of other fixed income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of a Fund's
assets. Conversely, during periods of rising interest rates, the value of a
Fund's assets will generally decline. In addition, the values of such
securities are also affected by changes in general economic conditions and
business conditions affecting the specific industries of their issuers. Changes
by recognized rating services in their ratings of any fixed income security and
in the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in the value of portfolio
securities generally will not affect cash income derived from such securities,
but will effect a Fund's net asset value. A Fund will not necessarily dispose
of a security when its rating is reduced below its rating at the time of
purchase, although Northstar will monitor the investment to determine whether
its retention will assist in meeting a Fund's investment objective.
Certain securities held by a Fund may permit the issuer at its option to
call, or redeem, its securities. If an issuer were to redeem securities held by
a Fund during a time of declining interest rates, the Fund may not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Each Fund may invest in loan
participations and loan assignments. A Fund's investment in loan participations
typically will result in the Fund having a contractual relationship only with
the Lender and not with the borrower. The Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participations and only upon receipt by the Lender of
the payments from the borrower. In connection with purchasing Participations,
the Fund generally will have no right to enforce compliance by the borrower
with the terms of the loan agreement relating to the Loan, nor any right of
set- off against the borrower, and the Fund may not directly benefit from any
collateral supporting the Loan in which it has purchased the Participation. As
a result, the Fund may be subject to the credit risk of both the borrower and
the Lender that is selling the Participation. In the event of the insolvency of
the Lender selling a Participation, the Fund may be treated as a general
creditor of the Lender and may not benefit from any set-off between the Lender
and the borrower.
When a Fund purchases a loan assignment from Lenders, it will acquire
direct rights against the borrowers on the Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those
held by the assigning Lender. Because there is no liquid market for such
securities, the Funds anticipate that such securities could be sold only to a
limited number of institutional investors. The lack of a liquid secondary
market may have an adverse impact on the value of such securities and a Fund's
ability to dispose of particular assignments or participations when necessary
to meet redemptions of Fund shares, to meet the Fund's liquidity needs or when
necessary in response to a specific economic event, such as deterioration in
the creditworthiness of the borrower. The lack of a liquid secondary market for
assignments and participations also may make it more difficult for a Fund to
value these securities for purposes of calculating its net asset value.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Northstar, and the Sub-Adviser in the case of Growth + Value Fund, Special
Fund, International Value Fund, and Emerging Markets Value Fund, places orders
for the purchase and sale of the Funds' securities, supervises their execution
and negotiates brokerage commissions on behalf of each Fund. For purposes of
the remainder of this section, "Portfolio Transactions and Brokerage
Allocation," discussion of Northstar includes the Sub-Adviser, but only with
respect to Growth + Value Fund, Special Fund, International Value Fund and
Emerging Markets Value Fund. It is the practice of Northstar to seek the best
prices and best execution of orders and to negotiate brokerage commissions that
in the Adviser's opinion, are reasonable in relation to the value of the
brokerage services provided by the executing broker. Brokers who have executed
orders for the Funds are asked to quote a fair commission for their services.
If the execution is satisfactory and if the requested rate approximates rates
currently being quoted by the other brokers selected by Northstar, the rate is
deemed by Northstar to be reasonable. Brokers may ask for higher rates of
commission if all or a portion of the securities involved in the transaction
are positioned by the broker, if the broker believes it has brought a Fund an
unusually favorable trading opportunity, or if the broker regards its research
services as being of exceptional value and payment of such commissions is
authorized by Northstar after the transaction has been consummated. If
Northstar more than occasionally differs with the broker's appraisal of
opportunity or value, the broker would not be selected to execute trades in the
future. Northstar believes that each Fund benefits with a securities industry
comprised of
14
<PAGE>
many and diverse firms and that the long term interest of shareholders of the
Funds is best served by its brokerage policies that include paying a fair
commission, rather than seeking to exploit its leverage to force the lowest
possible commission rate. Over-the-counter purchases and sales are transacted
directly with principal market-makers, except in those circumstances where, in
the opinion of Northstar, better prices and execution are available elsewhere.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry
groups and individual issues. Research services will vary from firm to firm,
with broadest coverage generally from the large full-line firms. Smaller firms,
in general, tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor
federal, state, local and foreign political developments; many of the brokers
also provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff, since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the
Adviser's staff can follow. In addition, the outside research provides
Northstar with a diverse perspective on financial markets. Research and
investment information is provided by these and other brokers at no cost to
Northstar and is available for the benefit of other accounts advised by
Northstar and its affiliates; and not all of this information will be used in
connection with the Funds. While this information may be useful in varying
degrees and may tend to reduce the Adviser's expenses, it is not possible to
estimate its value, and, in the opinion of Northstar, it does not reduce the
Adviser's expenses by a determinable amount. The extent to which Northstar
makes use of statistical, research and other services furnished by brokers is
considered by Northstar in the allocation of brokerage business, but there is
no formula by which such business is allocated. Northstar does so in accordance
with its judgment of the best interests of the Funds and their shareholders.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. Each Fund
will also purchase such securities in underwritten offerings and will, on
occasion, purchase securities directly from the issuer. Generally, fixed income
securities are traded on a net basis and do not involve brokerage commissions.
The cost of executing fixed income securities transactions consists primarily
of dealer spreads and underwriting commissions.
In purchasing and selling fixed income securities, it is the policy of
each Fund to obtain the best results, while taking into account the dealer's
general execution and operational facilities, the type of transaction involved
and other factors, such as the dealer's risk in positioning the securities
involved. While Northstar generally seeks reasonably competitive spreads or
commissions, the Funds will not necessarily pay the lowest spread or commission
available.
Each Fund may, under circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Funds. By allocating
transactions in this manner, Northstar is able to supplement its research and
analysis with the views and information of other securities firms. During the
fiscal years ended October 31, 1997, October 31, 1996 and October 31, 1995 in
the case of the Growth + Value, International Value, Emerging Markets Value,
Income and Growth, and High Total Return II Funds and the fiscal years ended
December 31, 1997 December 31, 1996 and December 31, 1995 for the Growth,
Special, Balance Sheet Opportunities, High Yield, Strategic Income and
Government Securities Funds, each of the Funds listed below paid the total
brokerage commissions indicated below, including, in the case of the Growth,
Special, Balance Sheet Opportunities, High Yield, Strategic Income and
Government Securities Funds, commissions to Advest, Inc. ("Advest"), an
affiliate of the Funds' former investment adviser.
15
<PAGE>
BROKERAGE COMMISSIONS PAID DURING FISCAL YEARS ENDED OCTOBER 31, 1997, 1996 AND
1995 FOR THE
NORTHSTAR TRUST AND FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 FOR THE
FUNDS
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------------------
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Growth + Value Fund ..................... $170,986 N/A N/A
International Value Fund(1) ............. $421,452 $ 46,650 $ 9,822
Emerging Markets Value Fund (2) ......... N/A N/A N/A
Income and Growth Fund .................. $ 93,492 $507,638 $249,474
High Total Return Fund II ............... $ -- N/A N/A
</TABLE>
- ---------
(1) Prior to April 21, 1997, the International Value Fund was operated as the
Brandes International Fund, a series of the Brandes Investment Trust, and
distributed by Worldwide Value Distributors, L.L.C.
(2) Northstar Emerging Markets Value Fund commenced operations on January 1,
1998.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Growth Fund .............................. $169,066 $124,024 $241,864
Special Fund ............................. $874,698 $479,135 $ 87,375
Balance Sheet Opportunities Fund ......... $ 81,371 $ 90,283 $ 88,151
High Yield Fund .......................... $ -- $ 16,591 $ 12,763
Strategic Income Fund .................... $ -- $ -- $ 552
Government Securities Fund ............... $ -- $ 1,049 $ --
</TABLE>
- ---------
(1) During the fiscal year 1995, the funds listed above paid the following
brokerage commissions to Advest, Inc.: $2,400 and $6,540 for the Growth
Fund and Special Fund, respectively. The other above listed funds did not
pay any brokerage commissions to Advest, Inc. for the fiscal year 1995.
A change in securities held in the portfolio of a Fund is known as
"Portfolio Turnover" and may involve the payment by a Fund of dealer markups or
brokerage or underwriting commissions and other transaction costs on the sale
of securities, as well as on the reinvestment of the proceeds in other
securities. Portfolio turnover rate for a fiscal year is the percentage
determined by dividing the lesser of the cost of purchases or proceeds from
sales of portfolio securities by the average of the value of portfolio
securities during such year, all excluding securities whose maturities at
acquisition were one year or less. Each Fund's historical portfolio turnover
rates are included in the Financial Highlights tables in the prospectus. In
evaluating a Fund's portfolio turnover rate, you should keep in mind that a
100% annual turnover rate would occur, for example, if all the securities in
the portfolio were replaced once in a period of one year. A Fund's portfolio
turnover rate may be higher than that described above if a Fund finds it
necessary to significantly change its portfolio to adopt a temporary defensive
position or respond to economic or market events. A high turnover rate would
increase commission expenses and may involve realization of gains that would be
taxable to shareholders.
SERVICES OF NORTHSTAR, THE SUB-ADVISERS AND THE ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with each Fund, Northstar
Investment Management Corporation acts as the Investment Adviser to each Fund.
In this capacity, Northstar, subject to the authority of the Trustees of the
Funds, and subject to delegation of certain responsibilities to Brandes
Investment Partners, L.P. as the Sub-Adviser for the International Value Fund
and the Emerging Markets Value Fund, and Navellier Fund Management, Inc. as the
Sub-Adviser for the Growth + Value Fund and the Special Fund, is responsible
for furnishing continuous investment supervision to the Funds and is
responsible for the management of each Fund's portfolio. Northstar oversees the
investment management of the Sub-Advisers for the Funds which are managed by a
Sub-Adviser.
Northstar is an indirect, wholly-owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar"). ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the life insurance business. Through ReliaStar Life
Insurance Company ("ReliaStar Life") and other subsidiaries, ReliaStar issues
and distributes individual life insurance and annuities, group life and health
insurance and life and health reinsurance, and provides related investment
management services. The address of Northstar is Two Pickwick Plaza, Greenwich,
Connecticut 06830. The address of ReliaStar is 20 Washington Avenue South,
Minneapolis, Minnesota 55401.
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<PAGE>
Northstar charges a fee under each advisory agreement to Growth + Value
Fund, Growth Fund, Special Fund, International Value Fund, Emerging Markets
Value Fund, Balance Sheet Opportunities Fund, High Yield Fund, High Total
Return Fund II, Strategic Income Fund and Government Securities Fund at an
annual rate, after voluntary waivers or expense reimbursements, of 1.00%,
0.75%, 0.75%, 1.00%, 1.00%, 0.65%, 0.60%, 0.75%, 0.65% and 0.50% of such Fund's
average daily net assets, respectively. This fee is accrued daily and payable
monthly.
Northstar charges a fee to the Income and Growth Fund at the annual rate
of 0.75% on the first $250,000,000 of aggregate average daily net assets of
each Fund, 0.70% on the next $250,000,000 of such assets, 0.65% on the next
$250,000,000 of such assets; 0.60% on the next $250,000,000 of such assets, and
0.55% on the remaining aggregate daily net assets of each Fund in excess of $1
billion.
The Investment Advisory Agreement for the Income and Growth Fund was
originally approved by the Trustees of the Northstar Trust on October 23, 1993,
and by the sole Shareholder of the Northstar Income and Growth Fund on November
8, 1993. The Investment Advisory Agreement continued in effect for a period of
two years and was renewed by the Trustees for one year on October 31, 1995. It
will continue in effect from year to year if specifically approved annually by
(a) the Trustees, acting separately on behalf of the Fund, including a majority
of the Disinterested Trustees, or (b) a majority of the outstanding voting
securities of each class of the Fund as defined in the 1940 Act.
The Investment Advisory Agreement for the Growth + Value Fund, High Total
Return Fund II and International Value Fund were approved by the Trustees of
the Northstar Trust on July 31, 1996, October 29, 1996 and January 23, 1997,
respectively. The Investment Advisory Agreement will continue in effect for a
period of two years and annually thereafter if specifically approved annually
by (a) the Trustees, acting separately on behalf of the Fund, including a
majority of the Disinterested Trustees, or (b) a majority of the outstanding
voting securities of each class of the Fund as defined in the 1940 Act.
The Investment Advisory Agreement for the Emerging Markets Value Fund was
approved by the Trustees of the Northstar Trust on behalf of the Fund on
October 29, 1997, and by the sole shareholder of the Fund on November 8, 1997.
The Investment Advisory Agreement will continue in effect until November 8,
1999, and then will continue in effect from year to year, if specifically
approved annually by (a) the Trustees of the Trust, on behalf of the Fund,
including a majority of the Disinterested Trustees, or (b) a majority of the
outstanding voting securities of each class of the Fund as defined in the 1940
Act.
Each Investment Advisory Agreement for the remaining Funds was approved by
the Trustees of the affected Fund on March 1, 1995 and by the shareholders of
such Fund on June 2, 1995. Each such Investment Advisory Agreement continues in
effect from year to year if specifically approved annually by (a) the Trustees,
acting separately on behalf of the particular Fund, including a majority of the
Disinterested Trustees, or (b) a majority of the outstanding voting securities
of each class of such Fund as defined in the 1940 Act. The Agreements were last
approved on April 24, 1997.
A Fund's Investment Advisory Agreement may be terminated as to any class,
without penalty and at any time, by a similar vote upon not more than 60 days
nor less than 30 days written notice by Northstar, the Trustees, or a majority
of the outstanding voting securities of such class of such Fund as defined in
the 1940 Act. Such agreement will automatically terminate in the event of its
assignment, as defined in Section 2(a)(4) of the 1940 Act.
Pursuant to a Sub-Advisory Agreement between Northstar and Brandes
Investment Partners, L.P. ("Brandes"), dated February 28, 1997 and a
Sub-Advisory Agreement between Northstar and Brandes dated November 8, 1997,
Brandes acts as Sub-Adviser to the International Value Fund and the Emerging
Markets Value Fund, respectively. In this capacity, Brandes, subject to the
supervision and control of Northstar and the Trustees of the Funds, will manage
each Fund's portfolio investments, consistently with each Fund's investment
objective, and will execute any of the Fund's investment policies that it deems
appropriate to utilize from time to time. Fees payable under the Sub-Advisory
Agreements will accrue daily and be paid monthly by Northstar. As compensation
for its services, Northstar will pay Brandes at the annual rate of 50% of the
management fee that each of the Funds it subadvises pays Northstar. Brandes'
address is 12750 High Bluff Drive, San Diego, California 92130. Charles
Brandes, who controls the general partner of Brandes, serves as one of the
managing directors of Brandes. The Sub-Advisory Agreement for the International
Value Fund was approved by the Trustees of the Fund on January 23, 1997. The
Sub-Advisory Agreement for the Emerging Markets Value Fund was approved
17
<PAGE>
by the Trustees of the Fund on October 29, 1997. The Sub-Advisory Agreements
may be terminated without payment of any penalty by Northstar, Brandes, the
Trustees of the Funds, or the shareholders of the Funds on not more than 60
days and not less than 30 days prior written notice. Otherwise, the
Sub-Advisory Agreements will remain in effect for two years and will,
thereafter, continue in effect from year to year, subject to the annual
approval of the Trustees of the Trust on behalf of each of the Funds, or the
vote of a majority of the outstanding voting securities of such Fund, and the
vote, cast in person at a meeting duly called and held, of a majority of the
Trustees of such Fund who are not parties to the Sub-Advisory Agreement or
"interested persons" (as defined in the 1940 Act) of any such Party.
Pursuant to separate Sub-Advisory Agreements between Northstar and
Navellier Fund Management, Inc. ("Navellier"), dated July 31, 1996 and February
1, 1996, Navellier acts as subadviser to Growth + Value Fund and Special Fund,
respectively. In this capacity, Navellier, subject to the supervision and
control of Northstar and the Trustees of such Funds, will manage the Funds'
portfolio investments, consistently with their investment objective, and will
execute any of the Funds' investment policies that it deems appropriate to
utilize from time to time. Fees payable under the Sub-Advisory Agreement will
accrue daily and be paid monthly by Northstar. As compensation for its
services, Northstar will pay Navellier at the annual rate of 0.64% and 0.48% of
the average daily net assets of Growth + Value Fund and Special Fund,
respectively. Navellier is wholly-owned and controlled by its sole stockholder,
Louis G. Navellier. Navellier's address is: 1 East Liberty, Third Floor, Reno,
Nevada, 89501. The Sub-Advisory Agreement for Growth + Value Fund was approved
by the Trustees of the Fund on July 31, 1996. The Sub- Advisory Agreement for
Special Fund was approved by the Trustees of the Fund on December 1, 1995, and
by vote of the Shareholders of the Fund on January 30, 1996. Each Sub-Advisory
Agreement may be terminated without payment of any penalty by Northstar,
Navellier, the Trustees of such Fund, or the shareholders of such Fund on not
more than 60 days and not less than 30 days prior written notice. Otherwise,
each Sub-Advisory Agreement will remain in effect for two years and will,
thereafter, continue in effect from year to year, subject to the annual
approval of the Trustees of the applicable Fund, or the vote of a majority of
the outstanding voting securities of such Fund, and the vote, cast in person at
a meeting duly called and held, of a majority of the Trustees of such Fund who
are not parties to the Sub-Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such Party.
Northstar Administrators Corporation serves as administrator for the
Funds, pursuant to an Administrative Services Agreement with each Fund. Subject
to the supervision of the Board of Trustees, the Administrator provides the
overall business management and administrative services necessary to the proper
conduct of the Funds' business, except for those services performed by
Northstar under the Investment Advisory Agreements, the custodian for the Funds
under the Custodian Agreements, the transfer agent for the Funds under the
Transfer Agency Agreements, and such other service providers as may be retained
by the Funds from time to time. The Administrator acts as liaison among these
service providers to the Funds. The Administrator is also responsible for
ensuring that the Funds operate in compliance with applicable legal
requirements and for monitoring Northstar for compliance with requirements
under applicable law and with the investment policies and restrictions of the
Funds. The Administrator is an affiliate of Northstar. The address of the
Administrator is: Two Pickwick Plaza, Greenwich, Connecticut 06830.
The Administrative Services Agreement was approved by the Trustees of the
Trust on behalf of the Income and Growth Fund on October 23, 1993, and
continued in effect for a period of two years. The Agreement was renewed by the
Trustees for one year on October 31, 1995 and will continue in effect from year
to year thereafter, provided such continuance is approved annually by a
majority of the Trustees of the Trust. The Administrative Services Agreement
for the Northstar Growth + Value Fund was approved by the Trustees of the
Northstar Trust on July 31, 1996 and will continue in effect from year to year
thereafter, provided such continuance is approved annually by a majority of the
Trustees. The Administrative Services Agreement for Northstar International
Value Fund was approved by the Trustees of the Northstar Trust on January 23,
1997 and will continue in effect from year to year thereafter, provided such
continuance is approved annually by a majority of the Trustees.
The Administrative Services Agreement for the Northstar High Total Return
Fund II was approved by the Trustees of the Northstar Trust on October 29, 1996
and will continue in effect from year to year thereafter, provided such
continuance is approved annually by a majority of the Trustees.
The Administrative Services Agreement for the Emerging Markets Value Fund
was approved by the Trustees of the Northstar Trust on behalf of the Fund on
October 29, 1997. The Administrative Services Agreement
18
<PAGE>
will continue in effect until November 8, 1999, and then will continue in
effect from year to year, if specifically approved annually by a majority of
the Trustees of the Trust on behalf of the Fund.
Each Administrative Services Agreement for the remaining Funds was
approved by the Trustees of the particular Fund on March 1, 1995, and continued
in effect until June 2, 1997. The agreement was renewed by the Trustees for one
year on April 24, 1997 and will continue in effect from year to year
thereafter, provided such continuance is approved annually by a majority of the
Disinterested Trustees of the affected Fund.
The Administrator's fee is accrued daily against the value of each Fund's
net assets and is payable by each Fund monthly at an annual rate of 0.10% of
each Fund's average daily net assets. In addition, the Administrator charges an
annual account fee of $5.00 for each account of beneficial owners of shares in
a Fund for providing certain shareholder services and assisting broker-dealer
shareholder accounts.
During the fiscal years ended October 31, 1997, 1996 and 1995, or during
the calendar years ended December 31, 1997, 1996, 1995, 1994 and 1993
respectively, the Funds listed below paid Northstar and the Administrator the
following investment advisory and administrative fees:
TOTAL ADVISORY AND ADMINISTRATIVE FEES PAID
DURING THE FISCAL YEAR ENDED OCTOBER 31,
<TABLE>
<CAPTION>
1997 1997 1996 1996 1995 1995
--------------- ------------- --------------- ------------- --------------- ------------
ADVISORY FEES ADMIN. FEES ADVISORY FEES ADMIN. FEES ADVISORY FEES ADMIN. FEES
--------------- ------------- --------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Growth + Value Fund .... $ 538,291 74,529 N/A N/A N/A N/A
International Value Fund $ 789,163 116,315 259,033 60,000 34,019 39,452
Emerging Markets Value
Fund .................. N/A N/A N/A N/A N/A N/A
Income and Growth Fund $1,513,778 233,759 1,548,967 242,294 1,158,432 154,457
High Total Return Fund
II .................... $ 68,888 14,025 N/A N/A N/A N/A
</TABLE>
- ---------
(1) Prior to April 21, 1997, the International Value Fund was managed by
Brandes Investment Partners L.P. The administrator for the Fund was the
Investment Company Administration Corporation.
(2) Does not reflect expense reimbursement of $11,165 for Growth + Value Fund,
$173,911 for International Value Fund or $105,669 for Northstar High Total
Return Fund II.
TOTAL ADVISORY AND ADMINISTRATIVE FEES PAID
DURING FISCAL YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1997 1996 1996 1995 1994 1993
ADVISORY ADMIN. ADVISORY ADMIN. ADVISORY ADVISORY ADVISORY
FEES FEES FEES FEES FEES FEES FEES
------------- --------- ------------ -------- ---------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Fund ................... $1,412,949 136,648 575,383 0 593,282 604,576 517,203
Special Fund .................. $2,341,067 266,145 1,146,789 0 287,311(4) 268,139 145,178
Balance Sheet Opportunities
Fund ......................... $ 398,127 46,191 464,088 0 477,095 519,729 447,631
High Yield .................... $1,289,419 180,250 941,594 0 683,323 622,761 432,063
Strategic Income Fund ......... $ 471,957 51,242 532,941 0 252,201 57,726 --
Government Securities Fund .... $ 762,504 78,343 923,929 0 678,996 747,846 767,370
</TABLE>
- ---------
(1) Prior to June 5, 1995, the Growth, Special, Balance Sheet Opportunities,
High Yield, Strategic Income and Government Securities Funds were managed
by Boston Security Counselors, Inc. ("BSC") and did not utilize the
services of an administrator. During the fiscal years ended December 31,
1997, 1996, 1995, 1994 and 1993, the Funds listed above paid Northstar or
BSC the above noted investment advisory fees.
(2) Does not reflect expense reimbursement of $10,635 for the Growth Fund,
$20,690 for the Balance Sheet Opportunities Fund, $21,320 for the
Strategic Income Fund, $227,803 for the Government Securities Fund for the
year ended December 31, 1997; of expense reimbursement of $34,126 for the
Growth Fund, $20,615 for the Special Fund, $41,925 for the Balance Sheet
Opportunities Fund, $65,578 for the Strategic Income Fund for the year
ended December 31, 1996; expense reimbursement of $87,944 for the
Strategic Income Fund and expense reimbursement of $15,175 for the
Government Securities Fund for the year ended December 31, 1995.
(3) Net of waiver of investment advisory fees of $201,863, $284,286, $301,776,
$332,370 and $341,054 for the years ended December 31, 1997, 1996, 1995,
1994 and 1993, respectively.
(4) Does not reflect expense reimbursement of $733.
19
<PAGE>
NET ASSET VALUE
For each Fund in the Northstar Trust, equity securities are valued at the
last sale price on the exchange or in the principal OTC market in which such
securities are being valued, or lacking any sales, at the last available bid
price. Prices of long-term debt securities are valued on the basis of last
reported sales price, or if no sales are reported, the value is determined
based upon the mean of representative quoted bid or asked prices for such
securities obtained from a quotation reporting system or from established
market makers, or at prices for securities of comparable maturity, quality and
type. For the Northstar Growth, Special, Balance Sheet Opportunities, High
Yield, Strategic Income and Government Securities Funds, portfolio securities,
options and futures contracts and options thereon that are traded on national
exchanges or in the NASDAQ System are valued at the last sale or settlement
price on the exchange or market where primarily traded or, if none that day, at
the mean of the last reported bid and asked prices, using prices as of the
close of trading on the applicable exchange or market. Securities and options
that are traded in the OTC market (other than on the NASDAQ System) are valued
at the mean of the last available bid and asked prices. Such valuations are
based on quotations of one or more dealers that make markets in the securities
as obtained from such dealers or from a pricing service. Securities (including
OTC options) for which market quotations are not readily available (which may
constitute a major portion of the High Yield Fund's portfolio) and other assets
are valued at their fair value as determined by or under the direction of the
Trustees. Such fair value may be determined by various methods, including
utilizing information furnished by pricing services that determine calculations
for such securities using methods based, among other things, upon market
transactions for comparable securities and various relationships between
securities that are generally recognized as relevant.
The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. EST), on each business day that the Exchange
is open. Net asset value per share is computed by determining the value of a
Fund's assets (securities held plus cash and other assets, including dividend
and interest accrued but not received) less all liabilities of the Fund
(including accrued expenses other than class specific expenses), and dividing
the result by the total number of shares outstanding at such time. The specific
expenses borne by each class of shares will be deducted from that class and
will result in different net asset values and dividends. The net asset value
per share of the Class B, Class C and Class T shares of each Fund will
generally be lower than that of the Class A or Class I shares because of the
higher class specific expenses borne by each of the Class B, Class C and Class
T shares. Under normal market conditions, daily prices for securities are
obtained from independent pricing services, determined by them in accordance
with the registration statement for each Fund. Securities are valued at market
value or, if a market quotation is not readily available, at their fair value,
determined in good faith under procedures established by and under the
supervision of the Trustees. Money market instruments maturing within 60 days
are valued using the amortized cost method of valuation. This involves valuing
a security at cost on the date of acquisition and thereafter assuming a
constant accretion of a discount or amortization of a premium to maturity,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may
result in periods during which value, as determined by amortized cost, is
higher or lower than the price a Fund would receive if it sold the instrument.
See "How Net Asset Value is Determined" in the Prospectus.
PURCHASES AND REDEMPTIONS
Shares issued pursuant to the automatic reinvestment of income dividends
or capital gains distributions are not subject to a front-end or contingent
deferred sales load. There is no sales charge for qualified persons. "Qualified
Persons" are the following (a) active or retired Trustees, Directors, Officers,
Partners or Employees (including immediate family) of (i) Northstar or any of
its affiliated companies, (ii) the Funds or any Northstar affiliated investment
company or (iii) dealers having a sales agreement with the Underwriter, (b)
trustees or custodians of any qualified retirement plan or IRA established for
the benefit of a person in (a) above; (c) dealers, brokers or registered
investment advisers that have entered into an agreement with the Underwriter
providing for the use of shares of the Funds in particular investment products
such as "wrap accounts" or other similar managed accounts for the benefit of
the clients of such brokers, dealers and registered investment advisers, and
(d) pension, profit sharing or other benefit plans created pursuant to a plan
qualified under Section 401 of the Code or plans under Section 457 of the Code,
provided that such shares are purchased by an employer sponsored plan with at
least 50 eligible employees and (e) service providers of (i) Northstar or any
of its affiliated companies or
20
<PAGE>
(ii) the Funds or any Northstar affiliated investment company and (f) Brandes
employees, officers and partners. Class A shares of the Funds may be purchased
at net asset value, through a dealer, where the amount invested represents
redemption proceeds from another open-end fund sold with a sales load and the
same or similar investment objective, and PROVIDED the following conditions are
met: such redemption occurred no more than 60 days prior to the purchase of
shares of a Northstar Fund, the redeemed shares were held for at least six
months prior to redemption, and the proceeds of the redemption are sent
directly to Northstar or its agent, or maintained in cash or a money market
fund. No commissions will be paid to dealers in connection with such purchases.
There is also no initial sales charge for "Purchasers" (defined below) if the
initial amount invested in the Funds is at least $1,000,000 or the Purchaser
signs a $1,000,000 Letter of Intent, as hereinafter defined.
REDUCED SALES CHARGES ON CLASS A SHARES. Investors choosing the initial
sales alternative may under certain circumstances be entitled to pay reduced
sales charges. The sales charge varies with the size of the purchase and
reduced charges apply to the aggregate of purchases of a Fund made at one time
by any "Purchaser," which term includes (i) an individual and his/her spouse
and their children under the age of 21, (ii) a trustee or fiduciary purchasing
for a single trust, estate or single fiduciary account (including IRAs,
pension, profit-sharing or other employee benefit trusts created pursuant to a
plan qualified under Section 401 of the Code, a Simplified Employee Pension
("SEP"), Salary Reduction and other Elective Simplified Employee Pension
Accounts ("SARSEP")) and 403(b) and 457 plans, although more than one
beneficiary or participant is involved; and (iii) any other organized group of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
at a discount of redeemable securities of a registered investment company. The
circumstances under which "Purchasers" may pay reduced sales charges are
described in the Prospectus.
PURCHASES IN-KIND OF THE NORTHSTAR INTERNATIONAL VALUE FUND. Investors
may, subject to the approval of the Northstar International Value Fund,
Northstar and Brandes, purchase shares of the Northstar International Value
Fund (the "Fund") with liquid securities that are eligible for purchase by the
Fund and that have a value that is readily ascertainable. These transactions
will be effected only if Northstar or Brandes intends to retain the securities
in the Fund as an investment. The Fund reserves the right amend or terminate
this practice at any time.
REDEMPTIONS. The right to redeem shares may be suspended and payment
therefore postponed during periods when the New York Stock Exchange is closed,
other than customary weekend and holiday closings, or, if permitted by rules of
the SEC, during periods when trading on the Exchange is restricted, or during
any emergency that makes it impracticable for any Fund to dispose of its
securities or to determine fairly the value of its net assets or during any
other period permitted by order of the SEC for the protection of investors.
Furthermore, the Transfer Agent will not mail redemption proceeds until checks
received for shares purchased have cleared, but payment will be forwarded
immediately upon the funds becoming available. Class B, Class C and Class T
shareholders will be subject to the applicable deferred sales charge, if any,
for their shares at the time of redemption.
The contingent deferred sales load will be waived with respect to Class T
shares in the following instances: (i) any partial or complete redemption of
shares of a shareholder who dies or becomes disabled, so long as the redemption
is requested within one year of death or the initial determination of
disability; (ii) any partial or complete redemption in connection with
distributions under Individual Retirement Accounts ("IRAs") or other qualified
retirement plans in connection with a lumpsum or other form of distribution
following retirement within the meaning of Section 72(t)(2)(A) (iv) or (v) of
the Code, disability or death, or after attaining the age of 59 1/2 in the case
of an IRA, Keogh Plan or custodial account pursuant to Section 403(b)(7) of the
Code, or on any redemption that results from a taxfree return of an excess
contribution pursuant to Section 408(d)(4) or (5) of the Code or Section
4979(f) of the Code; (iii) redemptions effected pursuant to the Funds' right to
liquidate a shareholder's account if the aggregate net asset value of the
shares held in the account is less than $500; (iv) redemptions effected by (A)
employees of The Advest Group, Inc. ("AGI") and its subsidiaries, (B) IRAs,
Keogh plans and employee benefit plans for those employees, and (C) spouses and
minor children of those employees, so long as orders for shares are placed on
behalf of the spouses or children by the employees; (v) redemptions effected by
accounts managed by investment advisory subsidiaries of AGI registered under
the Investment Advisers Act of 1940; and (vi) redemptions in connection with
exchanges of Fund Class T shares, including shares of the Class T account of
the Money Market Portfolio.
21
<PAGE>
EXCHANGES. The following conditions must be met for all exchanges among
the Funds and the Money Market Portfolio: (i) the shares that will be acquired
in the exchange (the "Acquired Shares") are available for sale in the
shareholder's state of residence; (ii) the Acquired shares will be registered
to the same shareholder account as the shares to be surrendered (the "Exchanged
Shares"); (iii) the Exchanged Shares must have been held in the shareholder's
account for at least 30 days prior to the exchange; (iv) except for exchanges
into the Money Market Portfolios, the account value of the Fund whose shares
are to be acquired must equal or exceed the minimum initial investment amount
required by that Fund after the exchange is implemented; and (v) a properly
executed exchange request has been received by the Transfer Agent.
Each Fund reserves the right to delay the actual purchase of the Acquired
Shares for up to five business days if it determines that it would be
disadvantaged by an immediate transfer of proceeds from the redemption of
Exchanged Shares. Normally, however, the redemption of Exchanged Shares and the
purchase of Acquired Shares will take place on the day that the exchange
request is received in proper form. Each Fund reserves the right to terminate
or modify its exchange privileges at any time upon prominent notice to
shareholders. Such notice will be given at least 60 days in advance. It is the
policy of Northstar to discourage and prevent frequent trading by shareholders
among the Funds in response to market fluctuations. Accordingly, in order to
maintain a stable asset base in each Fund and to reduce administrative expenses
borne by each Fund, Northstar generally restricts shareholders to a maximum of
six exchanges across the Northstar Fund complex each calendar year. If a
shareholder exceeds this limit, future exchange requests may be denied.
CONVERSION FEATURE. Class B shares of each Fund will automatically convert
to Class A shares without a sales charge at the relative net asset values of
each of the classes after eight years from the acquisition of the Class B
shares, and as a result, will thereafter be subject to the lower distribution
fee (but same service fee) under the Class A Rule 12b-1 plan for each Fund.
Class T Shares convert to Class A shares at the end of the month that is the
later of (i) eight years after the Class T Shares were purchased or (ii) June
2, 1998.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"). In order to so
qualify, the Fund must, among other things, (i) derive each taxable year at
least 90% of its gross income from dividends, interest, payments with respect
to certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies; (ii) derive less than 30% of its gross
income each taxable year from the sale or other disposition of certain assets,
including securities, held for less than three months (the "30% Limitation");
and (iii) at the end of each quarter of the taxable year maintain at least 50%
of the value of its total assets in cash, government securities, securities of
other regulated investment companies, and other securities of issuers that
represent, with respect to each issuer, no more than 5% the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
with no more than 25% of its assets invested in the securities (other than
those of the U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers that the Fund controls and that are
engaged in the same, similar or related trades and businesses. As a regulated
investment company, each Fund generally will not be subject to federal income
tax on its income and gains that it distributes to shareholders, if at least
90% of its investment company taxable income (which includes dividends,
interest and the excess of any short-term capital gains over long-term capital
losses) for the taxable year is distributed.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
a Fund's "required distribution" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of a Fund's ordinary income
for the calendar year plus 98% of its capital gain net income recognized during
the one-year period ending on October 31 plus undistributed amounts from prior
years. Each Fund intends to make distributions sufficient to avoid imposition
of the excise tax. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund during October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable as if
received on December 31 in the year they are declared by the Fund, rather than
the year in which they are received.
22
<PAGE>
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by a Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is a short-term
capital gain to the Fund. If the Fund enters into a closing transaction, the
difference between the amount paid to close out its position and the premium
received is a short-term capital gain or loss. If a call option written by a
Fund is exercised, thereby requiring the Fund to sell the underlying security,
the premium will increase the amount realized upon the sale of such security
and any resulting gain or loss will be a capital gain or loss, and will be
long-term or short-term depending upon the holding period of the security. With
respect to a put or call option that is purchased by a Fund, if the option is
sold, any resulting gain or loss will be a capital gain or loss, and will be
long-term or short-term, depending upon the holding period of the option. If
the option expires, the resulting loss is a capital loss and is long-term or
short-term, depending upon the holding period of the option. If the option is
exercised, the cost of the option, in the case of a call option, is added to
the basis of the purchased security and, in the case of a put option, reduces
the amount realized on the underlying security in determining the gain or loss.
Certain options, futures contracts and forward contracts in which a Fund
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses ("60/40 gains or losses"); however, foreign currency gains or
losses (as discussed below) arising from certain section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by a Fund
at the end of each taxable year (and, generally, for purposes of the 4% excise
tax, on October 31 of each year) are treated as sold on such date at fair
market value, resulting in unrealized gains or losses being treated as though
they were realized.
Hedging transactions undertaken by a Fund may result in straddles for U.S.
federal income tax purposes. The straddle rules may accelerate income to a
Fund, defer losses to a Fund, and affect the character of gains (or losses)
realized by a Fund. Hedging transactions may increase the amount of short-term
capital gains realized by a Fund that is taxed as ordinary income when
distributed to shareholders. A Fund may make one or more of the various
elections available under the Code with respect to hedging transactions. If a
Fund makes any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected positions will be determined
under rules that vary according to the elections made.
Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time a Fund accrues interest or other receivables,
or accrues expenses or other liabilities, denominated in a foreign currency and
the time the Fund actually collects such receivables, or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and certain
options, futures and forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition
of the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988"gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
A Fund will not realize a gain or loss on a short sale of a security until
it closes the transaction by delivering the borrowed security to the lender.
All or a portion of any gain arising from a short sale may be treated as
short-term capital gain, regardless of the period for which he Fund held the
security used to close the short sale. In addition, the Fund's holding period
for any security that is substantially identical to that which is sold short
may be reduced or eliminated as a result of the short sale.
Investments by a Fund in zero coupon securities will result in income to
the Fund equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Fund receives no cash interest payments.
This income is included in determining the amount of income that the Fund must
distribute to maintain its status as a regulated investment company and to
avoid the payment of federal income tax and the 4% excise tax. If a Fund
invests in certain high yield original issue discount obligations issued by
corporations, a portion of the original issue discount accruing on the
obligations may be eligible for the deduction for dividends received by
corporations. In such event, a portion of the dividends of investment company
taxable income received from the Fund by its corporate shareholders may be
eligible for this deduction.
Gains derived by a Fund from the disposition of any market discount bonds
(I.E., bonds purchased other than at original issue, where the face value of
the bonds exceeds their purchase price) held by the Fund will be
23
<PAGE>
taxed as ordinary income to the extent of the accrued market discount on the
bonds, unless the Fund elects to include the market discount in income as it
accrues.
If a Fund invests in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), these investments would be subject to special tax rules
designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's
earnings. In the absence of certain elections to report these earnings on a
current basis, regardless of whether the Fund actually receives any
distributions from the PFIC, investors in the Fund would be required to report
certain "excess distributions" from, and any gains from the disposition of
stock of, the PFIC as ordinary income. This ordinary income would be allocated
ratably to the Fund's holding period for the stock. Any amounts allocated to
prior years would be taxable at the highest rate of tax applicable in that
year, increased by an interest charge determined as though the amounts were
underpayments of tax.
Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. If more than
50% of the value of a Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible and
may elect to "pass through" to the Fund's shareholders the amount of foreign
taxes paid by the Fund. Pursuant to this election, a shareholder will be
required to include in gross income (in addition to dividends actually
received) its pro rata share of the foreign taxes paid by the Fund, and may be
entitled either to deduct its pro rata share of the foreign taxes in computing
its taxable income or to use the amount as a foreign tax credit against its
U.S. Federal income tax liability, subject to limitations. Each shareholder
will be notified within 60 days after the close of the Fund's taxable year
whether the foreign taxes paid by the Fund will "pass through" for that year.
If a Fund is not eligible to make the election to "pass through" to its
shareholders its foreign taxes, the foreign taxes it pays will reduce its
investment company taxable income and distributions by the Fund will be treated
as U.S. source income.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to its foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Fund's income flows through to its shareholders. With respect to
the Funds, gains from the sale of securities will be treated as derived from
U.S. sources and certain currency fluctuation gains, including fluctuation
gains from foreign currency denominated debt securities, receivables and
payables, and options, futures and forward transactions, will be treated as
ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income (as defined for
purposes of the foreign tax credit), including the foreign source passive
income passed through by the Funds.
The current position of the Internal Revenue Service (the "IRS") generally
is to treat a regulated investment company, such as the Special Fund, as owning
its proportionate share of the income and assets of any partnership in which it
is a partner, in applying the 90% qualifying income requirement, the 30%
Limitation and the asset diversification requirements that, as described above,
each Fund must satisfy to qualify as a regulated investment company under the
Code. These requirements may limit the extent to which the Special Fund may
invest in limited partnerships, especially in the case of limited partnerships
that do not primarily invest in a diversified portfolio of stocks and
securities.
Dividends paid out of a Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of a Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated as
capital gain dividends are taxable as long-term capital gains, regardless of
how long the shareholder has held the Fund's shares, and are not eligible for
the dividends-received deduction. Shareholders receiving distributions in the
form of additional shares, rather than cash, generally will have a cost basis
in each such share equal to the net asset value of a share of the relevant Fund
on the reinvestment date. A distribution of an amount in excess of a Fund's
current and accumulated earnings and profits will be treated by a shareholder
as a return of capital that is applied against and reduces the shareholder's
basis in his or her shares. To the extent that the amount of any such
distribution exceeds the shareholder's basis in his or her shares, the excess
will be treated by the shareholder as a gain from a sale or exchange of the
shares. Shareholders will be notified annually as to the U.S. federal tax
status of distributions, and shareholders receiving distributions in the form
of additional shares will receive a report as to the net asset value of those
shares.
24
<PAGE>
Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a capital gain or loss that will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before
and ending 30 days after disposition of the shares. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss. Any
loss realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund
originally acquired with a sales charge are disposed of within 90 days after
the date on which they were acquired and new shares of a regulated investment
company are acquired without a sales charge or at a reduced sales charge. In
that case, the gain or loss realized on the disposition will be determined by
excluding from the tax basis of the shares all or a portion of the sales charge
incurred in acquiring those shares. This exclusion applies to the extent that
the otherwise applicable sales charge with respect to the newly acquired shares
is reduced as a result of the shareholder having incurred a sales charge paid
for the new shares. This rule may be applied to successive acquisitions of
shares of stock.
Distributions by a Fund reduce the net asset value of that particular
Fund's shares. Should a distribution reduce the net asset value of a share
below a shareholder's cost for the share, such a distribution nevertheless
generally would be taxable to the shareholder as ordinary income or long-term
capital gains, even though, from an investment standpoint, it may constitute a
partial return of capital. In particular, investors should be careful to
consider the tax implications of buying shares just prior to a distribution by
a Fund. The price of shares purchased at that time may include the amount of
the forthcoming distribution, but the distribution generally would be taxable
to them.
Some shareholders may be subject to withholding of Federal income tax on
dividends and redemption payments from a Fund ("backup withholding") at the
rate of 31%. Corporate shareholders and certain other shareholders specified in
the Code generally are exempt from such backup withholding. Generally,
shareholders subject to backup withholding will be (i) those for whom a
certified taxpayer identification number is not on file with a Fund, (ii) those
about whom notification has been received (either by the shareholder or by a
Fund) from the IRS that they are subject to backup withholding or (iii) those
who, to a Fund's knowledge, have furnished an incorrect taxpayer identification
number. Generally, to avoid backup withholding, an investor must, at the time
an account is opened, certify under penalties of perjury that the taxpayer
identification number furnished is correct and that he or she is not subject to
backup withholding.
The foregoing discussion relates solely to U.S. Federal income tax law.
Dividends and distributions also may be subject to state, local and foreign
taxes. Dividends paid by a Fund from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers regarding the possible exclusion
of this portion of their dividends for state and local tax purposes. Non-U.S.
investors also should consult their tax advisers concerning the tax
consequences of ownership of shares of a Fund, including the possibility that
distributions may be subject to a 30% U.S. withholding tax (or a reduced rate
of withholding provided by treaty).
Shareholders of Class A, Class B and Class C shares may direct that income
dividends and capital gain distributions be paid to them through various
options listed in the "How Funds Pay Distributions -- Distribution Options"
section of the Funds' current Prospectus. If a shareholder selects either of
two such options (that: (a) income dividends be paid in cash and capital gain
distributions be paid in additional shares of the same class of a designated
Fund at net asset value; or (b) income dividends and capital gain distributions
both be paid in cash), and the dividend/distribution checks cannot be
delivered, or, if such checks remain uncashed for six months, each Fund
reserves the right to reinvest the dividend or distribution in the
shareholder's account at the then-current net asset value and to convert the
shareholder's election to automatic reinvestment in shares of the Fund from
which the distributions were made. Each Fund has received from the IRS, rulings
to the effect that (i) the implementation of the multiple class purchase
arrangement will not result in a Fund's dividends or distributions constituting
"preferential dividends" under the Code, and (ii) that any conversion feature
associated with a class of shares does not constitute a taxable event under
federal income tax law.
25
<PAGE>
UNDERWRITER AND DISTRIBUTION SERVICES
Pursuant to Underwriting Agreements, Northstar Distributors, Inc. is the
Underwriter for each Fund and as such conducts a continuous offering pursuant
to a "best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. The Underwriter is an affiliate of the
Adviser and the Administrator.
The Underwriting Agreements may be terminated at any time on not more than
60 days written notice, without payment of a penalty, by the Underwriter, by
vote of a majority of the outstanding class of voting securities of the
affected Fund, or by vote of a majority of the Trustees of such Fund, who are
not "interested persons" of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements. The
Underwriting Agreements will terminate automatically in the event of their
assignment.
In addition to the amount paid to dealers pursuant to the sales charge
table in the Prospectus, the Underwriter from time to time pays, from its own
resources or pursuant to the Plans, a bonus or other incentive to dealers
(other than the Underwriter) that employ a registered representative who sells
a minimum dollar amount of the shares of a Fund during a specific period of
time. Dealers may not use sales of any of the Fund's shares to qualify for or
participate in such programs to the extent such may be prohibited by a dealer's
internal procedures or by the laws of any state or any self-regulatory agency,
such as the National Association of Securities Dealers, Inc. Such bonuses or
other incentives take the form of payment for travel expenses, including
lodging, incurred in connection with trips taken by qualifying registered
representatives and members of their families to places within or outside the
United States, or other bonuses such as certificates for airline tickets,
dining establishments or the cash equivalent of such bonuses. The Underwriter,
from time to time, reallows all or a portion of the sales charge on Class A
shares, which it normally reallows to individual selling dealers. However, such
additional reallowance generally will be made only when the selling dealer
commits to substantial marketing support such as internal wholesaling through
dedicated personnel, internal communications and mass mailings.
Each Fund has adopted separate distribution plans under Rule 12b-1 of the
1940 Act for each class of shares of the Fund (collectively the "Plans"). The
Plans permit each Fund to compensate the Underwriter in connection with
activities intended to promote the sale of shares of each class of shares of
each Fund.
Pursuant to the Plan for Class A shares, each Fund may compensate the
Underwriter up to 0.30% of average daily net assets of such Fund's Class A
shares. Under the Plans for Class B and Class C shares, each Fund may
compensate the Underwriter up to 1.00% of the average daily net assets
attributable to the respective class of such Fund. Pursuant to the Plan for
Class T shares, each Fund compensates the Underwriter in an amount equal to
0.95% (in the case of Growth Fund, Special Fund, and Strategic Income Fund),
0.75% (in the case of Balance Sheet Opportunities Fund) and 0.65% (in the case
of High Yield Fund and Government Securities Fund) of annual average daily net
assets of such Fund's Class T shares. However, each of the Class T Plans
provides for compensation of up to 1.00% of annual average daily net assets.
Expenditures by the Underwriter under the Plans shall consist of: (i)
commissions to sales personnel for selling shares of the Funds (including
underwriting fees and financing expenses incurred in connection with the sale
of Class B and Class C shares); (ii) compensation, sales incentives and
payments to sales, marketing and service personnel; (iii) payments to
broker-dealers and other financial institutions that have entered into
agreements with the Underwriter in the form of a Dealer Agreement for Northstar
Funds for services rendered in connection with the sale and distribution of
shares of the Funds; (iv) payment of expenses incurred in sales and promotional
activities, including advertising expenditures related to the Funds; (v) the
costs of preparing and distributing promotional materials; (vi) the cost of
printing the Funds' Prospectus and SAI for distribution to potential investors;
and (vii) other activities that are reasonably calculated to result in the sale
of shares of the Funds. With respect to each Class T Plan, it is anticipated
that all of the payments received by the Underwriter under the Plan will be
paid to Advest as compensation for its prior distribution related and current
shareholder servicing related activities in connection with the Class T Shares.
A portion of the fees paid to the Underwriter pursuant to the 12b-1 plans
not exceeding 0.25% annually of the average daily net assets of each Fund's
shares may be paid as compensation for providing services to each Fund's
shareholders, including assistance in connection with inquiries related to
shareholder accounts (the "Service Fee"). In order to receive Service Fees
under the Plans, participants must meet such qualifications as are established
in the sole discretion of the Underwriter, such as services to each Fund's
shareholders; or services
26
<PAGE>
providing each Fund with more efficient methods of offering shares to coherent
groups of clients, members or prospects of a participant; or services
permitting purchases or sales of shares, or transmission of such purchases or
sales by computerized tape or other electronic equipment; or other processing.
The Plans are designed to be compensation plans and therefore amounts
spent by the distributor in excess of plan limits are not carried over from
year to year for reimbursement. The Plans do, however, contemplate that amounts
paid to the distributor may compensate it for past distribution efforts without
regard to any particular time period.
If the Plans are terminated in accordance with their terms, the
obligations of a Fund to compensate the Underwriter for distribution related
services pursuant to the Plans will cease; however, subject to approval by the
Trustees, including a majority of the independent Trustees, a Fund may continue
to make payments past the date on which each Plan terminates up to the annual
limits set forth in each Plan for the purpose of compensating the Underwriter
for services that were incurred during the term of the Plan.
The Trustees have concluded that there is a reasonable likelihood that the
Plans will benefit each Fund and its shareholders and that the Plans should
result in greater sales and/or fewer redemptions of Fund shares. On a quarterly
basis, the Trustees will review a report on expenditures under the Plans and
the purposes for which expenditures were made. The Trustees will conduct an
additional, more extensive review annually in determining whether the Plans
shall be continued. By their terms, continuation of the Plans from year to year
is contingent on annual approval by a majority of the Trustees acting
separately on behalf of each Fund and by a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plans or any related
agreements (the "Plan Trustees"). The Plans provide that they may not be
amended to increase materially the costs that a Fund may bear pursuant to the
applicable Plan without approval of the shareholders of the affected Fund and
that other material amendments to the Plans must be approved by a majority of
the Plan Trustees acting separately on behalf of each Fund, by vote cast in
person at a meeting called for the purpose of considering such amendments. The
Plans further provide that while each plan is in effect, the selection and
nomination of Trustees who are not "interested persons" shall be committed to
the discretion of the Trustees who are not "interested persons." A Plan may be
terminated at any time by vote of a majority of the Plan Trustees or a majority
of the outstanding class of shares of the affected Fund to which the Plan
relates.
During their fiscal year ended October 31, 1997, each class of shares of
the Funds listed below paid the following 12b-1 distribution and service fees
pursuant to the Plan of Distribution for each class:
<TABLE>
<CAPTION>
1997
-----------------------------------
CLASS A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
Growth + Value Fund ................. $ 42,140 $295,385 $101,432
International Value Fund ............ $ 97,955 $148,366 $329,989
Emerging Markets Value Fund ......... N/A N/A N/A
Income and Growth Fund .............. $184,527 $745,510 $657,770
High Total Return Fund II ........... $ 4,141 $ 59,715 $ 18,332
</TABLE>
For their fiscal year ended October 31, 1997, expenses incurred by the
Distributor for distribution related activities with respect to each class of
shares of each Fund listed below were as follows:
<TABLE>
<CAPTION>
GROWTH+VALUE
------------------------------------
1997
------------------------------------
CLASS A CLASS B CLASS C
----------- ------------- ----------
<S> <C> <C> <C>
Salaries/Overrides .......................... $115,950 $ 143,493 $ 51,805
Commissions Paid ............................ $ -- $2,713,026 $253,001
Marketing, RMM & Convention Expense ......... $ 44,791 $ 20,730 $ 5,231
Total ....................................... $160,741 $2,877,249 $310,037
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL VALUE(1)
-------------------------------------
1997
-------------------------------------
CLASS A CLASS B CLASS C
----------- ------------- -----------
<S> <C> <C> <C>
Salaries/Overrides .......................... $184,835 $ 123,179 $100,027
Commissions Paid ............................ $ -- $2,426,113 $474,328
Marketing, RMM & Convention Expense ......... $ 83,050 $ 122,636 $ 9,227
Total ....................................... $267,885 $2,671,928 $583,582
</TABLE>
- ---------
(1) The International Value Fund commenced operations on April 21, 1997. Prior
to April 21, 1997, the Fund was operating as the Brandes International
Fund, a series of the Brandes Investment Trust and was distributed by
Worldwide Value Distributors, L.L.C.
<TABLE>
<CAPTION>
EMERGING MARKETS VALUE FUND
(2)
----------------------------
1997
----------------------------
CLASS A CLASS B CLASS C
--------- --------- --------
<S> <C> <C> <C>
Salaries/Overrides .......................... N/A N/A N/A
Commissions Paid ............................ N/A N/A N/A
Marketing, RMM & Convention Expense ......... N/A N/A N/A
Total ....................................... N/A N/A N/A
</TABLE>
- ---------
(2) The Emerging Markets Value Fund commenced operations on January 1, 1998.
<TABLE>
<CAPTION>
INCOME AND GROWTH
----------------------------------
1997
----------------------------------
CLASS A CLASS B CLASS C
----------- ----------- ----------
<S> <C> <C> <C>
Salaries/Overrides .......................... $183,717 $ 42,293 $ 31,187
Commissions Paid ............................ $ -- $447,222 $ 73,025
Marketing, RMM & Convention Expense ......... $181,975 $ 39,566 $ 24,705
Total ....................................... $365,692 $529,081 $128,917
</TABLE>
<TABLE>
<CAPTION>
HIGH TOTAL RETURN FUND II (3)
----------------------------------
1997
----------------------------------
CLASS A CLASS B CLASS C
--------- ------------- ----------
<S> <C> <C> <C>
Salaries/Overrides .......................... $35,784 $ 69,119 $ 23,627
Commissions Paid ............................ $ -- $1,439,605 $120,493
Marketing, RMM & Convention Expense ......... $17,766 $ 8,074 $ 1,630
Total ....................................... $53,550 $1,516,798 $145,750
</TABLE>
- ---------
(3) The High Total Return Fund II commenced operations on January 31, 1997, but
was not available for purchase until July 4, 1997.
For their fiscal year ended October 31, 1997, the Distributor received the
following amounts in sales charges, after reallowance to Dealers:
<TABLE>
<CAPTION>
UNDERWRITING FEES
--------------------------------
CLASS A CLASS B CLASS C
----------- ----------- --------
<S> <C> <C> <C>
Growth + Value Fund ................. $139,035 $ 74,765 $8,154
International Value Fund 1 .......... $148,040 $ 16,066 $8,063
Emerging Markets Value Fund ......... N/A N/A N/A
Income and Growth Fund .............. $ 14,563 $256,431 $1,889
High Total Return Fund II ........... $ 49,705 $ 5,974 $ 586
</TABLE>
During their fiscal year ended December 31, 1997, each class of shares of
the Funds listed below, paid the following 12b-1 distribution and service fees
pursuant to the Distribution Plan for each class:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Fund .................... $108,596 $ 66,765 $ 7,319 $710,164
Special Fund ................... $232,469 $1,537,323 $463,998 $327,946
Balance Sheet Fund ............. $ 3,440 $ 43,644 $ 6,401 $413,243
High Yield Fund ................ $ 43,158 $ 951,060 $175,716 $761,375
Strategic Income Fund .......... $ 40,631 $ 310,321 $ 43,917 $224,593
Government Securities .......... $ 22,999 $ 106,185 $ 8,299 $639,583
</TABLE>
28
<PAGE>
During the fiscal year ended December 31, 1997, expenses incurred by the
Distributor (or Advest with respect to Class T Shares prior to June 2, 1995)
for certain distribution related activities with respect to each class of
shares of the Funds listed below were as follows:
<TABLE>
<CAPTION>
GROWTH FUND
------------------------------------------
CLASS A CLASS B CLASS C CLASS T
----------- ----------- --------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides ....................... $106,699 $ 8,437 $1,262 $--
Commissions Paid ......................... $ -- $123,877 $5,282 $--
Marketing/Convention/RMM Expense ......... $108,693 $ 8,842 $2,122 $--
Total .................................... $215,392 $141,156 $8,666 $--
</TABLE>
<TABLE>
<CAPTION>
SPECIAL FUND
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides ....................... $300,845 $ 166,997 $ 58,392 $--
Commissions Paid ......................... $ -- $2,379,287 $252,541 $--
Marketing/Convention/RMM Expense ......... $255,360 $ 92,433 $ 20,169 $--
Total .................................... $556,205 $2,638,717 $331,102 $--
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET OPPORTUNITIES FUND
--------------------------------------
CLASS A CLASS B CLASS C CLASS T
--------- --------- --------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides ....................... $ 4,150 $ 3,781 $1,074 $--
Commissions Paid ......................... $ -- $45,171 $3,282 $--
Marketing/Convention/RMM Expense ......... $14,481 $ 6,114 $1,015 $--
Total .................................... $18,631 $55,066 $5,371 $--
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD FUND
----------------------------------------------
CLASS A CLASS B CLASS C CLASS T
----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides ....................... $ 55,886 $ 112,160 $ 26,225 $--
Commissions Paid ......................... $ -- $1,618,300 $109,026 $--
Marketing/Convention/RMM Expense ......... $108,266 $ 70,993 $ 11,594 $--
Total .................................... $164,152 $1,801,453 $146,845 $--
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
----------------------------------------
CLASS A CLASS B CLASS C CLASS T
--------- ----------- --------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides ....................... $48,146 $ 23,087 $ 3,969 $--
Commissions Paid ......................... $ -- $265,891 $14,577 $--
Marketing/Convention/RMM Expense ......... $49,971 $ 30,450 $ 2,388 $--
Total .................................... $98,117 $319,428 $20,934 $--
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
----------------------------------------
CLASS A CLASS B CLASS C CLASS T
--------- ----------- --------- --------
<S> <C> <C> <C> <C>
EXPENSE
Salaries/Overrides ....................... $20,733 $ 13,612 $ 583 $--
Commissions Paid ......................... $ -- $197,258 $1,202 $--
Marketing/Convention/RMM Expense ......... $27,181 $ 8,293 $ 868 $--
Total .................................... $47,914 $219,163 $2,653 $--
</TABLE>
29
<PAGE>
For the following Funds' fiscal year ended December 31, 1997, the
Distributor (or Advest) received the following amounts in sales charges, after
reallowance to Dealers:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Growth Fund .................... $ 5,492 $ 14,834 $ 309 $ 24,863
Special Fund ................... $122,802 $771,846 $56,849 $ 31,000
Balance Sheet Fund ............. $ 615 $ 12,535 $ 69 $ 33,490
High Yield Fund ................ $ 34,104 $257,034 $17,043 $100,435
Strategic Income ............... $ 4,617 $ 94,494 $ 1,886 $ 58,489
Government Securities .......... $ 20,510 $ 40,318 $ 26 $ 47,359
</TABLE>
30
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal Officers of each Fund and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and Officers is Two Pickwick Plaza,
Greenwich, Connecticut 06830.
ROBERT B. GOODE, JR., Trustee. Age: 67.
Currently retired. From 1990 to 1991, Chairman of The First Reinsurance
Company of Hartford. From 1987 to 1989, President and Director of American
Skandia Life Assurance Company. Since October 1993, Trustee of the Northstar
affiliated investment companies.
PAUL S. DOHERTY, Trustee. Age: 63.
President, Doherty, Wallace, Pillsbury and Murphy, P.C., Attorneys.
Director, Tambrands, Inc. Since October 1993, Trustee of the Northstar
affiliated investment companies.
DAVID W. WALLACE, Trustee. Age: 73.
Chairman of Putnam Trust Company, Lone Star Industries and FECO Engineered
Systems, Inc. He is also President and Trustee of Robert R. Young Foundation
and Governor of the New York Hospital. Director of UMC Electronics and Zurn
Industries, Inc. Former Chairman and Chief Executive Officer, Todd Shipyards
and Bangor Punta Corporation, and former Chairman and Chief Executive Officer
of National Securities & Research Corporation. Since October 1993, Trustee of
the Northstar affiliated investment companies.*
*MARK L. LIPSON, Trustee and President. Age: 48.
Director, Chairman and Chief Executive Officer of Northstar and Northstar,
Inc. Director and President of Northstar Administrators Corporation and
Director and Chairman of Northstar Distributors, Inc., President and Trustee of
the Northstar affiliated investment companies since October 1993. Prior to
August, 1993, Director, President and Chief Executive Officer of National
Securities & Research Corporation and President and Director/Trustee of the
National Affiliated Investment Companies and certain of National's
subsidiaries.
*JOHN G. TURNER, Trustee. Age: 58.
Since May 1993, Chairman and CEO of ReliaStar Financial Corporation and
Northwestern NationalLife Insurance Co. and Chairman of other ReliaStar
Affiliated Insurance Companies since 1995. Since October 1993, Director of
Northstar and affiliates. Prior to May 1993, President and CEO of ReliaStar and
Northwestern National.
ALAN L. GOSULE, Trustee. Age: 57.
Partner, Rogers & Wells. Director, F.L. Putnam Investment Management Co.,
Inc.
DAVID W.C. PUTNAM, Trustee. Age: 58.
President, Clerk and Director of F.L. Putnam Securities Company,
Incorporated, F.L. Putnam Investment Management Company, Incorporated,
Interstate Power Company, Inc., Trust Realty Corp. and Bow Ridge Mining Co.;
Director of Anchor Investment Management Corporation; President and Trustee of
Anchor Capital Accumulation Trust, Anchor International Bond Trust, Anchor Gold
and Currency Trust, Anchor Resources and Commodities Trust and Anchor Strategic
Assets Trust.
JOHN R. SMITH, Trustee. Age: 74.
From 1970-1991, Financial Vice President of Boston College; President of
New England Fiduciary Company (financial planning) since 1991; Chairman of
Massachusetts Educational Financing Authority since 1987; Vice Chairman of
Massachusetts Health and Education Authority.
WALTER H. MAY, Trustee. Age: 61.
Retired. Former Senior Executive for Piper Jaffrey, Inc.
THOMAS OLE DIAL, Vice President. Age: 41.
- ---------
* Deemed to be an "interested person" of the Trust, as defined by the 1940 Act.
31
<PAGE>
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.
GEOFFREY WADSWORTH, Vice President. Age: 54.
Vice President of Northstar. Former Vice President and Portfolio Manager
with National Securities & Research Corporation.
AGNES MULLADY, Vice President and Treasurer. Age: 39.
Senior Vice President and Chief Financial Officer of Northstar, Senior
Vice President and Treasurer of Northstar Administrators corporation, and Vice
President and Treasurer of Northstar Distributors, Inc. From 1987 to 1993, Vice
President and Treasurer of National Securities & Research Corporation.
Northstar and Northstar Administrators Corporation make their personnel
available to serve as Officers and "Interested Trustees" of the Funds. All
Officers and Interested Trustees of the Funds are compensated by Northstar or
Northstar Administrators Corporation. Trustees who are not "interested persons"
of the Adviser are paid an annual retainer fee of $6,000 for their combined
services as Trustees to the Funds and to retail funds sponsored or advised by
the Adviser, and a per meeting fee of $1,500 for attendance at each joint
meeting of the Funds and the other Northstar retail funds. The Funds also
reimburse Trustees for expenses incurred by them in connection with such
meetings.
Mone Anathan, III, Dr. Loring E. Hart and Reverend Bartley MacPhaidin,
each of whom were previously Trustees of the Funds, serve on an Advisory Board.
The Advisory Board is expected to provide advice to the Board of Trustees in
order to facilitate a smooth management transition regarding the advisory
services to be provided by Northstar and to provide such other advice as the
Board of Trustees may request from time to time. The Advisory Board will have
no authority or control over the Funds. Northstar has agreed to assume all
expenses associated with the Advisory Board for three years commencing June 2,
1995.
As of December 31, 1997, all Trustees and executive officers of each Fund
as a group owned beneficially or of record less than 1% of the outstanding
securities of such Fund. To the knowledge of the Funds, as of December 31,
1997, no shareholder owned beneficially (b) or of record (r) more than 5% of a
Fund's outstanding shares, except as set forth below:
(1) GROWTH + VALUE FUND
B
Merrill Lynch Pierce Fenner & Smith 25.6% (r)
Jacksonville, Florida
C
Merrill Lynch Pierce Fenner & Smith 8.7% (r)
Jacksonville, Florida
(2) SPECIAL FUND
B
Merrill Lynch Pierce Fenner & Smith 17.7% (r)
Jacksonville, Florida
C
Merrill Lynch Pierce Fenner & Smith 9.4% (r)
Jacksonville, Florida
(3) INTERNATIONAL VALUE FUND
B
Merrill Lynch Pierce Fenner & Smith 11.6% (r)
32
<PAGE>
Jacksonville, Florida
C
Merrill Lynch Pierce Fenner & Smith 9.2% (r)
Jacksonville, Florida
(4) EMERGING MARKETS VALUE FUND
A
Northstar Investment Management Corp. 33.3% (b)
Greenwich, Connecticut
(4) EMERGING MARKETS VALUE FUND (CONT.)
B
Northstar Investment Management Corp. 33.3% (b)
Greenwich, Connecticut
C
Northstar Investment Management Corp. 33.3% (b)
Greenwich, Connecticut
(5) INCOME AND GROWTH FUND
B
Merrill Lynch Pierce Fenner & Smith 10.9% (r)
Jacksonville, Florida
(6) HIGH TOTAL RETURN FUND II
B
Merrill Lynch Pierce Fenner & Smith 32.3% (r)
Jacksonville, Florida
C
Merrill Lynch Pierce Fenner & Smith 10.5% (r)
Jacksonville, Florida
(7) HIGH YIELD FUND
B
Merrill Lynch Pierce Fenner & Smith 14.3% (r)
Jacksonville, Florida
(8) STRATEGIC INCOME FUND
B
Merrill Lynch Pierce Fenner & Smith 12.6% (r)
Jacksonville, Florida
(9) HIGH TOTAL RETURN FUND
B
Merrill Lynch Pierce Fenner & Smith 24.3% (r)
Jacksonville, Florida
C
Merrill Lynch Pierce Fenner & Smith 5.3% (r)
Jacksonville, Florida
33
<PAGE>
(10) GROWTH FUND
I
Northstar Investment Management Corp. 9.5% (b)
Greenwich, Connecticut
ReliaStar Pension Account 37.5% (r)
Minneapolis, Minnesota
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 FUND EXPENSES RETIREMENT NORTHSTAR COMPLEX
-------------- -------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Robert B. Goode, Jr. ..... (a)14,500 0 0 15,000
Paul S. Doherty .......... (a)13,239 0 0 13,750
David W. Wallace ......... (a)13,239 0 0 13,750
Mark L. Lipson ........... (a)0 0 0 --
John G. Turner ........... (a)0 0 0 --
Alan L. Gosule ........... (a)14,988 0 0 15,500
David W.C. Putnam ........ (a)12,625 0 0 13,125
John R. Smith ............ (a)14,989 0 0 15,500
Walter H. May ............ (a)14,989 0 0 15,500
</TABLE>
- ---------
(a) See table below for Fund specific compensation.
(b) Compensation paid by the Northstar Trust Funds, the Northstar Variable
Trust Funds and the remaining six funds, Northstar Growth, Special,
Balance Sheet Opportunities, High Yield, Strategic Income and Government
Securities Funds formerly advised by BSC.
INDIVIDUAL FUND
FISCAL YEAR COMPENSATION TABLES
<TABLE>
<CAPTION>
INCOME AND HIGH TOTAL GROWTH + INTERNATIONAL HIGH TOTAL
GROWTH RETURN VALUE VALUE RETURN II GROWTH SPECIAL
------------ ------------ ---------- --------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert B. Goode, Jr ..... 1,501 2,377 1,073 659 659 1,349 1,604
Paul S. Doherty ......... 1,401 2,395 915 500 500 1,229 1,518
David W. Wallace ........ 1,401 2,395 915 500 500 1,229 1,518
Mark L. Lipson .......... 0 0 0 0 0 0 0
John G. Turner .......... 0 0 0 0 0 0 0
Alan L. Gosule .......... 1,560 2,554 1,074 659 659 1,388 1,677
David W.C. Putnam ....... 1,330 2,207 902 489 489 1,179 1,434
John R. Smith ........... 1,560 2,554 1,074 659 659 1,388 1,677
Walter H. May ........... 1,560 2,554 1,074 659 659 1,388 1,677
</TABLE>
<TABLE>
<CAPTION>
BALANCE
SHEET GOVERNMENT
OPPORTUNITIES HIGH YIELD STRATEGIC INCOME SECURITIES
--------------- ------------ ------------------ -----------
<S> <C> <C> <C> <C>
Robert B. Goode, Jr ......... 1,193 1,528 1,223 1,334
Paul S. Doherty ............. 1,052 1,432 1,085 1,212
David W. Wallace ............ 1,052 1,432 1,085 1,212
Mark L. Lipson .............. 0 0 0 0
John G. Turner .............. 0 0 0 0
Alan L. Gosule .............. 1,211 1,591 1,244 1,371
David W.C. Putnam ........... 1,022 1,357 1,052 1,164
John R. Smith ............... 1,211 1,591 1,244 1,371
Walter H. May ............... 1,211 1,591 1,244 1,371
</TABLE>
34
<PAGE>
OTHER INFORMATION
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P. has been selected as the
independent accountants of the Northstar Trust and each of the remaining
Northstar Funds. Coopers & Lybrand L.L.P. audits the Funds' annual financial
statements and expresses an opinion thereon.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, acts as custodian, and fund accounting agent for
the Funds and the Northstar Trust.
TRANSFER AGENT. Pursuant to a Transfer Agency Agreement with each Fund,
First Data (the "Transfer Agent") acts as the Transfer Agent for each Fund.
REPORTS TO SHAREHOLDERS. The fiscal year of the Northstar Trust ends on
October 31. The fiscal year of each other Fund ends on December 31. Each Fund
will send financial statements to its shareholders at least semiannually. An
annual report containing financial statements audited by the independent
accountants will be sent to shareholders each year.
ORGANIZATIONAL AND RELATED INFORMATION. Growth Fund (formerly The
Advantage Growth Fund) was organized in 1986; Special Fund (formerly The
Advantage Special Fund) was organized in 1986; Balance Sheet Opportunities Fund
(formerly The Advantage Income Fund) was organized in 1986; High Yield Fund
(formerly The Advantage High Yield Bond Fund) was organized 1989, Strategic
Income Fund (formerly The Advantage Strategic Income Fund) was organized in
1994; and Government Securities Fund (formerly The Advantage Government
Securities Fund) was organized in 1986.
Northstar Trust (formerly Northstar Advantage Trust), and two of its
series Income and Growth Fund (formerly Northstar Advantage Income and Growth
Fund) and High Total Return Fund (formerly Northstar Advantage High Total
Return Fund), were organized in 1993. Growth+Value Fund and High Total Return
Fund II were organized in 1996. The International Value Fund commenced
operations on March 6, 1995 as the Brandes International Fund, a series of the
Brandes Investment Trust. It was reorganized on April 21, 1997 as the Northstar
International Value Fund, a series of the Northstar Trust. The Emerging Markets
Value Fund, a series of the Northstar Trust, commenced operations in 1998.
The shares of each Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders will be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares of the affected Fund or class having voting rights. Except
as set forth above and subject to the 1940 Act, the Trustees will continue to
hold office and appoint successor Trustees.
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Amended and Restated
Declaration of Trust for each Fund contains provisions intended to limit such
liability and to provide indemnification out of Fund property of any
shareholder charged or held personally liable for obligations or liabilities of
a Fund solely by reason of being or having been a shareholder of a Fund and not
because of such shareholder's acts or omissions or for some other reason. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which a Fund itself would be unable to
meet its obligations.
YEAR 2000 COMPLIANCE. The services provided to the Portfolios by the
Adviser, the Sub-Advisers, the Administrator and the Portfolios' other service
providers are dependent on those service providers' computer systems. Many
computer software and hardware systems in use today cannot distinguish between
the year 2000 and the year 1900 because of the way dates are encoded and
calculated (the "Year 2000 Issue"). The failure to make this distinction could
have a negative implication on handling securities trades, pricing and account
services. The Adviser, the Sub-Advisers, the Administrator and the Portfolios'
other service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems
that they use. Although there can be no assurances, the Portfolios believe
these steps will be sufficient to avoid any material adverse impact on the
Portfolios. The costs or consequences of incomplete or untimely resolution of
the Year 2000 Issue are unknown to the Adviser, Sub-Advisers, Administrator and
the Portfolios' other service providers at this time but could have a material
adverse impact on the operations of the Portfolios and the Adviser,
Sub-Advisers, Administrator and the Portfolios' other service providers.
35
<PAGE>
PERFORMANCE INFORMATION
Performance information for the Funds may be compared in reports and
promotional literature to (1) the S&P 500, Dow Jones Industrial Average
("DJIA"), or other unmanaged indices, so that investors may compare each Fund's
results to those of a group of unmanaged securities that are widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm that ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; (iii) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in a Fund; and (iv) well known
monitoring sources of certificates of deposit performance rates, such as
Solomon Brothers, Federal Reserve Bulletin, American Bankers and Tower Data/The
Wall Street Journal. Unmanaged indices may assume the reinvestment of
dividends, but generally do not reflect deductions for administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
In addition, the Funds may, from time to time, include various measures of
a Fund's performance, including the current yield, the tax equivalent yield and
the average annual total return of shares of the Funds in advertisements,
promotional literature or reports to shareholders or prospective investors.
Such materials may occasionally cite statistics to reflect a Fund's volatility
risk.
AVERAGE ANNUAL TOTAL RETURN. Standardized quotations of average annual
total return ("Standardized Return") for each class of shares will be expressed
in terms of the average annual compounded rate of return for a hypothetical
investment in such class of shares over periods of 1, 5 and 10 years or up to
the life of the class of shares, calculated for each class separately pursuant
to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures reflect the deduction of a proportional share of
each class's expenses (on an annual basis), the deduction of the maximum
initial sales load (in the case of Class A shares) and the maximum contingent
deferred sales charge applicable to a complete redemption of the investment (in
the case of Class B, Class C and Class T shares), and assume that all dividends
and distributions are reinvested when paid.
YIELD. Quotations of yield for a specific class of shares of a Fund will
be based on all investment income attributable to that class earned during a
particular 30-day (or one month) period (including dividends and interest),
less expenses accrued during the period ("net investment income"), and will be
computed by dividing the net investment income per share of that class earned
during the period by the maximum offering price per share on the last day of
the month, according to the following formula:
Yield = 2[(a-b + 1) to the power of 6 -1]
---------------------------------
cd
Where:
a = dividends and interest earned during the period attributable to a
specific class of shares
b = expenses accrued for the period attributable to that class (net of
reimbursements)
c = the average daily number of shares of that class outstanding during
the period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period
The maximum offering price includes a maximum contingent deferred sales
load of 4%, in the case of Class T shares, 5% for Class B shares, and 1%, for
Class C shares.
36
<PAGE>
All accrued expenses are taken into account as follows. Accrued expenses
include all recurring expenses that are charged to all shareholder accounts in
proportion to the length of the base period, including but not limited to
expenses under the Funds' distribution plans. Except as noted, the performance
results take the contingent deferred sales load into account.
The yield for Class A, B and C of the Growth+Value Fund, Class A, B and C
of the International Value Fund, Class A, B and C of the Income and Growth
Fund, and Class A, B and C of the High Total Return Fund II, and Class A, B, C
and T shares of the Growth, Special, Balance Sheet Opportunities, High Yield,
Strategic Income and Government Securities Funds for the month ended December
31, 1997 was as follows:
YIELD
<TABLE>
<CAPTION>
FUND CLASS A CLASS B CLASS C CLASS T
- ------------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
Growth + Value Fund .................. N/A N/A N/A N/A
International Value Fund ............. N/A N/A N/A N/A
Income and Growth .................... 2.94% 2.31% 2.36% N/A
High Total Return Fund II ............ 5.64% 5.30% 5.31% N/A
Growth Fund .......................... N/A N/A N/A N/A
Special Fund ......................... N/A N/A N/A N/A
Balance Sheet Opportunities Fund ..... 3.75% 3.28% 2.96% 3.33%
High Yield Fund ...................... 6.86% 6.49% 6.49% 6.85%
Strategic Income Fund ................ 7.60% 7.19% 7.22% 7.27%
Government Securities Fund ........... 7.88% 7.52% 7.52% 7.83%
</TABLE>
NON-STANDARDIZED RETURN. In addition to the performance information
described above, the Funds may provide total return information that is not
calculated according to the formula set forth above ("Non-Standardized
Return"). Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return. Excluding a Fund's sales charge
from a total return calculation produces a higher total return figure.
The following tables summarize the calculation of Standardized and
Non-Standardized Return for Class A, B and C shares of the Growth+Value Fund,
Class A, B and C shares of the International Value Fund, Class A, B and C
shares of the Income and Growth Fund and High Total Return Fund II, series of
the Northstar Trust, and for Class A, B, C and T shares of the other Funds for
the periods indicated.
NORTHSTAR TRUST. The following table summarizes the calculation of Total
Return for the periods indicated through October 31, 1997, assuming the maximum
sales charge HAS been assessed:
<TABLE>
<CAPTION>
SINCE
ONE YEAR (1) INCEPTION(2)
-------------- -------------
<S> <C> <C>
GROWTH + VALUE FUND ............
Class A ........................ N/A 16.61%
Class B ........................ N/A 16.70%
Class C ........................ N/A 20.94%
INTERNATIONAL VALUE FUND .......
Class A ........................ 18.87% 13.91%
Class B ........................ N/A 6.77%
Class C ........................ 23.18% 15.38%
INCOME AND GROWTH FUND .........
Class A ........................ 11.32% 10.20%
Class B ........................ 11.15% 9.33%
Class C ........................ 15.12% 10.85%
HIGH TOTAL RETURN FUND II ......
Class A ........................ N/A 14.62%
Class B ........................ N/A 14.81%
Class C ........................ N/A 20.36%
</TABLE>
37
<PAGE>
The following table summarizes the calculation of Total Return for the
periods indicated through October 31, 1997, assuming the maximum sales charge
HAS NOT been assessed:
<TABLE>
<CAPTION>
SINCE
ONE YEAR (1) INCEPTION (2)
-------------- ---------------
<S> <C> <C>
GROWTH + VALUE FUND ...............
Class A ........................... 21.50% 22.75%
Class B ........................... 20.80% 22.01%
Class C ........................... 20.80% 22.01%
INTERNATIONAL VALUE FUND ..........
Class A ........................... 24.82% 16.03%
Class B ........................... N/A 16.51%
Class C ........................... 24.18% 15.38%
INCOME AND GROWTH FUND ............
Class A ........................... 16.91% 11.56%
Class B ........................... 16.15% 9.75%
Class C ........................... 16.12% 10.85%
HIGH TOTAL RETURN FUND II .........
Class A ........................... 16.53% 22.32%
Class B ........................... 15.91% 21.76%
Class C ........................... 16.12% 21.76%
</TABLE>
- ---------
(1) Annualized.
(2) The inception date for Class A, B and C shares of the Growth+Value Fund is
November 18, 1997. The inception date for Class B shares of the
International Value Fund is April 18, 1997; the inception date for Class A
and C shares of the International Value Fund is March 6, 1995. The
inception date of Class A, B and C shares of the Income and Growth Fund is
November 8, 1993, February 9, 1994 and March 21, 1994, respectively. The
inception date for Class A, B and C shares of the High Total Return Fund
II is January 31, 1997. The inception date for Class A, B and C shares of
the Emerging Markets Value Fund is January 1, 1998.
THE REMAINING FUNDS. The following table summarizes the calculation of
Total Return for Class T shares of the remaining Funds for the periods
indicated through December 31, 1997, assuming the maximum sales charge HAS been
assessed:
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEARS TEN YEARS INCEPTION (3)
---------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Growth Fund ........................ 18.94% 13.32% 14.38% 12.75%
Special Fund ....................... 10.29% 11.31% 15.28% 10.47%
Balance Sheet Fund ................. 19.91% 13.03% 12.51% 10.84%
High Yield Fund .................... 6.86% 10.91% N/A 10.96%
Strategic Income Fund .............. -1.91% N/A N/A 7.92%
Government Securities Fund ......... 3.38% 7.18% 8.33% 7.25%
</TABLE>
The following table summarizes the calculation of Total Return for Class T
shares of the remaining Funds for the periods indicated through December 31,
1997, assuming the maximum sales charge HAS NOT been assessed:
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEARS TEN YEARS INCEPTION (3)
---------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Growth Fund ........................ 22.94% 13.32% 14.38% 12.75%
Special Fund ....................... 14.29% 11.31% 15.28% 10.47%
Balance Sheet Fund ................. 23.91% 13.03% 12.51% 10.84%
High Yield Fund .................... 10.86% 10.91% N/A 10.96%
Strategic Income Fund .............. 1.89% N/A N/A 8.16%
Government Securities Fund ......... 7.38% 7.18% 8.33% 7.25%
</TABLE>
- ---------
(3) The inception date for Class T shares of Growth, Special, Balance Sheet
Opportunities and Government Securities Funds was February 1, 1986. The
inception date for Class T shares of the High Yield Fund was July 5, 1989.
The inception date for Class T shares of the Strategic Income Fund was
July 1, 1994.
The following table summarizes the calculation of Total Return for Class
A, Class B and Class C shares of the remaining Funds for the period from
commencement of operations of such classes (June 5, 1995) through December 31,
1997, assuming the maximum sales charge HAS been assessed:
38
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS OF SHARES ONE YEAR SINCE INCEPTION
- ---------------------------------------- ----------------- ---------- -----------------
<S> <C> <C> <C>
Growth Fund ......................... Class A 17.74% 19.47%
Class B 17.84% 20.17%
Class C 21.73% 20.96%
Special Fund ........................ Class A 9.48% 15.52%
Class B 9.10% 16.02%
Class C 13.06% 16.92%
Balance Sheet Opportunities Fund .... Class A 18.38% 15.98%
Class B 18.48% 16.51%
Class C 22.41% 17.34%
High Yield Fund ..................... Class A 5.84% 9.56%
Class B 5.38% 9.89%
Class C 9.37% 10.88%
Strategic Income Fund ............... Class A -2.36% 5.50%
Class B -3.08% 5.67%
Class C 0.80% 6.68%
Government Securities Fund .......... Class A 2.38% 5.05%
Class B 1.93% 5.30%
Class C 5.93% 6.34%
</TABLE>
The following table summarizes the calculation of Total Return for Class
A, Class B and Class C shares of the remaining Funds for the period from
commencement of operations of such classes (June 5, 1995) through December 31,
1997, assuming the maximum sales charge HAS NOT been assessed:
<TABLE>
<CAPTION>
FUND CLASS OF SHARES ONE YEAR SINCE INCEPTION
- ---------------------------------------- ----------------- ---------- ----------------
<S> <C> <C> <C>
Growth Fund ......................... Class A 23.59% 21.75%
Class B 22.84% 21.04%
Class C 22.73% 20.96%
Special Fund ........................ Class A 14.92% 17.73%
Class B 14.10% 16.93%
Class C 14.06% 16.92%
Balance Sheet Opportunities Fund .... Class A 24.31% 18.21%
Class B 23.48% 17.41%
Class C 23.41% 17.34%
High Yield Fund ..................... Class A 11.18% 11.63%
Class B 10.38% 10.89%
Class C 10.37% 10.88%
Strategic Income Fund ............... Class A 2.50% 7.51%
Class B 1.67% 6.71%
Class C 1.75% 6.68%
Government Securities Fund .......... Class A 7.46% 7.04%
Class B 6.93% 6.37%
Class C 6.93% 6.34%
</TABLE>
A Fund may quote its performance in various ways, using various types of
comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied
by the Funds in advertising is historical and is not intended to indicate
future returns. Each Fund's share prices and total returns fluctuate in
response to market conditions and other factors, and the value of the Fund's
shares when redeemed may be more or less than their original cost.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Funds, including reprints of, or
selections from, editorials or articles about a Fund. These editorials or
articles may include quotations of performance from other sources, such as
Lipper or Morningstar. Sources for Fund performance information and articles
about the Fund may include the following: BANXQUOTE, BARRON'S, BUSINESS WEEK,
CDA INVESTMENT TECHNOLOGIES, INC., CHANGING TIMES, CONSUMER DIGEST, FINANCIAL
WORLD, FORBES,
39
<PAGE>
FORTUNE, IBC/DONOGHUES'S MONEY FUND REPORT, IBBOTSON ASSOCIATES, INC.,
INVESTMENT COMPANY DATA, INC., INVESTOR'S DAILY, LIPPER ANALYTICAL SERVICES,
INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, MONEY, MUTUAL FUND VALUES, THE NEW
YORK TIMES, PERSONAL INVESTING NEWS, PERSONAL INVESTOR, SUCCESS, USA TODAY,
U.S. NEWS AND WORLD REPORT, THE WALL STREET JOURNAL and WIESENBERGER INVESTMENT
COMPANIES SERVICES.
When comparing yield, total return and investment risk of shares of a Fund
with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while a Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. government.
Money market mutual funds may seek to offer a fixed price per share.
The performance of a Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of the
Fund for any period in the future. The performance of a Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest, and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
FINANCIAL STATEMENTS
The Northstar Trust's audited financial statements dated October 31, 1997
and the report of the independent accountants, Coopers & Lybrand L.L.P. with
respect to such financial statements, are hereby incorporated herein by
reference to the Annual Report to Shareholders of the Northstar Trust for the
fiscal year ended October 31, 1997.
The audited financial statements of Growth, Special, Balance Sheet
Opportunities, High Yield, Strategic Income and Government Securities Funds as
of and for the year ended December 31, 1997 and the Report of the Independent
Accountants, Coopers & Lybrand L.L.P., with respect to such financial
statements are hereby incorporated herein by reference to the Annual Report to
Shareholders of The Northstar Funds for the year ended December 31, 1997.
40
<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
A-1
<PAGE>
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
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>
NORTHSTAR FUNDS
PRO FORMA PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
--------------------------- --------------------------- -------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------- ------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC BONDS & NOTES -- 11.04%
AEROSPACE & DEFENSE -- 3.29%
Alliant Techsystems, Inc.
11.75%, Sr. Subordinated Notes,
3/01/03 .................................... $1,500,000 $1,631,250 $1,500,000 $1,631,250
Aviation Sales Co. #
8.125%, Sr. Subordinated Notes,
2/15/08 .................................... 2,000,000 1,965,000 2,000,000 1,965,000
BE Aerospace, Inc.
8.00%, Sr. Subordinated Notes, 3/01/08...... 2,000,000 1,995,000 2,000,000 1,995,000
Compass Aerospace Corp. #
10.125%, Sr. Subordinated Notes,
4/15/05 .................................... 2,500,000 2,575,000 2,500,000 2,575,000
L 3 Communications Corp.
10.375%, Sr. Subordinated Notes,
5/01/07 .................................... 2,000,000 2,217,500 2,000,000 2,217,500
---------- ----------
10,383,750 10,383,750
---------- ----------
AIRLINES -- 1.23%
Atlantic Coast Airlines, Inc. #
7.97%, Pass-Thru Certificates, 1/01/00 ..... 530,778 526,532 $ 530,778 $ 526,532
Atlantic Coast Airlines, Inc. #
8.75%, Pass-Thru Certificates, 1/01/07 ..... 3,384,758 3,357,070 2,669,668 2,647,830 715,090 709,240
---------- ---------- ---------
3,883,602 2,647,830 1,235,772
---------- ---------- ---------
AUTO PARTS & EQUIPMENT -- 1.12%
Titan Wheel International, Inc.
8.75%, Sr. Subordinated Notes, 4/01/07...... 3,400,000 3,527,500 3,400,000 3,527,500
---------- ----------
BROADCASTING -- 6.44%
American Radio Systems Corp.
9.00%, Company Guarantee, 2/01/06 .......... 1,500,000 1,620,000 1,500,000 1,620,000
Capstar Broadcasting Partners, Inc.
9.25%, Sr. Subordinated Notes, 7/01/07...... 2,900,000 3,052,250 2,900,000 3,052,250
Chancellor Media Corp.
8.125%, Sr. Subordinated Notes,
12/15/07 ................................... 1,000,000 1,015,000 1,000,000 1,015,000
JCAC, Inc.
10.125%, Sr. Subordinated Notes,
6/15/06 .................................... 4,000,000 4,370,000 4,000,000 4,370,000
SFX Broadcasting, Inc.
10.75%, Sr. Subordinated Notes,
5/15/06 .................................... 4,000,000 4,430,000 4,000,000 4,430,000
Sinclair Broadcast Group, Inc.
8.75%, Sr. Subordinated Notes,
12/15/07 ................................... 2,800,000 2,898,000 2,800,000 2,898,000
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes, 7/15/07...... 1,500,000 1,567,500 1,500,000 1,567,500
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Subordinated Notes,
9/30/05 .................................... 1,250,000 1,346,875 1,250,000 1,346,875
---------- ----------
20,299,625 19,284,625 1,015,000
---------- ---------- ---------
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
--------------------------- --------------------------- --------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------- ------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
CABLE TELEVISION -- 2.91%
Century Communications Corp.
0%, Sr. Discount Notes, 1/15/08 ........... $4,000,000 $1,850,000 $3,000,000 $1,387,500 $1,000,000 $ 462,500
EchoStar Communications Corp. $
0/12.875%, Sr. Discount Notes, 6/01/04..... 3,500,000 3,425,625 3,000,000 2,936,250 500,000 489,375
EchoStar Satellite Broadcasting
Corp. $
0/13.125%, Sr. Secured Discount Notes,
3/15/04 ................................... 1,500,000 1,387,500 1,500,000 1,387,500
Medicom LLC #
8.50%, Sr. Notes, 4/15/08 ................. 2,500,000 2,503,125 2,500,000 2,503,125
---------- ----------
9,166,250 8,214,375 951,875
---------- ---------- ---------
CAPITAL GOODS
MANUFACTURING -- 3.16%
Indesco International, Inc. #
9.75%, Sr. Subordinated Notes, 4/15/08..... 3,000,000 2,970,000 3,000,000 2,970,000
Moll Industries, Inc. #
10.50%, Sr. Subordinated Notes,
7/01/08 ................................... 3,000,000 3,075,000 3,000,000 3,075,000
Roller Bearing Co. America, Inc.
9.625%, Company Guarantee, 6/15/07 ........ 3,850,000 3,917,375 3,850,000 3,917,375
---------- ----------
9,962,375 9,962,375
---------- ----------
CHEMICALS -- 3.08%
American Pacific Corp. #
9.25%, Sr. Notes, 3/01/05 ................. 3,000,000 3,112,500 3,000,000 3,112,500
Hydrochem Industrial Services, Inc.
10.375%, Company Guarantee, 8/01/07........ 4,500,000 4,612,500 3,500,000 3,587,500 1,000,000 1,025,000
Simcala, Inc. #
9.625%, Sr. Notes, 4/15/06 ................ 2,000,000 1,982,500 2,000,000 1,982,500
---------- ----------
9,707,500 8,682,500 1,025,000
---------- ---------- ---------
CONSUMER PRODUCTS -- 2.01%
Packaged Ice, Inc. #
9.75%, Sr. Notes, 2/01/05 ................. 4,900,000 4,961,250 4,000,000 4,050,000 900,000 911,250
Shop Vac Corp.
10.625%, Sr. Secured Notes, 9/01/03 ....... 1,250,000 1,371,875 1,250,000 1,371,875
---------- ---------
6,333,125 4,050,000 2,283,125
---------- ---------- ---------
DIVERSIFIED FINANCIAL SERVICES -- 0.31%
Natwest Asset Trust Securities
9.585%, Asset Trust, 1/31/03 .............. 1,000,000 970,000 1,000,000 970,000
---------- ---------
ENERGY -- 4.58%
Abraxas Petroleum Corp.
11.50%, Company Guarantee, 11/01/04........ 2,000,000 2,070,000 2,000,000 2,070,000
AES Corp.
8.50%, Sr. Subordinated Notes,
11/01/07 .................................. 750,000 763,125 750,000 763,125
AES Corp.
10.25%, Sr. Subordinated Notes,
7/15/06 ................................... 4,000,000 4,360,000 4,000,000 4,360,000
CalEnergy Co., Inc.
9.50%, Sr. Secured Notes, 9/15/06 ......... 1,000,000 1,083,750 1,000,000 1,083,750
California Energy, Inc.
9.875%, Sr. Notes, 6/30/03 ................ 1,000,000 1,087,500 1,000,000 1,087,500
California Energy, Inc. $
0/10.25%, Sr. Discount Notes, 1/15/04 ..... 2,650,000 2,855,375 2,650,000 2,855,375
Calpine Corp.
10.50%, Sr. Notes, 5/15/06 ................ 2,000,000 2,215,000 2,000,000 2,215,000
---------- ----------
14,434,750 13,671,625 763,125
---------- ---------- ---------
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
--------------------------- --------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FOOD/BEVERAGE/TOBACCO -- 5.83%
Ameriserve Food Distribution, Inc.
8.875%, Company Guarantee, 10/15/06........ $2,750,000 $2,777,500 $2,750,000 $2,777,500
Eagle Family Foods, Inc. #
8.75%, Sr. Subordinated Notes, 1/15/08..... 1,250,000 1,221,875 1,250,000 1,221,875
North Atlantic Trading, Inc.
11.00%, Sr. Notes, 6/15/04 ................ 5,000,000 5,050,000 4,000,000 4,040,000 $1,000,000 $1,010,000
RAB Enterprises, Inc. #
10.50%, Sr. Notes, 5/01/05 ................ 500,000 505,000 500,000 505,000
Richmont Marketing Specialists, Inc. #
10.125%, Sr. Subordinated Notes,
12/15/07 .................................. 4,250,000 4,335,000 3,350,000 3,417,000 900,000 918,000
Standard Commercial Corp.
8.875%, Company Guarantee, 8/01/05 ........ 4,500,000 4,477,500 3,500,000 3,482,500 1,000,000 995,000
---------- ---------- ----------
18,366,875 15,443,875 2,923,000
---------- ---------- ----------
HEALTHCARE -- 5.88%
Alaris Medical Systems, Inc.
9.75%, Sr. Subordinated Notes,
12/01/06 .................................. 4,750,000 4,845,000 4,750,000 4,845,000
Fisher Scientific International, Inc.
9.00%, Sr. Subordinated Notes, 2/01/08..... 2,400,000 2,400,000 2,000,000 2,000,000 400,000 400,000
Health Insurance Plan of
Greater New York
11.25%, Notes, 7/01/10 .................... 3,000,000 3,210,000 3,000,000 3,210,000
Kinetic Concepts, Inc.
9.625%, Company Guarantee, 11/01/07........ 2,500,000 2,537,500 2,500,000 2,537,500
Tenet Healthcare Corp. #
8.125%, Sr. Subordinated Notes,
12/01/08 .................................. 4,500,000 4,545,000 4,500,000 4,545,000
Universal Hospital Services, Inc. #
10.25%, Sr. Notes, 3/01/08 ................ 1,000,000 1,005,000 1,000,000 1,005,000
---------- ----------
18,542,500 17,137,500 1,405,000
---------- ---------- ----------
HOMEBUILDING -- 0.47%
Engle Homes, Inc. #9.25%, Company
Guarantee, 2/01/08 ........................ 1,500,000 1,488,750 1,500,000 1,488,750
---------- ----------
HOTEL & GAMING -- 1.35%
Courtyard By Marriott Ltd.
10.75%, Sr. Secured Notes, 2/01/08 ........ 2,000,000 2,205,000 2,000,000 2,205,000
Hard Rock Hotel, Inc. #
9.25%, Sr. Subordinated Notes, 4/01/05..... 2,000,000 2,065,000 2,000,000 2,065,000
---------- ----------
4,270,000 4,270,000
---------- ----------
INSURANCE -- 2.77%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05..... 5,550,000 5,758,125 4,250,000 4,409,375 1,300,000 1,348,750
Superior National Insurance Group,
Inc.
10.75%, Company Guarantee, 12/01/17........ 27,500 2,970,000 22,500 2,430,000 5,000 540,000
---------- ---------- ----------
8,728,125 6,839,375 1,888,750
---------- ---------- ----------
MANUFACTURING -- 0.88%
Clark-Schwebel, Inc.
10.50%, Sr. Notes, 4/15/06 ................ 2,500,000 2,775,000 2,500,000 2,775,000
---------- ----------
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
--------------------------- --------------------------- -------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------- ------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OIL & GAS -- 3.96%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 ............... $2,900,000 $3,088,500 $2,000,000 $2,130,000 $ 900,000 $ 958,500
Forcenergy, Inc.
9.50%, Sr. Subordinated Notes,
11/01/06 .................................. 3,000,000 3,030,000 3,000,000 3,030,000
HS Resources, Inc.
9.875%, Sr. Subordinated Notes,
12/01/03 .................................. 1,550,000 1,581,000 1,550,000 1,581,000
Lomak Petroleum, Inc.
8.75%, Sr. Subordinated Notes, 1/15/07..... 800,000 794,000 800,000 794,000
Windsor Petroleum Transport Corp. #
7.84%, Notes, 1/15/21 ..................... 4,500,000 4,005,000 3,500,000 3,115,000 1,000,000 890,000
---------- ---------- ---------
12,498,500 9,856,000 2,642,500
---------- ---------- ---------
PAPER -- 1.76%
Buckeye Cellulose Corp.
8.50%, Sr. Subordinated Notes,
12/15/05 .................................. 2,725,000 2,765,875 2,725,000 2,765,875
SD Warren Co.
12.00%, Sr. Subordinated Notes,
12/15/04 .................................. 2,500,000 2,781,250 2,500,000 2,781,250
---------- ----------
5,547,125 5,547,125
---------- ----------
PUBLISHING/PRINTING -- 2.29%
Garden State Newspapers, Inc.
8.75%, Sr. Subordinated Notes,
10/01/09 .................................. 1,000,000 1,020,000 1,000,000 1,020,000
Hollinger International Publishing,
Inc.
9.25%, Company Guarantee, 3/15/07 ......... 3,000,000 3,150,000 3,000,000 3,150,000
Liberty Group Operating, Inc.
9.375%, Sr. Subordinated Notes,
2/01/08 ................................... 3,000,000 3,045,000 2,400,000 2,436,000 600,000 609,000
---------- ---------- ---------
7,215,000 6,606,000 609,000
---------- ---------- ---------
RESTAURANTS -- 1.13%
Romacorp, Inc. #
12.00%, Sr. Notes, 7/01/06 ................ 3,500,000 3,570,000 3,500,000 3,570,000
---------- ----------
SERVICES -- 2.29%
Allied Waste North America, Inc.
10.25%, Sr. Subordinated Notes,
12/01/06 .................................. 1,500,000 1,651,875 1,500,000 1,651,875
Mastec, Inc. #
7.75%, Sr. Subordinated Notes, 2/01/08..... 3,800,000 3,638,500 3,000,000 2,872,500 800,000 766,000
Nebraska Book Co. #
8.75%, Sr. Subordinated Notes, 2/15/08..... 2,000,000 1,920,000 2,000,000 1,920,000
---------- ----------
7,210,375 6,444,375 766,000
---------- ---------- ---------
SHIPPING -- 0.86%
International Shipholding Corp.
7.75%, Sr. Notes, 10/15/07 ................ 2,750,000 2,701,875 1,750,000 1,719,375 1,000,000 982,500
---------- ---------- ---------
SPECIALTY RETAILING -- 0.95%
Phillips Van-Heusen Corp. #
9.50%, Sr. Subordinated Notes, 5/01/08..... 3,000,000 3,000,000 3,000,000 3,000,000
---------- ----------
STEEL -- 0.57%
Geneva Steel Co.
9.50%, Sr. Notes, 1/15/04 ................. 2,000,000 1,790,000 2,000,000 1,790,000
---------- ----------
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
---------------------------- ---------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------- ------------- -------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS -- 8.36%
Intermedia Communications, Inc. #
8.60%, Sr. Notes, 6/01/08 ................. $3,000,000 $ 3,052,500 $3,000,000 $ 3,052,500
IXC Communications, Inc. #
9.00%, Sr. Subordinated Notes, 4/15/08..... 3,000,000 3,022,500 3,000,000 3,022,500
Level 3 Communications, Inc. #
9.125%, Sr. Notes, 5/01/08 ................ 3,500,000 3,430,000 3,500,000 3,430,000
Nextlink Communications, Inc. #
9.00%, Sr. Notes, 3/15/08 ................. 1,500,000 1,500,000 1,500,000 1,500,000
Nextlink Communications, Inc. # $
0/9.45%, Sr. Discount Notes, 4/15/08 ...... 3,500,000 2,161,250 3,500,000 2,161,250
Qwest Communications International,
Inc. $
0/9.47%, Sr. Discount Notes, 10/15/07 ..... 2,700,000 2,028,375 2,700,000 2,028,375
RCN Corp.
10.00%, Sr. Notes, 10/15/07 ............... 3,500,000 3,613,750 2,500,000 2,581,250 $1,000,000 $1,032,500
RCN Corp. $
0/9.80%, Sr. Discount Notes, 2/15/08 ...... 2,000,000 1,200,000 1,500,000 900,000 500,000 300,000
Viatel, Inc. # (1)
11.25%, Units, 4/15/08 .................... 4,300 4,536,500 3,500 3,692,500 800 844,000
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04 ........ 1,600,000 1,816,000 1,600,000 1,816,000
----------- ----------
26,360,875 22,368,375 3,992,500
----------- ----------- ----------
TEXTILE/APPAREL -- 1.18%
Fruit of the Loom, Inc.
6.50%, Notes, 11/15/03 .................... 1,250,000 1,210,887 1,250,000 1,210,887
Worldtex, Inc.
9.625%, Company Guarantee, 12/15/07........ 2,500,000 2,512,500 2,500,000 2,512,500
----------- -----------
3,723,387 2,512,500 1,210,887
----------- ----------- ----------
TRANSPORTATION -- 2.38%
Sea Containers Ltd.
7.875%, Sr. Notes, 2/15/08 ................ 2,100,000 2,084,250 1,300,000 1,290,250 800,000 794,000
Sea Containers Ltd.
12.50%, Sr. Subordinated Debentures,
12/01/04 .................................. 2,000,000 2,260,000 2,000,000 2,260,000
Westinghouse Air Brake Co.
9.375%, Sr. Notes, 6/15/05 ................ 3,000,000 3,150,000 3,000,000 3,150,000
----------- -----------
7,494,250 6,700,250 794,000
----------- ----------- ----------
TOTAL DOMESTIC BONDS & NOTES
(cost $217,680,960)........................ 223,951,114 198,493,080 25,458,034
----------- ----------- ----------
FOREIGN BONDS & NOTES -- 18.24%
AEROSPACE & DEFENSE -- 1.00%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 ................ 3,000,000 3,150,000 3,000,000 3,150,000
----------- -----------
BROADCASTING -- 0.96%
Antenna TV SA
9.00%, Sr. Notes, 8/01/07 ................. 3,000,000 3,030,000 3,000,000 3,030,000
----------- -----------
CABLE TELEVISION -- 1.02%
Rogers Cablesystems Ltd.
9.625%, Notes, 8/01/02 .................... 3,000,000 3,210,000 3,000,000 3,210,000
----------- -----------
DIVERSIFIED FINANCIAL
SERVICES -- 0.89%
Guangdong Enterprises Holding Ltd. #
8.875%, Sr. Notes, 5/22/07 ................ 1,000,000 740,870 1,000,000 740,870
Malayan Banking Berhad-New York
7.125%, Subordinate Notes, 9/15/05 ........ 2,000,000 1,647,040 2,000,000 1,647,040
Westways Funding II Ltd. #
22.125%, Mortgage Backed Notes,
1/29/03 ................................... 500,000 428,750 500,000 428,750
----------- ----------
2,816,660 2,816,660
----------- ----------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
--------------------------- --------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ELECTRIC UTILITIES -- 0.40%
Empresa Electrica Del Norte Grande
SA #
7.75%, Notes, 3/15/06 ...................... $1,550,000 $1,265,653 $1,550,000 $1,265,653
---------- ----------
FOOD/BEVERAGE/TOBACCO -- 1.40%
Fage Dairy Industry SA
9.00%, Sr. Notes, 2/01/07 .................. 4,500,000 4,398,750 $3,000,000 $2,932,500 1,500,000 1,466,250
---------- ---------- ----------
FOREIGN GOVERNMENT
SECURITIES -- 0.43%
Banque Centale De Tunisie
7.50%, Notes, 9/19/07 ...................... 1,000,000 999,570 1,000,000 999,570
Republic of Korea
8.875%, Unsubordinated Notes,
4/15/08 .................................... 400,000 361,000 400,000 361,000
---------- ----------
1,360,570 1,360,570
---------- ----------
METALS & MINING -- 1.09%
Great Central Mines Ltd. #
8.875%, Sr. Notes, 4/01/08 ................. 3,500,000 3,447,500 3,500,000 3,447,500
---------- ----------
OIL & GAS -- 2.21%
Bridas Corp.
12.50%, Sr. Notes, 11/15/99 ................ 1,000,000 1,052,500 1,000,000 1,052,500
Conproca SA #
12.00%, Sr. Secured Notes, 6/16/10 ......... 3,000,000 3,000,000 3,000,000 3,000,000
Northern Offshore ASA #
10.00%, Company Guarantee, 5/15/05 ......... 3,000,000 2,925,000 3,000,000 2,925,000
---------- ----------
6,977,500 5,925,000 1,052,500
---------- ---------- ----------
PAPER -- 0.71%
APP Global Finance Ltd.
9.75%, Secured Notes, 10/04/01 ............. 2,000,000 1,430,000 2,000,000 1,430,000
APP International Finance BV Co.
8.867%, Notes, 9/15/99 ..................... 1,000,000 822,500 1,000,000 822,500
---------- ----------
2,252,500 2,252,500
---------- ----------
PUBLISHING/PRINTING -- 0.86%
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes,
5/01/06 .................................... 2,400,000 2,724,000 2,400,000 2,724,000
---------- ----------
SERVICES -- 2.68%
Autopistas Del Sol SA #
10.25%, Sr. Notes, 8/01/09 ................. 3,000,000 2,778,750 3,000,000 2,778,750
Guangzhou Shenzhen Superhighway
Holdings
10.25%, Sr. Notes, 8/15/07 ................. 3,750,000 2,625,000 1,950,000 1,365,000 1,800,000 1,260,000
Intertek Finance PLC
10.25%, Sr. Subordinated Notes,
11/01/06 ................................... 2,900,000 3,045,000 2,900,000 3,045,000
---------- ----------
8,448,750 7,188,750 1,260,000
---------- ---------- ----------
SHIPPING -- 2.30%
Alpha Shipping PLC #
9.50%, Sr. Notes, 2/15/08 .................. 4,000,000 3,790,000 4,000,000 3,790,000
Equimar Shipholdings Ltd.
9.875%, Company Guarantee, 7/01/07 ......... 3,750,000 3,450,000 3,000,000 2,760,000 750,000 690,000
---------- ---------- ----------
7,240,000 6,550,000 690,000
---------- ---------- ----------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
-------------------------- --------------------------- --------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------- ------------ ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS -- 2.27%
Colt Telecom Group PLC $
0/12.00%, Sr. Discount Notes, 12/15/06..... $ 500,000 $ 395,000 $ 500,000 $ 395,000
Fonorola, Inc.
12.50%, Sr. Notes, 8/15/02 ................ 1,000,000 1,107,500 $1,000,000 $1,107,500
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 ..... 2,100,000 1,858,500 2,100,000 1,858,500
Rogers Cantel, Inc.
8.80%, Sr. Subordinated Notes,
10/01/07 .................................. 2,800,000 2,789,500 2,800,000 2,789,500
Telecom Brazil Funding Corp. #
11.4375%, Guaranteed Notes, 12/09/99....... 1,000,000 1,012,500 1,000,000 1,012,500
---------- ----------
7,163,000 3,897,000 3,266,000
---------- ---------- ----------
TOTAL FOREIGN BONDS & NOTES
(cost $58,998,981)......................... 57,484,883 42,054,750 15,430,133
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
SHARES SHARES SHARES
------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
CONVERTIBLE PREFERRED
STOCKS -- 0.72%
TELECOMMUNICATIONS -- 0.72%
American Tower Systems Corp.,
10.6875% & ++ (2) ............................ 22,500 2,272,612 22,500 2,272,612
---------- ----------
TOTAL CONVERTIBLE PREFERRED
STOCKS
(cost $2,253,340)............................. 2,272,612 2,272,612
---------- ----------
PREFERRED STOCKS -- 1.66%
PUBLISHING/PRINTING -- 0.33%
Primedia, Inc., 9.20% ........................ 10,000 1,025,000 10,000 1,025,000
---------- ----------
SUPERMARKETS -- 1.33%
Nebco Evans Holding Co., 11.25% & ............ 41,061 4,198,487 30,796 3,148,891 10,265 1,049,596
---------- ---------- ---------
TOTAL PREFERRED STOCKS
(cost $5,107,957)............................. 5,223,487 4,173,891 1,049,596
---------- ---------- ---------
RIGHTS -- 0.06%
CAPITAL GOODS
MANUFACTURING -- 0.06%
Terex Corp., (expires 2000) .................. 8,000 188,000 8,000 188,000
---------- ----------
FOREIGN GOVERNMENT
SECURITIES -- 0.00%
United Mexican States ........................ 1,500,000 1,500,000 0
----------
TOTAL RIGHTS
(cost $0)..................................... 188,000 188,000
---------- ----------
WARRANTS -- 0.11%
CONSUMER PRODUCTS -- 0.02%
Chattem, Inc., (expires 6/17/99) ............. 500 55,375 500 55,375
---------- ---------
HEALTHCARE -- 0.05%
Intracel Corp. ++, (expires 4/17/03) ......... 49,066 159,465 49,066 159,465
---------- ----------
SUPERMARKETS -- 0.00%
Dairy Mart Convenience Stores, Inc.,
(expires 12/01/01) ........................... 4,999 3,749 4,999 3,749
---------- ---------
TELECOMMUNICATIONS -- 0.04%
Colt Telecom Group PLC #, (expires
12/31/06) .................................... 500 130,125 500 130,125
Occidente Y Caribe Celular SA #,
(expires 3/15/04) ............................ 9,400 9,400 0
UNIFI Communications, Inc. #,
(expires 2003) ............................... 1,000 1,000 0
---------
130,125 130,125
---------- ---------
TOTAL WARRANTS
(cost $143,021)............................... 348,714 159,465 189,249
---------- ---------- ---------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
--------------------------------
PRINCIPAL
SECURITY AMOUNT VALUE
- ------------------------------------------- --------------- ----------------
<S> <C> <C>
U.S. GOVERNMENT AND
AGENCIES -- 1.64%
Cityscape Home Loan Owner Trust,
8.17%, due 7/25/18 ........................ $ 800,000 $ 832,592
Federal Home Loan Mortgage Corp.,
7.00%, due 1/30/13 - 4/15/28 .............. 3,730,871 1,638,190
Fannie Mae Remic, 7.00%, due 2/18/21....... 2,500,000 414,844
Fannie Mae, 2.94375%, due 9/18/10 ......... 10,746,808 147,769
Mego Mortgage Home Loan Trust,
8.01%, due 8/25/23 ........................ 1,200,000 1,155,684
U.S. Treasury Strips, 0%, due 2/15/23 ..... 4,000,000 987,480
------------
TOTAL U.S. GOVERNMENT AND
AGENCIES
(cost $5,212,977).......................... 1.64% 5,176,559
------------
TOTAL INVESTMENT
SECURITIES -- 13.47%
(cost $289,397,236)........................ 294,645,369
------------
SHORT TERM INVESTMENTS -- 1.27%
Intracel ++
12.50%, Bridge Notes, 7/10/98 ............. 4,000,000 4,000,000
------------
TOTAL SHORT TERM INVESTMENTS
(cost $4,000,000).......................... 4,000,000
------------
REPURCHASE AGREEMENT -- 4.00%
Agreement with State Street Bank and
Trust bearing interest at 5.70% dated
6/30/98 to be repurchased 7/01/98 in
the amount of $5,370,850 and
collateralized by $4,665,000 U.S.
Treasury Notes, 7.25% due 5/15/16,
value $5,480,647 .......................... 5,370,000 5,370,000
Agreement with State Street Bank and
Trust bearing interest at 5.70% dated
6/30/98 to be repurchased 7/01/98 in
the amount of $7,240,146 and
collateralized by $6,285,000 U. S.
Treasury Notes, 7.25% due 5/15/16,
value $7,383,895 .......................... 7,239,000 7,239,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $12,609,000)......................... 12,609,000
------------
OTHER ASSETS LESS
LIABILITIES -- 1.24% 3,917,580
------------
ADJUSTMENT PER PRO FORMA
FINANCIAL STATEMENTS -- 0.02% ............. 61,129
------------
NET ASSETS -- 100.00% ..................... $315,233,078
============
<CAPTION>
HIGH YIELD FUND STRATEGIC INCOME FUND
----------------------------- ----------------------------
PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND
AGENCIES -- 1.64%
Cityscape Home Loan Owner Trust,
8.17%, due 7/25/18 ........................ $ 800,000 $ 832,592
Federal Home Loan Mortgage Corp.,
7.00%, due 1/30/13 - 4/15/28 .............. 3,730,871 1,638,190
Fannie Mae Remic, 7.00%, due 2/18/21....... 2,500,000 414,844
Fannie Mae, 2.94375%, due 9/18/10 ......... 10,746,808 147,769
Mego Mortgage Home Loan Trust,
8.01%, due 8/25/23 ........................ 1,200,000 1,155,684
U.S. Treasury Strips, 0%, due 2/15/23 ..... 4,000,000 987,480
-----------
TOTAL U.S. GOVERNMENT AND
AGENCIES
(cost $5,212,977).......................... 5,176,559
-----------
TOTAL INVESTMENT
SECURITIES -- 13.47%
(cost $289,397,236)........................ $247,341,798 47,303,571
------------ -----------
SHORT TERM INVESTMENTS -- 1.27%
Intracel ++
12.50%, Bridge Notes, 7/10/98 ............. $4,000,000 4,000,000
------------
TOTAL SHORT TERM INVESTMENTS
(cost $4,000,000).......................... 4,000,000
------------
REPURCHASE AGREEMENT -- 4.00%
Agreement with State Street Bank and
Trust bearing interest at 5.70% dated
6/30/98 to be repurchased 7/01/98 in
the amount of $5,370,850 and
collateralized by $4,665,000 U.S.
Treasury Notes, 7.25% due 5/15/16,
value $5,480,647 .......................... 5,370,000 5,370,000
Agreement with State Street Bank and
Trust bearing interest at 5.70% dated
6/30/98 to be repurchased 7/01/98 in
the amount of $7,240,146 and
collateralized by $6,285,000 U. S.
Treasury Notes, 7.25% due 5/15/16,
value $7,383,895 .......................... 7,239,000 7,239,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $12,609,000)......................... 5,370,000 7,239,000
OTHER ASSETS LESS
LIABILITIES -- 1.24% 1,133,999 2,783,581
------------ -----------
ADJUSTMENT PER PRO FORMA
FINANCIAL STATEMENTS -- 0.02% .............
NET ASSETS -- 100.00% ..................... $257,845,797 $57,326,152
============ ===========
</TABLE>
- ---------
# Sale restricted to qualified institutional investors.
$ Step bond. Payment-in-kind security.
++ Private Placement.
(1) A unit consists of $1,000 par value Sr. Notes, 11.25% due 4/15/08 and 0.483
preferred shares.
(2) Variable rate security. Rate as of June 30, 1998.
F-8
<PAGE>
NORTHSTAR FUNDS
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
<TABLE>
<CAPTION>
STRATEGIC
HIGH YIELD INCOME
FUND FUND
--------------- --------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $241,443,928, $47,953,308
and $289,397,236, respectively).......................................... $247,341,798 $ 47,303,571
Short-term securities, at value (cost $4,000,000, $0, and $4,000,000,
respectively) ........................................................... 4,000,000 0
Repurchase agreements .................................................... 5,370,000 7,239,000
Cash ..................................................................... 387 220
Dividends and interest receivable ........................................ 5,255,494 1,109,466
Receivable for shares of beneficial interest sold ........................ 265,816 6,163
Receivable for investments sold .......................................... 0 1,945,375
Receivable from Advisor .................................................. 0 0
Prepaid expenses ......................................................... 17,885 33,127
------------ ------------
Total Assets ............................................................ 262,251,380 57,636,922
------------ ------------
LIABILITIES:
Payable for investments purchased ........................................ 3,500,000 0
Payable for shares of beneficial interest reacquired ..................... 480,011 188,283
Investment advisory fee payable .......................................... 127,221 31,653
Distribution fee payable ................................................. 171,895 40,928
Administrative services fee payable ...................................... 62,445 15,987
Transfer agent fee payable ............................................... 17,955 3,492
Accrued expenses ......................................................... 46,056 30,427
------------ ------------
Total Liabilities ....................................................... 4,405,583 310,770
------------ ------------
NET ASSETS ............................................................... $257,845,797 $ 57,326,152
============ ============
NET ASSETS WERE COMPOSED OF:
Capital paid in for shares of beneficial interest, $0.01 par value
outstanding (unlimited shares authorized) ............................... $249,232,232 $ 63,129,273
Undistributed (overdistributed) net investment income .................... (226,530) 171,105
Accumulated net realized gain (loss) on investments, foreign currency,
options, and futures .................................................... 2,942,225 (5,324,489)
Net unrealized appreciation (depreciation) of investments and foreign
currency ................................................................ 5,897,870 (649,737)
------------ ------------
NET ASSETS .............................................................. $257,845,797 $ 57,326,152
============ ============
CLASS A:
Net Assets ............................................................... $ 22,919,740 $ 12,076,519
------------ ------------
Shares outstanding ....................................................... 2,502,717 1,040,990
------------ ------------
Net asset value and redemption value per share (net assets / shares
outstanding) ............................................................ $ 9.16 $ 11.60
============ ============
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) ................................................ $ 9.62 $ 12.18
============ ============
CLASS B:
Net Assets ............................................................... $119,068,705 $ 26,517,258
------------ ------------
Shares outstanding ....................................................... 12,990,493 2,287,013
------------ ------------
Net asset value and offering price per share ............................. $ 9.17 $ 11.59
============ ============
CLASS C:
Net Assets ............................................................... $ 22,341,288 $ 3,052,930
------------ ------------
Shares outstanding ....................................................... 2,438,073 263,624
------------ ------------
Net asset value and offering price per share ............................. $ 9.16 $ 11.58
============ ============
CLASS T:
Net Assets ............................................................... $ 93,516,064 $ 15,679,445
------------ ------------
Shares outstanding ....................................................... 10,212,258 1,352,019
------------ ------------
Net asset value and offering price per share ............................. $ 9.16 $ 11.60
============ ============
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------------ ---------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $241,443,928, $47,953,308
and $289,397,236, respectively).......................................... $ $294,645,369
Short-term securities, at value (cost $4,000,000, $0, and $4,000,000,
respectively) ........................................................... 4,000,000
Repurchase agreements .................................................... 12,609,000
Cash ..................................................................... 607
Dividends and interest receivable ........................................ 6,364,960
Receivable for shares of beneficial interest sold ........................ 271,979
Receivable for investments sold .......................................... 1,945,375
Receivable from Advisor .................................................. 32,050 32,050
Prepaid expenses ......................................................... (32,050)(1) 18,962
----------- ------------
Total Assets ............................................................ 0 319,888,302
----------- ------------
LIABILITIES:
Payable for investments purchased ........................................ 3,500,000
Payable for shares of beneficial interest reacquired ..................... 668,294
Investment advisory fee payable .......................................... (15,529)(2) 143,345
Distribution fee payable ................................................. (27,386)(3) 185,437
Administrative services fee payable ...................................... 78,432
Transfer agent fee payable ............................................... 21,447
Accrued expenses ......................................................... (18,264)(4) 58,219
----------- ------------
Total Liabilities ....................................................... (61,129) 4,655,224
----------- ------------
NET ASSETS ............................................................... $ 61,129 $315,233,078
=========== ============
NET ASSETS WERE COMPOSED OF:
Capital paid in for shares of beneficial interest, $0.01 par value
outstanding (unlimited shares authorized) ............................... $ $312,361,505
Undistributed (overdistributed) net investment income .................... 61,129(5) 5,704
Accumulated net realized gain (loss) on investments, foreign currency,
options, and futures .................................................... (2,382,264)
Net unrealized appreciation (depreciation) of investments and foreign
currency ................................................................ 5,248,133
------------- ------------
NET ASSETS .............................................................. $ 61,129 $315,233,078
============= ============
CLASS A:
Net Assets ............................................................... $ 3,157 $ 35,000,011
------------- ------------
Shares outstanding ....................................................... 277,407 (6) 3,821,114
------------- ------------
Net asset value and redemption value per share (net assets / shares
outstanding) ............................................................ $ 9.16
============
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) ................................................ $ 9.62
============
CLASS B:
Net Assets ............................................................... $ 15,610 $145,601,573
------------- ------------
Shares outstanding ....................................................... 604,727 (6) 15,882,233
------------- ------------
Net asset value and offering price per share ............................. $ 9.17
============
CLASS C:
Net Assets ............................................................... $ 2,723 $ 25,396,941
------------- ------------
Shares outstanding ....................................................... 69,665 (6) 2,771,362
------------- ------------
Net asset value and offering price per share ............................. $ 9.16
============
CLASS T:
Net Assets ............................................................... $ 39,094 $109,234,603
------------- ------------
Shares outstanding ....................................................... 359,711 (6) 11,923,988
------------- ------------
Net asset value and offering price per share ............................. $ 9.16
============
</TABLE>
Redemption price per share varies with the length of time Class B, C, and T
shares are held.
- ---------
(1) Prepaid expenses will be reimbursed for Strategic Income Fund.
(2) Five basis point difference in management fees.
(3) Class T distribution fees decrease from 95 Bps to 65 Bps
(4) Audit will be allocated to one Fund.
(5) Expense adjustments for prepaid, management fees, and audit expenses.
(6) Exchange ratio applied to shares of Strategic Income Fund is 1.2664,
1.2639, 1.2642, and 1.2664 for Class A, B, C and T, respectively.
See accompanying notes to financial statements.
F-9
<PAGE>
NORTHSTAR FUNDS
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
STRATEGIC
HIGH YIELD INCOME PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
--------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $1,659, $6,344,
and $8,003, respectively)............................... $ 256,459 $ 53,689 $ $ 310,148
Interest (net of withholding tax of $0, $0, and $0,
respectively) .......................................... 11,717,832 2,842,577 14,560,409
------------ ------------ ------------
Total investment income ................................. 11,974,291 2,896,266 14,870,557
------------ ------------ ------------
EXPENSES:
Investment advisory and management fees ................. 771,845 201,873 (15,529)(1) 958,189
Distribution fees
Class A ................................................ 26,627 17,298 43,925
Class B ................................................ 569,940 142,851 712,791
Class C ................................................ 110,131 18,776 128,907
Class T ................................................ 336,428 86,722 (27,386)(2) 395,764
Transfer agent fees and expenses
Class A ................................................ 11,111 6,580 17,691
Class B ................................................ 78,086 20,424 98,510
Class C ................................................ 15,323 2,492 17,815
Class T ................................................ 61,996 10,642 72,638
Accounting and custodian fees ........................... 40,809 18,582 59,391
Registration fees ....................................... 23,246 19,977 (13,422)(3) 29,801
Audit fees .............................................. 11,166 12,145 (12,891)(4) 10,420
Printing and postage expenses ........................... 22,334 7,791 30,125
Administration service fees ............................. 169,541 42,017 211,558
Trustee fees ............................................ 5,893 5,373 (5,373)(5) 5,893
Miscellaneous expenses .................................. 19,356 18,173 (18,628)(6) 18,901
------------ ------------ ---------- ------------
2,273,832 631,716 (93,179) ,812,369
------------ ------------ ---------- ------------
Less expenses reimbursed by investment adviser........... 0 0 32,050 32,050
------------ ------------ ---------- ------------
Total expenses ......................................... 2,273,832 631,716 (61,129) 2,844,419
------------ ------------ ---------- ------------
Net investment income ................................... 9,700,459 2,264,550 61,129 12,026,138
------------ ------------ ---------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on investments and options ..... 5,402,333 (1,612,202) 3,790,131
Net change in unrealized depreciation of
investments ............................................ (4,704,097) (649,259) (5,353,356)
------------ ------------ ------------
Net realized and unrealized gain (loss) on
investments ......................................... 698,236 (2,261,461) (1,563,225)
------------ ------------ ------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $ 10,398,695 $ 3,089 $ 61,129 $ 10,501,568
============ ============ ========== ============
</TABLE>
- ---------
(1) Five basis point difference in management fees.
(2) Class T distribution fees decrease from 95 Bps to 65 Bps.
(3) Registration will be allocated to one Fund.
(4) Audit will be allocated to one Fund.
(5) Trustee fees will be allocated to one Fund.
(6) Prepaid Organizational expenses will be written off.
See accompanying notes to financial statements
F-10
<PAGE>
NORTHSTAR FUNDS
PRO FORMA PORTFOLIO OF INVESTMENTS (UNAUDITED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
--------------------------- --------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC BONDS & NOTES -- 63.65%
AEROSPACE & DEFENSE -- 1.82%
Alliant Techsystems, Inc.
11.75%, Sr. Subordinated Notes,
3/01/03 ................................... $1,500,000 $1,651,875 $1,500,000 $1,651,875
L 3 Communications Corp.
10.375%, Sr. Subordinated Notes,
5/01/07 ................................... 2,000,000 2,175,000 2,000,000 2,175,000
Tracor, Inc.
8.50%, Sr. Subordinated Notes,
3/01/07 ................................... 2,000,000 2,040,000 2,000,000 2,040,000
---------- ----------
5,866,875 5,866,875
---------- ----------
AIRLINES -- 1.67%
Atlantic Coast Airlines #
7.97%, Pass Thru Certificates, 1/01/00..... 1,000,000 1,005,000 $1,000,000 $1,005,000
Atlantic Coast Airlines, Inc. #
8.75%, Pass Thru Certificates, 1/01/07..... 3,550,000 3,567,750 2,800,000 2,814,000 750,000 753,750
Constellation Finance LLC #
9.80%, Asset Backed Notes, 1/01/01 ........ 800,000 800,000 800,000 800,000
---------- ----------
5,372,750 2,814,000 2,558,750
---------- ---------- ----------
AUTO PARTS & EQUIPMENT -- 2.37%
Titan Wheel International, Inc.
8.75%, Sr. Subordinated Notes,
4/01/07 ................................... 3,400,000 3,570,000 3,400,000 3,570,000
Venture Holdings
9.50%, Sr. Notes, 7/01/05 ................. 4,000,000 4,080,000 4,000,000 4,080,000
---------- ----------
7,650,000 7,650,000
---------- ----------
AUTOMOBILES -- 1.37%
Delco Remy International, Inc.
8.625%, Sr. Notes, 12/15/07 ............... 2,000,000 2,035,000 2,000,000 2,035,000
Walbro Corp. #
10.125%, Sr. Notes, 12/15/07 .............. 2,300,000 2,369,000 2,300,000 2,369,000
---------- ----------
4,404,000 4,404,000
---------- ----------
BROADCASTING -- 5.91%
American Radio Systems Corp.
9.00%, Company Guarantee, 2/01/06 ......... 1,500,000 1,590,000 1,500,000 1,590,000
Capstar Broadcasting Partners, Inc.
9.25%, Sr. Subordinated Notes,
7/01/07 ................................... 2,900,000 2,994,250 2,900,000 2,994,250
JCAC, Inc.
10.125%, Sr. Subordinated Notes,
6/15/06 ................................... 4,000,000 4,410,000 4,000,000 4,410,000
SFX Broadcasting, Inc.
10.75%, Sr. Subordinated Notes,
5/15/06 ................................... 4,000,000 4,410,000 4,000,000 4,410,000
Sinclair Broadcast Group, Inc.8.75%,
Sr. Subordinated Notes, 12/15/07 .......... 2,800,000 2,807,000 2,800,000 2,807,000
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes,
7/15/07 ................................... 1,500,000 1,522,500 1,500,000 1,522,500
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Subordinated Notes,
9/30/05 ................................... 1,250,000 1,331,250 1,250,000 1,331,250
---------- ----------
19,065,000 19,065,000
---------- ----------
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
--------------------------- --------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CABLE TELEVISION -- 1.64%
EchoStar Communications Corp. $
0/12.875%, Sr. Discount Notes,
6/01/04 ................................... $3,000,000 $2,760,000 $3,000,000 $2,760,000
EchoStar Satellite Broadcasting
Corp. $
0/13.125%, Sr. Secured Discount
Notes, 3/15/04 ............................ 3,000,000 2,535,000 3,000,000 2,535,000
---------- ----------
5,295,000 5,295,000
---------- ----------
CAPITAL GOODS MANUFACTURING -- 1.21%
Roller Bearing Co. of America, Inc. #
9.625%, Sr. Subordinated Notes,
6/15/07 ................................... 3,850,000 3,898,125 3,850,000 3,898,125
---------- ----------
CHEMICALS -- 1.45%
Hydrochem Industrial Services, Inc.
10.375%, Sr. Subordinated Notes,
8/01/07 ................................... 4,500,000 4,680,000 3,500,000 3,640,000 $1,000,000 $1,040,000
---------- ---------- ----------
COMPUTERS -- 0.57%
Axiohm Transaction, Inc. #
9.75%, Sr. Subordinated Notes,
10/01/07 .................................. 1,800,000 1,836,000 1,800,000 1,836,000
---------- ----------
CONSUMER PRODUCTS -- 0.42%
Shop Vac Corp.
10.625%, Sr. Secured Notes, 9/01/03 ....... 1,250,000 1,364,062 1,250,000 1,364,062
---------- ----------
ENERGY -- 3.82%
AES Corp. #
8.50%, Sr. Subordinated Notes,
11/01/07 .................................. 750,000 754,688 750,000 754,688
AES Corp.
10.25%, Sr. Subordinated Notes,
7/15/06 ................................... 4,000,000 4,350,000 4,000,000 4,350,000
CalEnergy Co., Inc.
9.50%, Sr. Secured Notes, 9/15/06 ......... 1,000,000 1,097,500 1,000,000 1,097,500
California Energy, Inc.
9.875%, Sr. Notes, 6/30/03 ................ 1,000,000 1,080,000 1,000,000 1,080,000
California Energy, Inc. $
0/10.25%, Sr. Discount Notes, 1/15/04 ..... 2,650,000 2,862,000 2,650,000 2,862,000
Calpine Corp.
10.50%, Sr. Notes, 5/15/06 ................ 2,000,000 2,180,000 2,000,000 2,180,000
---------- ----------
12,324,188 11,569,500 754,688
---------- ---------- ----------
ENTERTAINMENT/FILM -- 1.05%
Speedway Motorsports, Inc.
8.50%, Sr. Subordinated Notes,
8/15/07 ................................... 3,300,000 3,382,500 3,300,000 3,382,500
---------- ----------
FOOD/BEVERAGE/TOBACCO -- 5.13%
Ameriserve Food Distribution, Inc. #
8.875%, Sr. Notes, 10/15/06 ............... 2,750,000 2,791,250 2,750,000 2,791,250
Iowa Select Farms L.P. #
10.75%, Sr. Subordinated Notes,
12/01/05 .................................. 4,000,000 4,130,000 4,000,000 4,130,000
North Atlantic Trading, Inc.
11.00%, Sr. Notes, 6/15/04 ................ 3,500,000 3,675,000 3,500,000 3,675,000
Richmont Marketing Specialists,
Inc. #
10.125%, Sr. Subordinated Notes,
12/15/07 .................................. 3,350,000 3,417,000 2,750,000 2,805,000 600,000 612,000
Standard Commercial Corp. #
8.875%, Company Guarantee, 8/01/05......... 2,500,000 2,525,000 2,500,000 2,525,000
---------- ----------
16,538,250 15,926,250 612,000
---------- ---------- ----------
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
--------------------------- --------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
HEALTHCARE -- 6.64%
Alaris Medical Systems, Inc.
9.75%, Sr. Subordinated Notes,
12/01/06 ................................... $4,750,000 $5,011,250 $4,750,000 $5,011,250
Alliance Imaging, Inc.
9.625%, Sr. Subordinated Notes,
12/15/05 ................................... 2,300,000 2,346,000 2,300,000 2,346,000
Dade International, Inc.
11.125%, Sr. Subordinated Notes,
5/01/06 .................................... 3,900,000 4,329,000 3,900,000 4,329,000
Kinetic Concepts, Inc. #
9.625%, Sr. Subordinated Notes,
11/01/07 ................................... 2,500,000 2,540,625 2,500,000 2,540,625
Tenet Healthcare Corp.
8.625%, Sr. Subordinated Notes,
1/15/07 .................................... 3,000,000 3,105,000 3,000,000 3,105,000
Tenet Healthcare Corp.
10.125%, Sr. Subordinated Notes,
3/01/05 .................................... 1,000,000 1,095,000 1,000,000 1,095,000
Vencor, Inc.
8.625%, Sr. Subordinated Notes,
7/15/07 .................................... 3,000,000 3,007,500 3,000,000 3,007,500
---------- ----------
21,434,375 21,434,375
---------- ----------
HOTEL & GAMING -- 1.92%
Capital Gaming International, Inc.@*
0%, Promissory Notes, 8/01/95 .............. 10,000 0 10,000 0
Courtyard By Marriott Ltd.
10.75%, Sr. Secured Notes, 2/01/08 ......... 2,000,000 2,190,000 2,000,000 2,190,000
Grand Casino, Inc. #
9.00%, Sr. Notes, 10/15/04 ................. 2,700,000 2,727,000 2,700,000 2,727,000
Sun International Hotels Ltd.
8.625%, Sr. Subordinated Notes,
12/15/07 ................................... 1,250,000 1,265,625 1,250,000 1,265,625
---------- ----------
6,182,625 6,182,625
---------- ----------
INDUSTRIAL AND COMMERCIAL
SERVICES -- 0.31%
Keystone Consolidated Industries, Inc.
#
9.625%, Sr. Secured Notes, 8/01/07 ......... 1,000,000 1,010,000 1,000,000 1,010,000
---------- ----------
INSURANCE -- 2.65%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes,
6/01/05 .................................... 5,550,000 5,702,625 4,250,000 4,366,875 $1,300,000 $1,335,750
Superior National Insurance Group,
Inc. #
10.75%, Company Guarantee,
12/01/17 ................................... 27,500 2,832,500 22,500 2,317,500 5,000 515,000
---------- ---------- ----------
8,535,125 6,684,375 1,850,750
---------- ---------- ----------
MANUFACTURING -- 1.94%
Clark-Schwebel, Inc.
10.50%, Sr. Notes, 4/15/06 ................. 2,500,000 2,725,000 2,500,000 2,725,000
Wyman Gordon Co.
8.00%, Sr. Notes, 12/15/07 ................. 3,500,000 3,543,750 3,500,000 3,543,750
---------- ----------
6,268,750 6,268,750
---------- ----------
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
--------------------------- --------------------------- -------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------- ------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OIL & GAS -- 5.32%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 ................. $2,900,000 $3,219,000 $2,000,000 $2,220,000 $ 900,000 $ 999,000
Forcenergy, Inc.
9.50%, Sr. Subordinated Notes,
11/01/06 .................................... 3,000,000 3,202,500 3,000,000 3,202,500
HS Resources, Inc.
9.875%, Sr. Subordinated Notes,
12/01/03 .................................... 3,500,000 3,640,000 3,500,000 3,640,000
TransAmerican Energy Corp. #
11.50%, Sr. Secured Notes, 6/15/02 .......... 4,000,000 3,940,000 3,000,000 2,955,000 1,000,000 985,000
Triton Energy Ltd.
9.25%, Sr. Notes, 4/15/05 ................... 3,000,000 3,172,500 3,000,000 3,172,500
---------- ----------
17,174,000 15,190,000 1,984,000
---------- ---------- ---------
PAPER -- 2.70%
Buckeye Cellulose Corp.
8.50%, Sr. Subordinated Notes,
12/15/05 .................................... 2,725,000 2,779,500 2,725,000 2,779,500
SD Warren Co.
12.00%, Sr. Subordinated Notes,
12/15/04 .................................... 2,500,000 2,800,000 2,500,000 2,800,000
U.S. Timberlands Co.
9.625%, Sr. Notes, 11/15/07 ................. 3,000,000 3,135,000 3,000,000 3,135,000
---------- ----------
8,714,500 8,714,500
---------- ----------
PRINTING & PUBLISHING -- 4.25%
American Lawyer Media, Inc. #
9.75%, Sr. Subordinated Notes,
12/15/07 .................................... 2,000,000 2,040,000 2,000,000 2,040,000
Big Flower Press Holdings, Inc.
8.875%, Sr. Subordinated Notes,
7/01/07 ..................................... 1,500,000 1,518,750 1,500,000 1,518,750
Garden State Newspapers, Inc.
12.00%, Sr. Subordinated Notes,
7/01/04 ..................................... 2,000,000 2,250,000 2,000,000 2,250,000
Garden State Newspapers, Inc. #
8.75%, Sr. Subordinated Notes,
10/01/09 .................................... 2,000,000 2,015,000 2,000,000 2,015,000
Hollinger International Publishing,
Inc.
9.25%, Company Guarantee, 3/15/07 ........... 3,000,000 3,180,000 3,000,000 3,180,000
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes,
5/01/06 ..................................... 2,400,000 2,706,000 2,400,000 2,706,000
---------- ----------
13,709,750 13,709,750
---------- ----------
SERVICES -- 0.51%
Allied Waste North America, Inc.
10.25%, Sr. Subordinated Notes,
12/01/06 .................................... 1,500,000 1,653,750 1,500,000 1,653,750
---------- ----------
TELECOMMUNICATIONS -- 5.05%
Alliant Computer Systems, Inc. @*
7.25%, Subordinated Debentures,
5/15/12 ..................................... 528,000 0 528,000 0
Jordan Telecommunication Products
Co.
9.875%, Sr. Notes, 8/01/07 .................. 3,000,000 3,105,000 3,000,000 3,105,000
Qwest Communications International,
Inc. #
9.47%, Sr. Discount Notes, 10/15/07 ......... 2,700,000 1,836,000 2,700,000 1,836,000
RCN Corp. #
10.00%, Sr. Notes, 10/15/07 ................. 3,500,000 3,648,750 2,500,000 2,606,250 1,000,000 1,042,500
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
---------------------------- ---------------------------- --------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- --------------------------------------- ------------- -------------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Teleport Communications Group,
Inc. $
0/11.125%, Sr. Discount Notes,
7/01/07 ............................... $5,000,000 $ 4,131,250 $5,000,000 $ 4,131,250
Transtel Pass-Thru Trust SA #
12.50%, Pass-Thru Trust Certificates,
11/01/07 .............................. 900,000 859,500 $ 900,000 $ 859,500
UNIFI Communications, Inc.
14.00%, Sr. Notes, 3/01/04 ............ 1,000,000 905,000 1,000,000 905,000
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04..... 1,600,000 1,804,000 1,600,000 1,804,000
----------- ----------
16,289,500 11,678,500 4,611,000
----------- ----------- ----------
TEXTILE/APPAREL -- 1.45%
Westpoint Stevens, Inc.
9.375%, Sr. Subordinated Debentures,
12/15/05 .............................. 2,000,000 2,110,000 2,000,000 2,110,000
Worldtex, Inc. #
9.625%, Sr. Notes, 12/15/07 ........... 2,500,000 2,575,000 2,500,000 2,575,000
----------- -----------
4,685,000 4,685,000
----------- -----------
TRANSPORTATION -- 1.70%
Sea Containers Ltd.
12.50%, Sr. Subordinated Debentures,
12/01/04 .............................. 2,000,000 2,265,000 2,000,000 2,265,000
Westinghouse Air Brake Co.
9.375%, Sr. Notes, 6/15/05 ............ 3,000,000 3,209,580 3,000,000 3,209,580
----------- -----------
5,474,580 5,474,580
----------- -----------
TRUCKING & FREIGHT -- 0.79%
Allied Holdings, Inc.
8.625%, Sr. Notes, 10/01/07 ........... 2,500,000 2,550,000 2,500,000 2,550,000
----------- -----------
TOTAL DOMESTIC BONDS & NOTES
(cost $195,708,440).................... 205,358,705 190,583,455 14,775,250
----------- ----------- ----------
FOREIGN BONDS & NOTES -- 21.04%
AEROSPACE & DEFENSE -- 0.98%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 ............ 3,000,000 3,165,000 3,000,000 3,165,000
----------- -----------
BROADCASTING -- 0.93%
Antenna TV SA #
9.00%, Sr. Notes, 8/01/07 ............. 3,000,000 3,011,250 3,000,000 3,011,250
----------- -----------
CABLE TELEVISION -- 1.16%
Le Groupe Videotron Ltee.
10.25%, Sr. Subordinated Notes,
10/15/02 .............................. 500,000 530,625 500,000 530,625
Rogers Cablesystems Ltd.
9.625%, Notes, 8/01/02 ................ 3,000,000 3,210,000 3,000,000 3,210,000
----------- -----------
3,740,625 3,210,000 530,625
----------- ----------- ----------
CHEMICALS -- 0.94%
Pharmaceutical Fine Chemicals,
Inc. #
9.75%, Sr. Subordinated Notes,
11/15/07 .............................. 3,000,000 3,030,000 3,000,000 3,030,000
----------- -----------
DIVERSIFIED FINANCIAL
SERVICES -- 0.57%
Guangdong Enterprises Holding
Ltd. #
8.875%, Sr. Notes, 5/22/07 ............ 2,000,000 1,846,940 2,000,000 1,846,940
----------- ----------
ELECTRIC UTILITIES -- 0.48%
Empresa Electrica Del Norte Grande
SA #
7.75%, Notes, 3/15/06 ................. 1,550,000 1,538,298 1,550,000 1,538,298
----------- ----------
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
--------------------------- --------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FINANCE & BANKING -- 0.52%
Road King Infrastructure Ltd.
9.50%, Company Guarantee, 7/15/07 ..... $2,000,000 $1,670,000 $2,000,000 $1,670,000
---------- ----------
FOOD/BEVERAGE/TOBACCO -- 1.36%
Fage Dairy Industry SA 9.00%, Sr.
Notes, 2/01/07 ........................ 4,500,000 4,398,750 $3,000,000 $2,932,500 1,500,000 1,466,250
---------- ---------- ----------
FOREIGN GOVERNMENT
SECURITIES -- 1.31%
Banque Centale De Tunisie
7.50%, Notes, 9/19/07 ................. 1,000,000 1,012,960 1,000,000 1,012,960
Republic of Poland $
0/4.00%, Government Guarantee,
10/27/14 .............................. 2,250,000 1,951,875 2,250,000 1,951,875
Republic of Turkey #
10.00%, Notes, 9/19/07 ................ 1,250,000 1,264,062 1,250,000 1,264,062
---------- ----------
4,228,897 4,228,897
---------- ----------
OIL & GAS -- 0.64%
Bridas Corp.
12.50%, Sr. Notes, 11/15/99 ........... 1,000,000 1,077,500 1,000,000 1,077,500
Pacalta Resources Ltd.
10.75%, Sr. Notes, 6/15/04 ............ 1,000,000 991,250 1,000,000 991,250
---------- ----------
2,068,750 2,068,750
---------- ----------
PAPER -- 2.79%
APP Finance II Mauritius
Ltd. $
0/12.00%, Notes, 2/15/04 .............. 2,500,000 2,025,000 2,500,000 2,025,000
APP International Finance
BV Co.
8.867%, Notes, 9/15/99 ................ 1,000,000 865,000 1,000,000 865,000
APP International Finance Co.
11.75%, Company Guarantee,
10/01/05 .............................. 3,900,000 3,685,500 3,900,000 3,685,500
Indah Kiat Finance Mauritius Ltd. #
10.00%, Company Guarantee, 7/01/07..... 1,500,000 1,252,500 1,500,000 1,252,500
Indah Kiat International Finance
Corp.
12.50%, Company Guarantee, 6/15/06..... 500,000 477,500 500,000 477,500
Pindo Deli Finance Mauritius Ltd. #
10.75%, Sr. Notes, 10/01/07 ........... 800,000 692,000 800,000 692,000
---------- ----------
8,997,500 4,938,000 4,059,500
---------- ---------- ----------
SERVICES -- 3.48%
Autopistas Del Sol SA #
10.25%, Sr. Notes, 8/01/09 ............ 3,000,000 2,722,500 3,000,000 2,722,500
Guangzhou-Shen Superhighway
Holdings Ltd. #
10.25%, Sr. Notes, 8/15/07 ............ 3,750,000 3,356,250 1,950,000 1,745,250 1,800,000 1,611,000
Intertek Finance PLC
10.25%, Sr. Subordinated Notes,
11/01/06 .............................. 2,900,000 3,059,500 2,900,000 3,059,500
Statia Terms International, Inc.
11.75%, Mortgage Notes, 11/15/03 ...... 2,000,000 2,100,000 2,000,000 2,100,000
---------- ----------
11,238,250 7,527,250 3,711,000
---------- ---------- ----------
SHIPPING -- 0.94%
Trico Marine Services, Inc. #
8.50%, Notes, 8/01/05 ................. 3,000,000 3,030,000 3,000,000 3,030,000
---------- ----------
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
-------------------------- --------------------------- --------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------- ------------ ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS -- 3.04%
Colt Telecom Group PLC $ (1)
0/12.00%, Units, 12/15/06 ..................... $ 500 $ 390,000 $ 500 $ 390,000
Fonorola, Inc.
12.50%, Sr. Notes, 8/15/02 .................... 1,000,000 1,115,000 $1,000,000 $1,115,000
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 ......... 2,100,000 1,585,500 2,100,000 1,585,500
Rogers Cantel, Inc. ........................... 2,800,000 2,793,000 2,800,000 2,793,000
Telecom Brazil Funding Corp. #
11.4375%, Guaranteed Notes,
12/09/99 ...................................... 1,000,000 1,005,000 1,000,000 1,005,000
Telefonica de Argentina SA
11.875%, Notes, 11/01/04 ...................... 2,500,000 2,912,500 2,500,000 2,912,500
---------- ----------
9,801,000 6,820,500 2,980,500
---------- ---------- ----------
UTILITIES -- 1.90%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 ........... 6,000,000 6,120,000 4,000,000 4,080,000 2,000,000 2,040,000
---------- ---------- ----------
TOTAL FOREIGN BONDS & NOTES
(cost $68,375,059)............................. 67,885,260 41,744,500 26,140,760
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
SHARES SHARES SHARES
------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCKS -- 2.39%
ENTERTAINMENT -- 2.08%
Time Warner, Inc., 10.25% & ................ 59,466 6,704,729 47,579 5,364,477 11,887 1,340,252
----------- ----------- ----------
PUBLISHING/PRINTING -- 0.31%
Primedia, Inc. #, 9.20% .................... 10,000 1,005,000 10,000 1,005,000
----------- -----------
TOTAL PREFERRED STOCKS
(cost $6,490,235).......................... 7,709,729 6,369,477 1,340,252
----------- ----------- ----------
RIGHTS -- 0.05%@
CAPITAL GOODS
MANUFACTURING -- 0.05%
Terex Corp., (expires 2000) ................ 8,000 164,000 8,000 164,000
----------- -----------
FOREIGN GOVERNMENT
SECURITIES -- 0.00%
United Mexican States ...................... 1,500,000 0 1,500,000 0
----------- -----------
TOTAL RIGHTS
(cost $0)................................... 164,000 164,000
----------- -----------
COMMON STOCKS -- 0.00% $*
GAMING -- 0.00%
Capital Gaming International, Inc. ......... 114 0 114 0
----------- -----------
TOTAL COMMON STOCKS
(cost $0).................................. 0 0
----------- -----------
WARRANTS -- 0.01%
CONSUMER PRODUCTS -- 0.01% .................
Chattem, Inc., (expires 6/17/99) ........... 500 21,555 500 21,555
----------- ----------
GAMING -- 0.00%
Capital Gaming International, Inc. *,
(expires 2/01/99) ......................... 22,750 0 22,750 0
----------- -----------
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED HIGH YIELD FUND STRATEGIC INCOME FUND
-------------------- ---------------- ---------------------
SECURITY SHARES VALUE SHARES VALUE SHARES VALUE
- ------------------------------------- ---------- --------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
SUPERMARKETS -- 0.00%
Dairy Mart Convenience Stores, Inc.,
(expires 12/01/01) ................. 4,999 $3,749 4,999 $3,749
------ ------
TELECOMMUNICATIONS -- 0.00% .........
Occidente Y Caribe Celular SA #,
(expires 3/15/04) .................. 9,400 94 9,400 94
UNIFI Communications, Inc. #,
(expires 2003) ..................... 1,000 1,000 $ 0
------
$ 94 94
TOTAL WARRANTS
(cost $94).......................... 25,398 25,398
------ ------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND
AGENCIES -- 4.05%
Fannie Mae, 0%, due 4/25/27 ............. $ 1,732,902 1,602,207 $ 1,732,902 1,602,207
Fannie Mae, 7.00%, due 6/18/25 -
4/18/27 ................................ 5,351,238 5,267,369 5,351,238 5,267,369
Fannie Mae, 7.50%, due 12/18/27 ......... 3,697,790 3,649,044 3,697,790 3,649,044
Fannie Mae, 8.00%, due 3/25/24 .......... 1,591,007 1,587,093 1,591,007 1,587,093
Residential Funding Corp., 7.25%, due
9/25/27 ................................ 997,977 976,147 997,977 976,147
----------- ----------
TOTAL U.S. GOVERNMENT AND
AGENCIES (cost $13,049,635)............. 13,081,860 13,081,860
----------- ----------
TOTAL INVESTMENT
SECURITIES -- 91.20%
(cost $283,623,463)..................... 294,224,952 $238,861,432 55,363,520
----------- ------------ ----------
REPURCHASE AGREEMENT -- 6.60%
Agreement with State Street Bank
and Trust bearing interest at 5.75%
dates 12/31/97 to be repuchased
1/02/98 in the amount of
$10,937,493 and collateralized by
$11,145,000 U.S. Treasury Notes
5.75% due 12/31/98 value
11,155,454 ............................. 10,934,000 10,934,000 10,934,000 10,934,000
Agreement with State Street Bank
and Trust bearing interes t at
5.75% dated 12/31/97 to be
repurchased 1/02/98 in the amount
of $10,349,305 and collateralized by
$10,545,000 U.S. Treasury Notes,
5.75% due 12/31/98, value
$10,554,891 ............................ 10,346,000 10,346,000 10,346,000 10,346,000
----------- ----------
TOTAL REPURCHASE AGREEMENTS
(cost $21,280,000)...................... 21,280,000 10,934,000 10,346,000
----------- ------------ ----------
OTHER ASSETS LESS
LIABILITIES -- 2.14% 6,901,743 5,599,127 1,302,616
----------- ------------ ----------
ADJUSTMENT PER PRO FORMA
FINANCIAL STATEMENTS -- 0.07% .......... (210,978)
-----------
NET ASSETS -- 100.00% ................... $322,617,673 $255,394,559 $67,012,136
============ ============ ===========
</TABLE>
- ---------
# Sale restricted to qualified institutional investors.
$ Step bond.
@ Non-income producing security.
* Defaulted security.
& Payment-in-kind security.
(1) A unit consists of $1,000 par value Sr. Discount Notes, 12.00% due
12/15/06, and 1 Warrant.
F-18
<PAGE>
NORTHSTAR FUNDS
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
STRATEGIC
HIGH YIELD INCOME PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
--------------- -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (cost $228,259,465,
$55,363,998, and $283,623,463, respectively)................... $238,861,432 $ 55,363,520 $ $294,224,952
Repurchase agreements .......................................... 10,934,000 10,346,000 21,280,000
Cash ........................................................... 591 546,117 546,708
Dividends and interest receivable .............................. 4,603,761 921,411 5,525,172
Receivable for investments sold ................................ 1,348,437 0 1,348,437
Receivable for shares of beneficial interest sold .............. 371,943 64,384 436,327
Receivable from adviser ........................................ 0 0 29,488 29,488
Prepaid expenses ............................................... 1,304 29,896 (29,488)(1) 1,712
------------ ------------ ------------ ------------
Total Assets .................................................. 256,121,468 67,271,328 0 323,392,796
------------ ------------ ------------ ------------
LIABILITIES:
Payable for shares of beneficial interest reacquired ........... 221,943 89,621 311,564
Distribution fee payable ....................................... 174,034 49,119 (70,924)(2) 152,229
Investment advisory fee payable ................................ 129,735 37,323 (36,304)(3) 130,754
Accrued expenses ............................................... 201,197 83,129 (103,750)(4) 180,576
------------ ------------ ------------ ------------
Total Liabilities ............................................. 726,909 259,192 (210,978) 775,123
------------ ------------ ------------ ------------
NET ASSETS ..................................................... $255,394,559 $ 67,012,136 $ 210,978 $322,617,673
============ ============ ============ ============
NET ASSETS WERE COMPOSED OF:
Capital paid in for shares of beneficial interest, $0.01 par
value outstanding (unlimited shares authorized) ............... $247,252,700 $ 70,549,044 $ $317,801,744
Undistributed net investment income ............................ 0 175,857 210,978 (5) 386,835
Accumulated net realized (loss) on investments, ................ (2,460,108) (3,712,287) (6,172,395)
Net unrealized appreciation(depreciation) of investments
and foreign currency .......................................... 10,601,967 (478) 10,601,489
------------ ------------ ------------
Net Assets .................................................... $255,394,559 $ 67,012,136 $ 210,978 $322,617,673
============ ============ ============ ============
CLASS A:
Net Assets ..................................................... $ 16,212,572 $ 12,522,673 $ 12,482 $ 28,747,728
------------ ------------ ------------ ------------
Shares outstanding ............................................. 1,773,627 1,039,954 330,142(6) 3,143,723
------------ ------------ -------------- ------------
Net asset value and redemption value per share (net assets /
shares outstanding) ........................................... $ 9.14 $ 12.04 $ 9.14
============ ============ ============
Maximum offering price per share (net asset value plus
sales charge of 4.75 of offering price) ....................... $ 9.60 $ 12.64 $ 9.60
============ ============ ============
CLASS B:
Net Assets ..................................................... $108,469,395 $ 29,920,546 $ 60,116 $138,450,057
------------ ------------ -------------- ------------
Shares outstanding ............................................. 11,856,819 2,486,261 783,744(6) 15,126,824
------------ ------------ -------------- ------------
Net asset value and offering price per share ................... $ 9.15 $ 12.03 $ 9.15
============ ============ ============
CLASS C:
Net Assets ..................................................... $ 21,393,015 $ 4,396,571 $ 11,203 $ 25,800,789
------------ ------------ -------------- ------------
Shares outstanding ............................................. 2,339,129 365,798 114,702(6) 2,819,629
------------ ------------ -------------- ------------
Net asset value and offering price per share ................... $ 9.15 $ 12.02 $ 9.15
============ ============ ============
CLASS T:
Net Assets ..................................................... $109,319,577 $ 20,172,346 $ 127,176 $129,619,099
------------ ------------ -------------- ------------
Shares outstanding ............................................. 11,958,594 1,675,674 531,366(6) 14,165,634
------------ ------------ -------------- ------------
Net asset value and offering price per share ................... $ 9.14 $ 12.04 $ 9.15
============ ============ ============
</TABLE>
Redemption price per share varies with the length of time Class B, C, and T
shares are held.
- ---------
(1) Prepaid Organizational expenses and registration fees will be reimbursed
for Strategic Income Fund.
(2) Class T distribution fees decrease from 95 Bps to 65 Bps.
(3) Five basis point difference in management fees.
(4) Audit, Trustee and Registration fees will be allocated to one Fund.
(5) Expense adjustments for prepaid, management fees, and audit expenses.
(6) Exchange ratio applied to shares of Strategic Income Fund.
See accompanying notes to financial statements.
F-19
<PAGE>
NORTHSTAR FUNDS
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
STRATEGIC
HIGH YIELD INCOME
FUND FUND
-------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $0, $0, and $0,
respectively) .................................................. $ 673,084 $ 172,880
Interest (net of withholding tax of $0, $2,503, and $2,503,
respectively) .................................................. 21,922,799 6,509,619
----------- -------------
Total investment income .......................................... 22,595,883 6,682,499
----------- -------------
EXPENSES:
Investment advisory and management fees .......................... 1,289,419 471,957
Distribution fees ................................................
Class A .......................................................... 43,158 40,631
Class B .......................................................... 951,060 310,321
Class C .......................................................... 175,716 43,917
Class T .......................................................... 761,375 224,593
Transfer agent fees and expenses .................................
Class A .......................................................... 23,832 21,568
Class B .......................................................... 164,787 54,270
Class C .......................................................... 31,608 7,322
Class T .......................................................... 118,873 25,489
Administration service fees ...................................... 180,250 51,242
Registration fees ................................................ 78,443 63,526
Accounting and custodian fees .................................... 80,692 46,968
Audit fees ....................................................... 35,020 30,644
Printing and postage expenses .................................... 69,483 33,823
Directors ........................................................ 13,540 9,580
Insurance ........................................................ 8,965 3,022
Legal fees ....................................................... 7,284 2,450
Organization ..................................................... 0 21,900
Miscellaneous expenses ........................................... 13,585 6,752
----------- -------------
4,047,090 1,469,975
Less expenses reimbursed/waived by management company ............ 0 21,320
----------- -------------
Total expenses ............................................... 4,047,090 1,448,655
----------- -------------
Net investment income ............................................ 18,548,793 5,233,844
----------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments and foreign currency ..... 7,107,354 (952,302)
Net change in unrealized (depreciation) of investments and
foreign currency ............................................... (977,429) (2,787,299)
----------- -------------
Net realized and unrealized gain (loss) on investments........ 6,129,925 (3,739,601)
----------- -------------
Increase in net assets resulting from operations ................. $24,678,718 $ 1,494,243
=========== =============
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------------ ---------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $0, $0, and $0,
respectively) .................................................. $ $ 845,964
Interest (net of withholding tax of $0, $2,503, and $2,503,
respectively) .................................................. 28,432,418
------------
Total investment income .......................................... 0 29,278,382
----------- ------------
EXPENSES:
Investment advisory and management fees .......................... (36,304)(1) 1,725,072
Distribution fees ................................................
Class A .......................................................... 83,789
Class B .......................................................... 1,261,381
Class C .......................................................... 219,633
Class T .......................................................... (70,924)(2) 915,044
Transfer agent fees and expenses .................................
Class A .......................................................... 45,400
Class B .......................................................... 219,057
Class C .......................................................... 38,930
Class T .......................................................... 144,362
Administration service fees ...................................... 231,492
Registration fees ................................................ (63,526)(3) 78,443
Accounting and custodian fees .................................... 127,660
Audit fees ....................................................... (30,644)(4) 35,020
Printing and postage expenses .................................... 103,306
Directors ........................................................ (9,580)(5) 13,540
Insurance ........................................................ 11,987
Legal fees ....................................................... 9,734
Organization ..................................................... 29,488(6) 51,388
Miscellaneous expenses ........................................... 20,337
------------
(181,490) 5,335,575
Less expenses reimbursed/waived by management company ............ 29,488 50,808
------------- ------------
Total expenses ............................................... (210,978) 5,284,767
------------- ------------
Net investment income ............................................ 210,978 23,993,615
------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments and foreign currency ..... 6,155,052
Net change in unrealized (depreciation) of investments and
foreign currency ............................................... (3,764,728)
------------
Net realized and unrealized gain (loss) on investments........ 0 2,390,324
------------- ------------
Increase in net assets resulting from operations ................. $ 210,978 $ 26,383,939
============= ============
</TABLE>
- ---------
(1) Five basis point difference in management fees.
(2) Class T distribution fee decrease from 95 Bps to 65 Bps.
(3) Registration expenses will be allocated to one Fund.
(4) Audit will be allocated to one Fund.
(5) Directors expenses will be allocated to one fund.
(6) Organizational expenses will be written off.
See accompanying notes to financial statements.
F-20
<PAGE>
NORTHSTAR HIGH YIELD FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF COMBINATION:
On August 27, 1998, the Boards of Northstar High Yield Fund and Northstar
Strategic Income Fund, approved an Agreement and Plan of Reorganization (the
"Plan") whereby, subject to approval by the shareholders of Northstar Strategic
Income Fund, a series of the Northstar Funds, Northstar High Yield Fund, will
acquire all the assets of the Northstar Strategic Income Fund subject to the
liabilities of such Fund, in exchange for a number of shares equal to the pro
rata net assets of shares of the Northstar High Yield Fund (the "Merger").
The Merger will be accounted for as a tax free merger of investment
companies. The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of what the
actual combined financial statements would have been had the reorganization
occurred at June 30, 1998 and December 31, 1997. The unaudited pro forma
portfolio of investments, and statements of assets and liabilities reflect the
financial position of Northstar Strategic Income Fund and Northstar High Yield
Fund at June 30, 1998 and December 31, 1997. The unaudited pro forma statement
of operations reflects the results of operations of the Northstar High Yield
Fund and the Northstar Strategic Income Fund for the six months ended June 30,
1998 and the year ended December 31, 1997. These statements have been derived
from the Funds' respective books and records utilized in calculating daily net
asset value at the dates indicated above for Northstar Strategic Income Fund
and Northstar High Yield Fund under generally accepted accounting principles.
The historical cost of investment securities will be carried forward to the
surviving entity and results of operations of Northstar High Yield Fund for
pre-combination periods will not be restated.
The pro forma portfolio of investments, and statements of assets and
liabilities and operations should be read in conjunction with the historical
financial statements of the Funds incorporated by reference in the Statements
of Additional Information.
NOTE 2 -- SECURITY VALUATION:
Equity securities are valued at closing sales prices reported on
recognized securities exchanges or lacking any sales, at the last available bid
price. Prices of long-term debt securities are valued on the basis of last
reported sales price, or if no sales are reported, the value is determined
based upon the mean of representative quoted bid or asked prices for such
securities, or if such prices are not available, at prices provided by market
makers, or at prices for securities of comparable maturity, quality and type.
Short-term debt instruments with remaining maturities of less than 60 days are
valued at amortized cost, unless the Trustees determine that amortized cost
does not reflect the fair value of such obligations. Securities for which
market quotations are not readily available are valued at fair value determined
in good faith by or under direction of the Trustees of the Trust. The books and
records of the Funds are maintained in U.S. dollars. Securities quoted in
foreign currencies are translated into U.S. dollars based on the prevailing
exchange rates on that day. The Adviser uses an independent pricing service to
price the Funds' securities.
NOTE 3 -- FOREIGN CURRENCY TRANSACTIONS:
Both Funds isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held.
Net realized gains or losses on foreign currencies arise from (1) gains
and losses from the sales of holdings of foreign currencies, (2) gains or
losses between trade date and settlement date on investment securities
transactions and (3) gains and losses from the difference between the amounts
of dividends, interest and foreign withholding taxes recorded on the Funds
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arising from changes in the
value of asset and liabilities other than investments in securities, resulting
from changes in exchange rates are included in unrealized gain or loss on
foreign currencies.
F-21
<PAGE>
NOTE 4 -- CAPITAL SHARES:
The pro forma net asset value per share assumes additional shares of
common stock issued in connection with the proposed acquisition of Northstar
Strategic Income Fund by Northstar High Yield Fund as of June 30, 1998 and
December 31, 1997, respectively. The number of additional shares issued was
calculated by dividing the net asset value of each Class of Northstar Strategic
Income Fund by the respective Class' net asset value per share of Northstar
High Yield Fund.
The additional shares issued by the Northstar High Yield Fund and the pro
forma combined number of shares outstanding of Northstar High Yield Fund as of
June 30, 1998 and December 31,1997 are summarized below:
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
AS OF JUNE 30, 1998 AS OF JUNE 30, 1998 NUMBER OF AS OF JUNE 30, 1998
CLASS OF NORTHSTAR HIGH NORTHSTAR STRATEGIC ADDITIONAL SHARES PRO FORMA
SHARES YIELD FUND INCOME FUND ISSUED COMBINED
- ------------------ --------------------- --------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
A shares ......... 2,502,717 1,040,990 277,407 3,821,114
B shares ......... 12,990,493 2,287,013 604,727 15,882,233
C shares ......... 2,438,073 263,624 69,665 2,771,362
T shares ......... 10,212,258 1,352,019 359,711 11,293,988
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
AS OF NUMBER OF SHARES AS OF
DECEMBER 31, 1997 AS OF DECEMBER 31, 1997 NUMBER OF DECEMBER 31, 1997
CLASS OF NORTHSTAR HIGH NORTHSTAR STRATEGIC ADDITIONAL SHARES PRO FORMA
SHARES YIELD FUND INCOME FUND ISSUED COMBINED
- ------------------ ------------------- ------------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
A shares ......... 1,773,627 1,039,954 330,142 3,143,723
B shares ......... 11,856,819 2,486,261 783,744 15,126,824
C shares ......... 2,339,129 365,798 114,702 2,819,629
T shares ......... 11,958,594 1,675,674 531,366 14,165,634
</TABLE>
NOTE 5 -- PRO FORMA OPERATION EXPENSES:
The accompanying pro forma financial statements reflect changes in fund
shares as if the merger had taken place on June 30, 1998 and December 31, 1997.
Northstar Strategic Income Fund expenses were adjusted assuming Northstar High
Yield Funds's fee structure was in effect for the periods ended June 30, 1998
and December 31, 1997.
NOTE 6 -- MERGER COSTS:
Merger costs are estimated at approximately $20,000 and are not included
in the pro forma statement of operations since these costs are not reoccurring.
These costs represent the estimated expense of both Funds carrying out their
obligations under the Plan and consist of management's estimate of legal fees,
accounting fees, printing costs and mailing charges related to the proposed
merge.
NOTE 7 -- FEDERAL INCOME TAXES:
Each Fund has elected to be taxed as a "regulated investment company"
under the Internal Revenue Code. After the merger, Northstar High Yield Fund
intends to continue to qualify as a regulated investment company, if such
qualification is in the best interests of its shareholders, by complying with
the provisions available to certain investments companies, as defined in
applicable sections of the Internal Revenue Code, and to make distributions of
taxable income sufficient to relieve it from all, or substantially all, Federal
income taxes.
The identified cost of investments for the Funds is substantially the same
for both financial accounting and Federal income tax purposes. The tax cost of
investments will remain unchanged for the combined entity.
The Northstar Strategic Income Fund and Northstar High Yield Fund will
distribute substantially all its invest
ment income and any realized gains prior to the merger date.
F-22
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Under the Registrant's Declaration of Trust and Bylaws, any past or
present Trustee or Officer of the Registrant is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any action, suit or proceeding to which he may be a
party or is otherwise involved by reason of his being or having been a Trustee
or Officer of the Registrant. The Amended and Restated Declaration of Trust and
Bylaws of the Registrant do not authorize indemnification where it is
determined, in the manner specified in the Amended and Restated Declaration of
Trust and the Bylaws of the Registrant, that such Trustee or Officer has not
acted in good faith in the reasonable belief that his actions were in the best
interests of the Registrant. Moreover, the Amended and Restated Declaration of
Trust and the Bylaws of the Registrant do not authorize indemnification where
such Trustee or Officer is liable to the Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of this duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), 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 (the "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
than the payment by the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, Officer or controlling person
in connection with the securities 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 is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
The Registrant, its Trustees and Officers, its investment adviser, and
persons affiliated with them are insured under a policy of insurance maintained
by the Registrant and its investment adviser, within the limits and subject to
the limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such Trustees or Officers. The policy
expressly excludes coverage for any Trustee or Officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been adjudicated or may be established or who willfully
fail to act prudently. Registrant is a named insured on a joint insured bond
established pursuant to Rule 17g-1 of the Investment Company Act of 1940, as
amended. Other insured parties include Registrant's adviser, its underwriter,
and other registered investment companies sponsored by its adviser.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------
<S> <C>
(1) Form of Amended and Restated Declaration of Trust of Registrant(1)
(a) Amendment of Declaration of Trust(5)
(2) By-laws of Registrant(1)
(3) Not Applicable
(4) Agreement and Plan of Reorganization, dated as of September 1, 1998, between Northstar
Strategic Income Fund (the "Fund") and Registrant.
(5) Not Applicable
(6) (a) Investment Advisory Agreement between Registrant and Northstar Investment Management
Corporation ("Northstar")(1)
(7) (a)-(d) Form of Underwriting Agreements for Classes A, B, C and T shares between Registrant
and Northstar Distributors, Inc.(1)
(d) Form of Dealer Agreement for the Northstar Advantage Affiliated Investment Companies(1)
(f) Form of Amendment to Underwriting Agreement for Class B shares(6) Special Dealer
Agreement between Northstar Distributors and Advest, Inc.(1)
(8) Not Applicable
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<S> <C>
(9) Custody Agreement between Registrant and State Street Bank and Trust Company(1)
(a) Amendment to Custody Agreement(4)
(10) Distribution Plan for Classes A, B, C and T shares of Registrant(1)
(1) Amendment of Distribution and Service Plan(4)
(b) Multiple Class Plan Pursuant to Rule 18f-3(3)
(11) Opinion and consent of Stephanie L. Beckner, Esq., legal counsel to Northstar Investment
Management Corporation (adviser to Northstar High Yield Fund), as to legality of Securities
being offered
(12) Form of Opinion and Consent of Dechert Price & Rhoads as to tax consequences
(13) (a) Transfer Agency Agreement between Registrant and First Data Investor Services Group,
Inc.(1)
(b) Sub-Transfer Agency Agreement between Registrant and Advest Transfer Services, Inc.(1)
(c) Form of Administrative Services Agreement(1)
(d) Administration Agreement(2)
(14) (a) Consent and Opinion of PricewaterhouseCoopers LLP
(15) Not Applicable
(16) (a) Powers of Attorney of Trustees of Registrant(5)
(b) Certified Resolution of Trustees Pursuant to Rule 483(b) under the Securities Act of 1933, as
amended
(17) (a) Declaration of Registrant pursuant to Rule 24f-2.
(b) Form of Proxy relating to Special Meeting of Shareholders of the Fund
(c) Combined Prospectus, dated March 1, 1998, and Combined Statement of Additional
Information, dated March 1, 1998 of Registrant and Northstar Strategic Income Fund(3)
(d) (1) Annual Report of Registrant and Northstar Strategic Income Fund for the fiscal year
ended December 31, 1997(4)
(2) Semi-Annual Report of Registrant and Northstar Strategic Income Fund for the
six-month period ended June 30, 1998 (incorporated herein by reference to the filing
thereof with the SEC on ).
</TABLE>
- ---------
(1) Incorporated herein by reference to the Exhibits filed with Registrant's
Post-Effective Amendment No. 11.
(2) Incorporated herein by reference to the Exhibits filed with Registrant's
Post-Effective Amendment No. 12.
(3) Incorporated herein by reference to the Prospectus and Statement of
Additional Information filed with Post-Effective No. 19.
(4) Incorporated herein by reference to the Exhibits filed with Registrant's
Post-Effective Amendment No. 19.
(5) The Power of Attorney executed by Walter May is incorporated herein by
reference to the Exhibits filed with Registrant's Post-Effective Amendment
No. 13. All other Powers of Attorney are incorporated herein by reference
to the Exhibits filed with Registrant's Post-Effective Amendment No. 10.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
as amended, the reoffering prospectus will contain the information called
for by the applicable registration form for reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment shall be deemed to be a
new registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial
bona fide offering of them.
C-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Stamford and the State of Connecticut on the 28th day of August, 1998.
NORTHSTAR HIGH YIELD FUND
(REGISTRANT)
By: MARK L. LIPSON
-------------------------------------
MARK L. LIPSON*
PRESIDENT
As required by the Securities Act of 1933, as amended, this Registration
Statement on Form N-14 has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- -------------------------------------- ------------------------------ ----------------
<S> <C> <C>
JOHN G. TURNER Trustee August 28, 1998
----------------------------------
JOHN G. TURNER*
MARK L. LIPSON President and Trustee August 28, 1998
----------------------------------
MARK L. LIPSON*
PAUL S. DOHERTY Trustee August 28, 1998
----------------------------------
PAUL S. DOHERTY*
ROBERT B. GOODE, JR. Trustee August 28, 1998
----------------------------------
ROBERT B. GOODE, JR.*
ALAN L. GOSULE Trustee August 28, 1998
----------------------------------
ALAN L. GOSULE*
WALTER H. MAY Trustee August 28, 1998
----------------------------------
WALTER H. MAY
DAVID W.S. PUTNAM Trustee August 28, 1998
----------------------------------
DAVID W.S. PUTNAM*
JOHN R. SMITH Trustee August 28, 1998
----------------------------------
JOHN R. SMITH*
DAVID W. WALLACE Trustee August 28, 1998
----------------------------------
DAVID W. WALLACE*
AGNES MULLADY Vice President and Treasurer August 28, 1998
----------------------------------
AGNES MULLADY
*By: AGNES MULLADY August 28, 1998
-------------------------------
AGNES MULLADY
ATTORNEY-IN-FACT
</TABLE>
- ---------
* Executed pursuant to powers of attorney filed with Registrant's
Post-Effective Amendments No. 10 and 13.
C-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. NAME OF EXHIBIT FILED HEREIN
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<S> <C>
(11) Opinion and consent of Stephanie L. Beckner, Esq., legal counsel to Northstar Investment
Management Corporation (adviser to Northstar High Yield Fund), as to legality of securities
being offered
(12) Form of Opinion and Consent of Dechert Price & Rhoads as to tax matters
(14)(a) Consent and Opinion of PricewaterhouseCoopers LLP (with respect to Northstar High Yield
(16)(b) Certified Resolution of Trustees Pursuant to Rule 483(b) under the Securities Act of 1933, as
amended
(17)(b) Form of Proxy relating to Special Meeting of Shareholders of Northstar Strategic Income
Fund.
</TABLE>
Exhibit 11
[NORTHSTAR LETTERHEAD]
August 27, 1998
Northstar High Yield Fund
300 First Stamford Place
Stamford, Connecticut 06902
Ladies and Gentlemen:
I am furnishing the following opinion regarding the issuance of shares of
beneficial interest by Northstar High Yield Fund ("High Yield") to Northstar
Strategic Income Fund (the "Fund") in connection with the reorganization of the
Fund, pursuant to which High Yield will acquire all of the assets, subject to
liabilities, of the Fund in exchange for shares of High Yield (the
"Reorganization"). The shares of High Yield being issued in connection with the
Reorganization are being registered with the Securities and Exchange Commission
(the "Commission") on Form N-14 Registration Statement (the "Registration
Statement"). This opinion is being furnished in my capacity as legal counsel for
Northstar Investment Management Corporation ("Northstar"), investment adviser to
High Yield.
As legal counsel for Northstar, I am familiar with the proceedings taken by High
Yield in connection with the authorization, issuance and sale of shares of
beneficial interest. In addition, I have examined the Amended and Restated
Declaration of Trust and By-Laws of the Trust, resolutions adopted by the
Trustees of the Trust, and such other documents as I have deemed necessary or
advisable.
Based upon the foregoing, I am of the opinion that the shares of beneficial
interest of High Yield that are being registered in the Registration Statement
and being issued to the Fund in the Reorganization, will be, when sold, legally
issued, fully paid and non-assessable.
Sincerely,
/s/ Stephanie L. Beckner
- -----------------------
Stephanie L. Beckner
Counsel
Exhibit 12
[Closing Date], 1998
Northstar Strategic Income Fund
300 First Stamford Place
Stamford, CT 06902
Northstar High Yield Fund
300 First Stamford Place
Stamford, CT 06902
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences to Northstar Strategic Income Fund ("Acquired Fund"), to the
holders of the shares of beneficial interest of the Acquired Fund (the
"Acquired Fund shareholders"), and to Northstar High Yield Fund ("Acquiring
Fund"), in connection with the proposed transfer of substantially all of the
assets of Acquired Fund to Acquiring Fund in exchange solely for voting shares
of beneficial interest of Acquiring Fund, followed by the distribution in
complete liquidation by Acquired Fund of such Acquiring Fund shares, all
pursuant to the Agreement and Plan of Reorganization (the "Plan") dated as of
[Closing Date], 1998 (the "Reorganization").
For purposes of this opinion, we have examined and rely upon (1) the
Plan, (2) the Form N-14, filed by Acquiring Fund on [August 28], 1998, with the
Securities and Exchange Commission, (3) the facts and representations contained
in the letter dated [Closing Date], 1998, addressed to us from Acquired Fund,
(4) the facts and representations contained in the letter dated [Closing Date],
1998, addressed to us from Acquiring Fund, and (5) such other documents and
instruments as we have deemed necessary or appropriate for purposes of rendering
this opinion.
This opinion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), United States Treasury Regulations, judicial decisions
and administrative rulings and pronouncements of the Internal Revenue Service,
all as in effect on the date hereof. This opinion is conditioned upon the
Reorganization taking place in the manner described in the Plan and the
Form N-14 referred to above.
Based upon the foregoing, it is our opinion that:
(1) The acquisition by Acquiring Fund of substantially all of the assets
of Acquired Fund in exchange solely for Acquiring Fund shares, followed by the
distribution of such Acquiring
<PAGE>
Northstar Strategic Income Fund
Northstar High Yield Fund
[Closing Date], 1998
Page 2
Fund shares to the Acquired Fund shareholders in exchange for their Acquired
Fund shares in complete liquidation of Acquired Fund, will constitute a
reorganization within the meaning of section 368(a) of the Code. Acquiring Fund
and Acquired Fund will each be "a party to a reorganization" within the meaning
of section 368(b) of the Code.
(2) Acquired Fund will not recognize gain or loss upon the transfer of
substantially all of its assets to Acquiring Fund in exchange solely for
Acquiring Fund shares, or upon the distribution to Acquired Fund shareholders
of the Acquiring Fund shares.
(3) No gain or loss will be recognized by Acquiring Fund in the receipt of
Acquired Fund's assets in exchange for Acquiring Fund shares.
(4) The basis of the assets of Acquired Fund in the hands of Acquiring
Fund will be, in each instance, the same as the basis of those assets in the
hands of Acquired Fund immediately prior to the Reorganization.
(5) The holding period of Acquired Fund's assets in the hands of
Acquiring Fund will include the period during which the assets were held by
Acquired Fund.
(6) No gain or loss will be recognized by Acquired Fund shareholders upon
the receipt of Acquiring Fund shares solely in exchange for Acquired Fund
shares.
(7) The basis of the Acquiring Fund shares received by the Acquired Fund
shareholders will be the same as the basis of the Acquired Fund shares
surrendered in exchange therefor.
(8) The holding period of the Acquiring Fund shares received by the
Acquired Fund shareholders will include the holding period of the Acquired
Fund shares surrendered in exchange therefor, provided that such
Acquired Fund shares were held as capital assets in the hands of the Acquired
Fund shareholders upon the date of the exchange.
We express no opinion as to the federal income tax consequences of the
Reorganization except as expressly set forth above, or as to any transaction
except those consummated in accordance with the Plan.
<PAGE>
Northstar Strategic Income Fund
Northstar High Yield Fund
[Closing Date], 1998
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form N-14 filed by Acquiring Fund with the Securities
and Exchange Commission.
Very truly yours,
Exhibit 14(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------
We consent to the incorporation by reference in this Registration Statement of
Northstar High Yield Fund on Form N-14 of our report dated February 12, 1998, on
our audit of the financial statements and financial highlights of the Northstar
Funds, which report is included in the Annual Report to Shareholders for the
year ended December 31, 1997, which is also incorporated by reference in this
Registration Statement.
We also consent to the reference to our firm under the caption "Financial
Statements" in the Proxy Statement/Prospectus.
PricewaterhouseCoopers LLP
New York, New York
August 28, 1998
Exhibit 16
OFFICER'S CERTIFICATE
I, Stephanie L. Beckner, Assistant Vice President of Northstar High Yield
Fund ("High Yield"), a Massachusetts business trust, do hereby certify that the
following resolution is a true and complete copy of a resolution duly adopted at
a meeting of the Trustees of High Yield on July 29, 1998; that the passage of
said resolution was in all respects legal; and that said resolution is in full
force and effect:
RESOLVED, that the officers of the High Yield Fund be, and hereby are,
authorized to file with the Securities and Exchange Commission, and as
necessary, any state authorities on behalf of the Portfolio, a Registration
Statement on Form N-14 to register shares of the Portfolio to be issued in the
Reorganization.
IN WITNESS WHEREOF, I have set my hand as of the 27th day of August, 1998.
/s/ Stephanie L. Beckner
--------------------
Stephanie L. Beckner
Assistant Vice President
Exhibit 17(b)
NORTHSTAR STRATEGIC INCOME FUND
SPECIAL MEETING OF SHAREHOLDERS - NOVEMBER 12, 1998
PROXY SOLICITED ON BEHALF OF THE TRUSTEES
The undersigned shareholder of Northstar Strategic Income Fund (the
"Fund"), a Massachusetts business trust, hereby appoints Mark L. Lipson and
Stephanie L. Beckner, and each of them, with full power of substitution and
revocation, as proxies to represent the undersigned at the Special Meeting of
Shareholders of the Fund which shall be held on November 12, 1998, at 10:00 a.m.
Eastern Time, at the offices of the Fund, 300 First Stamford Place, Stamford,
Connecticut, and at any and all adjournments thereof, and thereat to vote all
shares of the Portfolio which the undersigned would be entitled to vote, with
all powers the undersigned would possess if personally present, in accordance
with the following instructions:
1. FOR ________ AGAINST ________ ABSTAIN ________ as to the proposal
to approve the Agreement and Plan of Reorganization, dated September
1, 1998, between the Fund and Northstar High Yield Fund ("High
Yield"), and the proposed transaction whereby all of the assets of the
Fund will be transferred to, and certain identified liabilities of the
Fund assumed by, High Yield in exchange for High Yield's Class A,
Class B, Class C and Class T shares; immediately thereafter, the Class
A, Class B, Class C and Class T shares of High Yield will be
distributed to the Fund's shareholders in total liquidation of the
Fund, which will thereafter be dissolved, all as more fully described
in the Proxy Statement/Prospectus dated October 5, 1998;
and in their discretion, upon such other business as may properly come
before the meeting or any adjournments thereof.
If more than one of the proxies, or their substitutes, are present at the
meeting or at any adjournment thereof, they jointly (or, if only one is present
and voting, then that one) shall have authority and may exercise all the powers
granted hereby. This proxy, when properly executed, will be voted in accordance
with the instructions marked hereon by the undersigned. In the absence of
contrary instructions, this proxy will be voted FOR the proposal.
The undersigned hereby acknowledges receipt of the accompanying Notice of
Meeting and Proxy Statement/Prospectus dated October 5, 1998, and the High Yield
prospectus dated March 1, 1998.
<PAGE>
IMPORTANT: PLEASE INSERT DATE OF SIGNING.
Dated: ____________________, 1998
---------------------
Signature of Shareholder
---------------------
Signature of Shareholder
(if held jointly)
This Proxy shall be signed exactly as your name(s) appear hereon. If as
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add title as such.
PLEASE VOTE, SIGN, DATE AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
