<PAGE>
File No. 33-67852
811-7978
As filed with the Securities and Exchange Commission on November 1, 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form N1-A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 6
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8
NORTHSTAR ADVANTAGE TRUST
-------------------------
(Exact name of Registrant as specified in charter)
Two Pickwick Plaza, Greenwich, CT 06830
---------------------------------------
(Address of Principal Executive Offices)
(203) 863-6200
--------------
(Registrant's telephone number)
Mark L. Lipson
c/o Northstar Investment Management Corporation
Two Pickwick Plaza, Greenwich, Connecticut 06830
------------------------------------------------
(Name and address of agent for service)
Copies of all correspondence to:
Lisa Hurley, Esq.
Northstar Investment Management Corp.
Two Pickwick Plaza
Greenwich, CT 06830
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
X immediately upon filing pursuant to paragraph (b)
----
on [date] pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)(1)
----
on [date] pursuant to paragraph (a)(1)
---- 75 days after filing pursuant to paragraph (a)(2)
on [date] pursuant to paragraph (a)(2) of Rule 485.
----
If appropriate, check the following box:
---- this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
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* Registrant has registered an Indefinite number of shares of beneficial
interest by its initial Registration Statement pursuant to Rule 24f-2 under
the Investment Company Act of 1940, as amended, which became effective
November 5, 1993. Registrant filed the notice required by Rule 24f-2 with
respect to its most recent fiscal year on December 31, 1994.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 48(A)
UNDER THE SECURITIES ACT OF 1933
PART A
FORM N-1A PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Synopsis Table of Fees and Expenses;
Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Summary; Investment
Objectives and Policies; General
Investment Strategies and
Restrictions and Risk
Considerations; Risk Factors;
General Information
5. Management of the Fund Summary; Management of the Funds
6. Capital Stock and Other Summary; How Net Asset Value is
Securities Determined; How to Purchase Shares
- Alternative Purchase
Arrangements; Investor Accounts
and Services Available; Dividends,
Distributions and Taxes; General
Information
7. Purchases of Securities Being Summary; How to Purchase Shares;
Offered Investor Accounts and Services
Available; Distribution Plans;
How Net Asset Value is
Determined; Management of the
Funds - The Underwriter
8. Redemption or Repurchase How to Redeem Shares; How Net
Asset Value is Determined
9. Legal Proceedings Not Applicable
<PAGE>
CROSS REFERENCE SHEET
PART B
FORM N-1A CAPTION IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information & History Cover Page; Other Information
13. Investment Objectives & Policies Cover Page; Investment
Restrictions; Other Investment
Techniques
14. Management of the Fund Services of the Adviser and
Administrator; Trustees and
Officers
15. Control Persons & Principal N/A
Holders of Securities
16. Investment Advisory and Services of the Adviser and
Other Services Administrator
17. Brokerage Allocation and Portfolio Transactions and
Other Practices Brokerage
18. Captial Stock and Other Securities Description of the Funds
19. Purchases, Redemptions and Net Asset Value; How to Buy
Pricing Shares; Alternative Purchase
Arrangements; Exchange Privileges;
Redemptions of Shares
20. Tax Status Dividends, Distributions and Taxes
21. Underwriter Underwriter and Distribution
Services
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
<PAGE>
[LOGO]
Two Pickwick Plaza (203) 863-6200
Greenwich, Connecticut, 06830 (800) 595-7827
PROSPECTUS NOVEMBER 1, 1995
NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES FUND
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND
NORTHSTAR ADVANTAGE HIGH YIELD FUND
NORTHSTAR ADVANTAGE HIGH TOTAL RETURN FUND
NORTHSTAR ADVANTAGE INCOME FUND
NORTHSTAR ADVANTAGE INCOME AND GROWTH FUND
NORTHSTAR ADVANTAGE GROWTH FUND
NORTHSTAR ADVANTAGE SPECIAL FUND
The Northstar Advantage Funds (the "Funds") are a group of open-end
diversified management investment companies, each with its own investment
objective and specific investment goals. Shares of the Funds are offered by this
joint Prospectus.
* NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES FUND ("Government
Securities Fund") seeks to achieve a high level of current income and to
conserve principal by investing in debt obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
* NORTHSTAR ADVANTAGE INCOME AND GROWTH FUND, ("Income and Growth
Fund") is a diversified portfolio with an investment objective of seeking
current income balanced with the objective of achieving capital appreciation.
The Fund will seek to achieve its objective through investments in common and
preferred stocks, corporate and convertible debt securities, and government
securities, selected for their prospects of producing income and/or capital
appreciation.
* NORTHSTAR ADVANTAGE HIGH TOTAL RETURN FUND, ("High Total Return
Fund") is a diversified portfolio with an investment objective of seeking high
income. Under normal market conditions, the Fund invests predominantly in high
yield, lower-rated U.S. dollar-denominated debt securities. Most of the
securities in which the Fund invests are rated, at the time of investment, at
least Caa by Moody's Investors Service, Inc. ("Moody's") or CCC by Standard &
Poor's Corporation ("S&P") or an equivalent rating by another NRSRO or, if not
rated, are of comparable quality in the opinion of the Fund's investment
adviser. The Fund may, however, invest in securities in the lowest rating
categories of Moody's and S&P and other NRSROs, which are C in the case of
Moody's and D in the case of S&P.
* NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND ("Strategic Income Fund")
seeks to achieve high current income. Under normal market conditions, the Fund
allocates its investments among the following three sectors of the fixed income
securities markets: debt obligations of the U.S. Government, its agencies and
instrumentalities; high yield, high risk, lower-rated and nonrated U.S. and
foreign fixed income securities; and investment grade debt obligations of
foreign governments, their agencies and instrumentalities. AT LEAST 20% AND UP
TO 60% OF THE STRATEGIC INCOME FUND'S ASSETS MAY BE INVESTED IN JUNK BONDS.
* NORTHSTAR ADVANTAGE HIGH YIELD FUND ("High Yield Fund") seeks high
current income and, secondarily, capital appreciation. This Fund invests
primarily in long-term and intermediate-term fixed income securities, with
emphasis on high yield, high risk, lower-rated and nonrated corporate debt
instruments.
* NORTHSTAR ADVANTAGE INCOME FUND ("Income Fund") seeks to realize
income and, secondarily, capital appreciation. Basically conservative, this Fund
invests in a balance of debt securities (generally of investment grade), common
and preferred stocks, and debt securities and preferred stocks convertible into
common stock.
* NORTHSTAR ADVANTAGE GROWTH FUND ("Growth Fund") seeks to achieve
long-term growth of capital and, secondarily, to realize income. This Fund
invests principally in common stocks and, to a lesser extent, it may also invest
in preferred stocks and convertible securities.
* NORTHSTAR ADVANTAGE SPECIAL FUND ("Special Fund") seeks to achieve
capital appreciation through investment in a diversified portfolio of equity
securities selected for their potential for growth. This Fund does not seek
current income. The Fund invests primarily in smaller, lesser-known companies
that may be subject to greater price volatility than more mature companies.
UNDER NORMAL CIRCUMSTANCES THE HIGH YIELD FUND AND HIGH TOTAL RETURN
FUND WILL INVEST AT LEAST 65% OF THEIR ASSETS, AND THE STRATEGIC INCOME FUND MAY
INVEST UP TO 60% OF ITS ASSETS, IN LOWER RATED AND NONRATED BONDS, COMMONLY
KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN
THOSE FOUND IN HIGHER RATED SECURITIES, AND ARE CONSIDERED SPECULATIVE WITH
REGARD TO PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTMENT IN THESE FUNDS
MAY NOT BE APPROPRIATE FOR ALL INVESTORS. INVESTORS SHOULD CAREFULLY CONSIDER
THESE RISKS BEFORE INVESTING. SEE "RISK FACTORS -- HIGH YIELD-HIGH RISK
SECURITIES."
Northstar Investment Management Corporation (the "Adviser") is the
investment adviser for each Fund, and its professional staff selects and
supervises the investments in each Fund's portfolio. Northstar Distributors,
Inc. ("Distributors" or the "Underwriter") is the underwriter of the Funds'
shares, and Northstar Administrators Corporation ("Administrators") serves as
administrator to each Fund. Distributors and Administrators are each affiliates
of the Adviser. See "Management of the Funds."
This Prospectus sets forth basic information about the Funds that
prospective investors should know before investing. It should be read and
retained for future reference. A Statement of Additional Information, dated
November 1, 1995, has been filed with the Securities and Exchange Commission and
is incorporated herein by reference. The Statement of Additional Information is
available without charge upon request to Northstar at the address or telephone
number given above.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
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>
SUMMARY
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THE FUNDS
Each Fund is a Massachusetts business trust other than the High Total Return
and the Income and Growth Funds, which are separate series of the Northstar
Advantage Trust, a Massachusetts business trust, and each is organized as an
open-end, diversified, management investment company. Each Fund pursues the
unique investment objective summarized on the cover of this Prospectus and
described fully herein under the heading "Investment Objectives and Policies."
There is no assurance that the investment objective of any of the Funds will be
achieved.
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DISTRIBUTIONS
Income and Growth Fund, Income Fund, Growth Fund and Special Fund declare and
pay income distributions from net investment income quarterly, and shares of
these Funds are eligible to receive dividends as of the trade date. Government
Securities Fund, High Total Return Fund, High Yield Fund and Strategic Income
Fund declare and pay income distributions from net investment income monthly. In
order to maintain a more stable monthly distribution, Government Securities
Fund, High Total Return Fund, High Yield Fund and Strategic Income Fund may at
times pay out more or less than the entire amount of their net investment income
and short-term capital gains earned in any particular period. As a result, the
distributions paid by these Funds for any particular period may be more or less
than the amount of net investment income and short-term capital gains actually
earned by the Fund during such period. There can be no assurance that any
amounts retained by these Funds will be available for future distribution. Each
Fund intends to distribute any remaining net investment income, as well as any
undistributed long- and short-term capital gains, at least annually.
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THE ADVISER AND THE ADMINISTRATOR
Northstar Investment Management Corporation (the "Adviser") serves as each
Fund's investment adviser pursuant to separate investment advisory agreements
(each, an "Advisory Agreement"). Under each Advisory Agreement, the Adviser
receives a fee for its services based on the average daily net assets of each
Fund, which fee is computed daily and payable monthly, at an annual rate (after
certain expense reimbursements currently in effect) as follows:
<TABLE>
<CAPTION>
ANNUAL RATE
--------------
<S> <C>
Government Securities Fund............................................................. 0.45%
Strategic Income Fund.................................................................. 0.65%
High Yield Fund........................................................................ 0.45%
High Total Return Fund................................................................. 0.75%
Income Fund............................................................................ 0.65%
Income and Growth Fund................................................................. 0.75%
Growth Fund............................................................................ 0.75%
Special Fund........................................................................... 0.75%
</TABLE>
In the case of the Income and Growth and High Total Return Funds, the fee is
applicable to the first $250 million of each Fund's average daily net assets.
Thereafter, the fee is scaled down to .55 of 1% for assets over $1 billion. See
"Management of the Funds."
Northstar Administrators Corporation (the "Administrator") serves as
administrator to the Funds pursuant to an Administrative Services Agreement. The
Administrator receives a fee which is computed daily and payable monthly, at an
annual rate of .10% of each Fund's average daily net assets, plus an annual fee
of $5.00 per account of each beneficial holder of shares in each Fund, for
providing certain shareholder services and assisting brokers in servicing
shareholder accounts. The Administrator currently waives the administrative fees
for all the Funds other than the Income and Growth Fund and High Total Return
Fund.
2
<PAGE>
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PURCHASING SHARES
Each Fund currently offers or intends to offer three classes of shares on a
continuous basis by which shares may be purchased at a price equal to their net
asset value per share, plus a sales load which, at the election of the
purchaser, may be imposed at the time of purchase (or on purchases of over $1
million, as a contingent deferred sales charge) (the "Class A shares"), or which
may be imposed as a contingent deferred sales charge (the "Class B shares" and
"Class C shares"). The contingent deferred sales charge will be imposed on most
Class A share redemptions (where applicable) made within 18 months of purchase,
on most Class B share redemptions made within five years of purchase and on most
Class C share redemptions made within one year of purchase. Each Class of shares
pays ongoing distribution and service fees at a combined annual rate (i) for
Class A shares, of up to 0.30% of the Fund's aggregate average daily net assets
attributable to the Class A shares, (ii) for Class B shares, of up to 1.00% of
the Fund's aggregate average daily net assets attributable to the Class B
shares, and (iii) for the Class C shares, of up to 1.00% of the Fund's aggregate
average daily net assets attributable to the Class C shares. These alternatives
permit an investor to choose the method of purchasing shares that the investor
prefers given the amount of the purchase, the length of time the investor
expects to hold the shares and other circumstances. The Funds intend to reject
purchase orders over $250,000 for Class B shares and recommend instead the
purchase of Class A shares.
Prior to June 5, 1995, the Growth Fund, Special Fund, Income Fund, Government
Securities Fund, High Yield Fund and Strategic Income Fund, each offered only
one Class of shares (currently designated as the "Class T shares"). Class T
shares are no longer offered for sale by these Funds, except in connection with
reinvestment of dividends and other distributions, upon exchange of Class T
shares of another Fund or upon exchange from the Class T Account of the Money
Market Portfolio (see "Exchange Privileges"). Until November 30, 1995, interests
in the Advest Advantage Insured Account also may be exchanged for Class T shares
of any of these Funds or the Class T Account of the Money Market Portfolio. A
contingent deferred sales charge is imposed upon redemptions of Class T shares
made within four years of purchase. Class T shares of each of these Funds pay
ongoing distribution and service fees to the Underwriter at a combined annual
rate of 0.95% (in the case of Growth Fund, Special Fund and Strategic Income
Fund), 0.75% (in the case of Income Fund) and 0.65% (in the case of Government
Securities Fund and High Yield Fund) of the average daily net assets of such
Fund's Class T shares.
Each share of a Fund, regardless of class, represents an identical interest in
the investment portfolio of that Fund and has the same rights, except that Class
B, Class C and Class T shares bear the cost of higher distribution fees, and
Class A, Class B and Class C shares bear higher transfer agency fees than Class
T shares. This will cause Class B, Class C and Class T shares to have a higher
expense ratio and to pay lower dividends, to the extent any dividends are paid,
than those related to Class A shares. Accordingly, investment performance
results (without giving effect to sale charges) for Class B, Class C and Class T
shares will be lower than Class A shares. Certain other expenses of the Class A,
Class B and Class C shares may vary. Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month in which the
shareholder's order to purchase was accepted, in the circumstances and subject
to the qualifications described in this Prospectus. Class T shares, and any
shares acquired upon reinvestment of dividends on such shares, will
automatically convert to Class A shares without a sales charge on the later of
May 31, 1998 or eight years after the calendar month in which the shareholder's
order to purchase such Class T shares was accepted, in the circumstances and
subject to the qualifications described in this Prospectus. The purpose of the
conversion feature is to relieve the holders of Class B and Class T shares that
have been outstanding for a period of time sufficient for the Underwriter to be
reimbursed for distribution and service expenses related to the Class B and
Class T shares from most of the continuing burden of such distribution fees. See
"How to Purchase Shares -- Alternative Sales Arrangements." There is no similar
conversion feature for Class C shares, which will continue to be subject to the
higher distribution fee for the life of a shareholder's investment.
The minimum initial investment for each Fund is $2,500. Subsequent investments
(minimum of $100) may be made at any time. See "How to Purchase Shares."
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
Shareholders may redeem their shares at a redemption price equal to the net
asset value per share (subject to the applicable contingent deferred sales
charges, if any, for Class B, Class C and Class T shares) next determined after
the receipt of a redemption request and any other required documentation in
proper form. See "How to Redeem Shares" and "How Net Asset Value is Determined."
3
<PAGE>
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SHAREHOLDER SERVICES
The Funds offer a variety of shareholder services. See "Dividend and
Distribution Reinvestment Option," "Automatic Investment Plan," "Exchange
Privileges," "Withdrawal Program," and "Tax-Sheltered Retirement Plans."
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FEES AND OTHER INFORMATION
Investors who purchase Class A shares must pay a sales charge that is based
upon the dollar amount of shares purchased. The maximum sales charge for each
Fund is 4.75% of the public offering price on all purchases up to $99,999. The
applicable sales charge is scaled down at various increments to no charge on
purchase amounts of $1,000,000 or more; however, such larger purchases of $1
million or more will be subject to a contingent deferred sales charge of up to
1% if redeemed within 18 months of the date of purchase. Investors who purchase
Class B and Class C shares are not, and investors who purchased Class T shares
were not, subject to a sales charge at the time of purchase and therefore have
all their funds invested initially. However, most Class B shareholders will be
subject to a contingent deferred sales charge ("CDSC") at the time they redeem
their shares, if they redeem within five years of the date of purchase; most
Class C shareholders will be subject to a CDSC if they redeem their shares
within one year of the date of purchase; and most Class T shareholders will be
subject to a CDSC if they redeem their shares within four years of the date of
purchase. The Class B CDSC decreases over the period of investment from a
maximum of 5% of the lower of the value of the shareholder's initial investment
or the market value of the shares at the time of redemption, to no charge after
the fifth anniversary of the investment. Class B shareholders remain subject to
a higher ongoing distribution fee until such shares convert to Class A shares
after the eighth anniversary of the investment. Class C shareholders are
assessed a CDSC of 1% of the lower of initial investment or market value at
redemption, if they redeem within one year of the date of purchase and offer no
conversion feature. See "How to Purchase Shares -- Alternative Sales
Arrangements." The Class T CDSC decreases over the period of investment from a
maximum of 4% of the lower of the shareholder's initial investment or the market
value of the shares at the time of redemption, to no charge after the fourth
anniversary of the investment.
Each Fund has adopted a distribution plan under Rule 12b-1 of the Investment
Company Act of 1940, as amended (the "1940 Act"), for each class of shares of
that 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 the Fund. Pursuant to the Plans and the
underwriting agreement, each Fund shall pay the Underwriter 0.30% annually of
the average daily net assets of each Fund's Class A shares, 1.00% annually of
the average daily net assets of each Fund's Class B and Class C shares, 0.95%
annually of the average daily net assets of the Class T shares of the Growth
Fund, Special Fund and Strategic Income Fund, 0.75% annually of the average
daily net assets of the Class T shares of the Income Fund and 0.65% annually of
the average daily net assets of the Class T shares of the Government Securities
Fund and High Yield Fund. Fees payable under the Plans compensate the
Underwriter for the provision of distribution and shareholder services,
including compensation paid to dealers which have entered into agreements with
the Underwriter to participate in the Plans. With respect to the Class T shares,
it is anticipated that all of the payments received by the Underwriter under the
Plan will be paid to Advest, Inc. ("Advest"), each Fund's former underwriter, as
compensation for former distribution services and former and current shareholder
servicing activities in connection with Class T shares.
In addition to the investment advisory fee and the distribution and service
fees, there are other expenses expected to be incurred by each Fund, including
custodial and transfer agency fees, certain printing, legal, accounting and
auditing expenses, and registration fees.
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RISK FACTORS
The Funds may invest in foreign securities or securities of U.S. issuers
denominated in foreign currencies. Investing in securities issued by U.S.
companies in foreign currencies and securities issued by foreign governments and
companies involve different risk considerations from investing in securities
denominated in United States dollars.
The High Total Return Fund, Strategic Income Fund, High Yield Fund, Income
Fund, Income and Growth Fund and Growth Fund may invest in securities rated
Ba/BB, B/B and Caa/CCC by Moody's or S&P, respectively, or rated in an
equivalent category by another NRSRO, or in unrated corporate debt securities
deemed by the Adviser to be comparable in quality to such rated securities. Such
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
4
<PAGE>
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 the Funds' net
asset value to the extent the Funds' assets are invested in such securities.
The Funds may write and purchase options and purchase and sell financial
futures contracts and related options. The use of options and futures strategies
by a Fund involves certain risks, including the risk that no liquid market will
exist and that the Fund will be unable to effect closing transactions at any
particular time or at an acceptable price and the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
securities which are the subject of the hedge. Expenses and losses incurred as a
result of these hedging strategies will reduce the current return of the Fund.
See "Risk Factors" and "General Investment Strategies and Restrictions and
Risk Considerations."
TABLE OF FEES AND EXPENSES
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The following table is designed to help investors in each Fund understand the
various costs the investor will bear, both directly and indirectly. The table
reflects estimated annual operating expenses of the Growth Fund, Special Fund,
Income Fund, Government Securities Fund, High Yield Fund, and Strategic Income
Fund based on actual expenses of the Class T shares for the fiscal year ended
December 31, 1994. Class A, Class B and Class C are new classes of shares of
these Funds; no Class A, Class B or Class C shares were outstanding for the
fiscal year ended December 31, 1994. The rules of the Securities and Exchange
Commission require that maximum sales charges be reflected in the table;
however, certain investors may qualify for reduced or no sales charges. See "How
to Purchase Shares."
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NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Front-End Sales Load Imposed on Purchase of Shares
(as % of Offering Price)..................................................... 4.75% None None None
Maximum Front-End or Deferred Sales Load on Reinvested Dividends/
Distributions................................................................ None None None None
Maximum Contingent Deferred Sales Load on Sale of Shares (as a % of the lesser
of original price or redemption proceeds).................................... None(1) 5.00%(2) 1.00% 4.00%(2)
Exchange Fee.................................................................. None None None None
Annual Fund Operating Expenses (as a % of Average Net Assets)
Management Fee (after expense reimbursement)(5)............................... .45% .45% .45% .45%
12b-1 Fee..................................................................... .30% 1.00%(3) 1.00%(3) .65%(3,4)
Other Expenses................................................................ .45% .45% .45% .19%
Total Fund Operating Expenses(6).............................................. 1.20% 1.90% 1.90% 1.29%
</TABLE>
5
<PAGE>
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NORTHSTAR ADVANTAGE HIGH YIELD FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Front-End Sales Load Imposed on Purchase of Shares (as % of Offering
Price)....................................................................... 4.75% None None None
Maximum Front-End or Deferred Sales Load on Reinvested
Dividends/Distributions...................................................... None None None None
Maximum Contingent Deferred Sales Load on Sale of Shares (as a % of the lesser
of original price or redemption proceeds).................................... None(1) 5.00%(2) 1.00% 4.00%(2)
Exchange Fee.................................................................. None None None None
Annual Fund Operating Expenses (as a % of Average Net Assets)
Management Fee................................................................ .45% .45% .45% .45%
12b-1 Fee..................................................................... .30% 1.00%(3) 1.00%(3) .65%(3,4)
Other Expenses................................................................ .45% .45% .45% .24%
Total Fund Operating Expenses(6).............................................. 1.20% 1.90% 1.90% 1.34%
</TABLE>
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NORTHSTAR ADVANTAGE INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Front-End Sales Load Imposed on Purchase of Shares
(as % of Offering Price)................................. 4.75% None None None
Maximum Front-End or Deferred Sales Load on Reinvested
Dividends/Distributions.................................. None None None None
Maximum Contingent Deferred Sales Load on Sale of Shares
(as a % of the lesser of original price or redemption
proceeds)................................................ None(1) 5.00%(2) 1.00% 4.00%(2)
Exchange Fee.............................................. None None None None
Annual Fund Operating Expenses (as a % of Average Net
Assets)
Management Fee............................................ .65% .65% .65% .65%
12b-1 Fee................................................. .30% 1.00%(3) 1.00%(3) .75%(3,4)
Other Expenses............................................ .45% .45% .45% .29%
Total Fund Operating Expenses(6).......................... 1.40% 2.10% 2.10% 1.69%
</TABLE>
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NORTHSTAR ADVANTAGE GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Front-End Sales Load Imposed on Purchase of Shares
(as % of Offering Price)................................. 4.75% None None None
Maximum Front-End or Deferred Sales Load on Reinvested
Dividends/Distributions.................................. None None None None
Maximum Contingent Deferred Sales Load on Sale of Shares
(as a % of the lesser of original price or redemption
proceeds)................................................ None(1) 5.00%(2) 1.00% 4.00%(2)
Exchange Fee.............................................. None None None None
Annual Fund Operating Expenses (as a % of Average Net
Assets)
Management Fee............................................ .75% .75% .75% .75%
12b-1 Fee................................................. .30% 1.00%(3) 1.00%(3) .95%(3,4)
Other Expenses............................................ .45% .45% .45% .30%
Total Fund Operating Expenses(6).......................... 1.50% 2.20% 2.20% 2.00%
</TABLE>
6
<PAGE>
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NORTHSTAR ADVANTAGE SPECIAL FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Front-End Sales Load Imposed on Purchase of Shares
(as % of Offering Price)................................. 4.75% None None None
Maximum Front-End or Deferred Sales Load on Reinvested
Dividends/ Distributions................................. None None None None
Maximum Contingent Deferred Sales Load on Sale of Shares
(as a % of the lesser of original price or redemption
proceeds)................................................ None(1) 5.00%(2) 1.00% 4.00%(2)
Exchange Fee.............................................. None None None None
Annual Fund Operating Expenses (as a % of Average Net
Assets)
Management Fee............................................ .75% .75% .75% .75%
12b-1 Fee................................................. .30% 1.00%(3) 1.00%(3) .95%(3)
Other Expenses............................................ .45% .45% .45% .46%
Total Fund Operating Expenses(6).......................... 1.50% 2.20% 2.20% 2.16%
</TABLE>
- --------------------------------------------------------------------------------
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Front-End Sales Load Imposed on Purchase of Shares
(as % of Offering Price)................................. 4.75% None None None
Maximum Front-End or Deferred Sales Load on Reinvested
Dividends/Distributions.................................. None None None None
Maximum Contingent Deferred Sales Load on Sale of Shares
(as a % of the lesser of original price or redemption
proceeds)................................................ None(1) 5.00%(2) 1.00% 4.00%(2)
Exchange Fee.............................................. None None None None
Annual Fund Operating Expenses (as a % of Average Net
Assets)
Management Fee............................................ .65% .65% .65% .65%
12b-1 Fee................................................. .30% 1.00%(3) 1.00%(3) .95%(3,4)
Other Expenses (after expense reimbursement).............. .45% .45% .45% .30%
Total Fund Operating Expenses(6).......................... 1.40% 2.10% 2.10% 1.90%
</TABLE>
- --------------------------------------------------------------------------------
NORTHSTAR ADVANTAGE INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------- -------- --------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Front-End Sales Load Imposed on Purchase
of Shares (as % of Offering Price)............. 4.75% None None
Maximum Front-End or Deferred Sales Load on
Reinvested Dividends/Distributions............. None None None
Maximum Contingent Deferred Sales Load on Sale
of Shares (as a % of the lesser of original
price or redemption proceeds).................. None(1) 5.00%(2) 1.00%
Exchange Fee...................................... None None None
Annual Fund Operating Expenses (as a % of Average
Net Assets)
Management Fee (after expense
reimbursement)(7).............................. .69% .59% .28%
Administration Fee(8)........................... .10% .10% .10%
12b-1 Fee....................................... .30% 1.00%(3) 1.00%(3)
Other Expenses.................................. .41% .51% .82%
Total Fund Operating Expenses(7)................ 1.50% 2.20% 2.20%
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
NORTHSTAR ADVANTAGE HIGH TOTAL RETURN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------- -------- --------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Front-End Sales Load Imposed on Purchase
of Shares (as % of Offering Price)............. 4.75% None None
Maximum Front-End or Deferred Sales Load on
Reinvested Dividends and Distributions......... None None None
Maximum Contingent Deferred Sales Load on Sale
of Shares (as a % of the lesser of original
price or redemption proceeds).................. None(1) 5.00%(2) 1.00%
Exchange Fee.................................... None None None
Annual Fund Operating Expenses (as a % of Average
Net Assets)
Management Fee (after expense
reimbursement)(7).............................. .64% .55% .0%
Administration Fee(8)........................... .10% .10% .10%
12b-1 Fees...................................... .30% 1.00%(3) 1.00%(3)
Other Expenses.................................. .46% .55% 1.10%
Total Fund Operating Expenses(7)................ 1.50% 2.20% 2.20%
</TABLE>
<TABLE>
<S> <C>
- -----------
(1) Purchases of $1 million or more are not subject to an initial sales charge;
however, a CDSC of up to 1% will be imposed on such purchases in the event
of certain redemption transactions within 18 months following the date of
purchase.
(2) Class B CDSC on redemptions decreases 1% annually after year one to 2% in
years four and five and to 0% after year five. Class T CDSC on redemptions
decreases 1% annually after year one to 0% after year four.
(3) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. ("NASD") rules regarding investment companies.
(4) Although the Trustees have set 12b-1 fees at the levels indicated, under
the shareholder-approved 12b-1 plans for Class T shares and applicable
rules of the NASD, the Trustees of each Fund, except for Strategic Income
Fund, may increase these fees to an aggregate of up to 0.95% annually
without further shareholder approval. The Trustees of Strategic Income
Fund, may increase these 12b-1 fees for Class T Shares to an aggregate of
up to 1.00% annually without further shareholder approval.
(5) After waiver of 0.20% effective January 1, 1989. Without such a fee waiver,
the Management Fees would be 0.65% of average daily net assets.
(6) Because there is no operating history for Class A, Class B or Class C
shares of each of these Funds, certain "Other Expenses" are estimates. The
Adviser has agreed to cap total operating expenses of these classes of each
Fund and of the Class T shares of Strategic Income Fund at the amounts set
forth under "Total Fund Operating Expenses" through December 31, 1995, and
to waive a portion of its fee, and, if necessary, to reimburse a Fund the
entire amount of its fees received during the period, so that total
operating expenses for each class will not exceed such caps.
(7) Absent the expense reimbursement by the Adviser, Total Fund Operating
Expenses would have been as follows:
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Income and Growth................................. 1.56% 2.36% 2.67%
High Total Return................................. 1.61% 2.40% 3.19%
</TABLE>
(8) In addition to the Administration Fee, the Administrator assesses a $5
annual account service fee against the account of each beneficial holder of
shares of each class. This charge is included in "Other Expenses".
8
<PAGE>
EXAMPLES: An investor in each of the Funds would pay the following expenses on
a $1,000 investment assuming a 5% annual return throughout the period, and
redemption at the end of each period.
<TABLE>
<CAPTION>
NORTHSTAR ADVANTAGE GOVERNMENT
SECURITIES
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 59 $ 69 $ 29 $ 53
3 Years........................................... 84 90 60 61
5 Years........................................... 110 123 103 71
10 Years.......................................... 186 222 222 153
<CAPTION>
NORTHSTAR ADVANTAGE HIGH YIELD FUND
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 59 $ 69 $ 29 $ 54
3 Years........................................... 84 90 60 62
5 Years........................................... 110 123 103 73
10 Years.......................................... 186 222 222 157
<CAPTION>
NORTHSTAR ADVANTAGE INCOME FUND
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 61 $ 71 $ 31 $ 57
3 Years........................................... 90 96 66 73
5 Years........................................... 120 133 113 92
10 Years.......................................... 207 243 243 192
<CAPTION>
NORTHSTAR ADVANTAGE GROWTH FUND
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 62 $ 72 $ 32 $ 60
3 Years........................................... 93 99 69 83
5 Years........................................... 125 138 118 108
10 Years.......................................... 218 253 253 220
<CAPTION>
NORTHSTAR ADVANTAGE SPECIAL FUND
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 62 $ 72 $ 32 $ 62
3 Years........................................... 93 99 69 88
5 Years........................................... 125 138 118 116
10 Years.......................................... 218 253 253 233
<CAPTION>
NORTHSTAR ADVANTAGE STRATEGIC INCOME
FUND
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 61 $ 71 $ 31 $ 59
3 Years........................................... 90 96 66 80
5 Years........................................... N/A N/A N/A N/A
10 Years.......................................... N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
NORTHSTAR ADVANTAGE INCOME
AND GROWTH FUND
---------------------------
CLASS
CLASS A B* CLASS C
------- ------- -------
<S> <C> <C> <C>
1 year............................................ 62 72 32
3 years........................................... 93 99 69
5 years........................................... 125 138 118
10 years.......................................... 218 253 253
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NORTHSTAR ADVANTAGE HIGH
TOTAL RETURN FUND
---------------------------
CLASS
CLASS A B* CLASS C
------- ------- -------
<S> <C> <C> <C>
1 year............................................ 62 72 32
3 years........................................... 93 99 69
5 years........................................... 125 138 118
10 years.......................................... 218 253 253
</TABLE>
An investor would pay the following expenses on the same $1,000 investment,
assuming no redemption at the end of the period:
<TABLE>
<CAPTION>
NORTHSTAR ADVANTAGE GOVERNMENT
SECURITIES
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 59 $ 19 $ 19 $ 13
3 Years........................................... 84 60 60 41
5 Years........................................... 110 123 103 71
10 Years.......................................... 186 222 222 153
<CAPTION>
NORTHSTAR ADVANTAGE HIGH YIELD FUND
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 59 $ 19 $ 19 $ 14
3 Years........................................... 84 60 60 42
5 Years........................................... 110 123 103 73
10 Years.......................................... 186 222 222 157
<CAPTION>
NORTHSTAR ADVANTAGE INCOME FUND
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 61 $ 21 $ 21 $ 17
3 Years........................................... 90 66 66 53
5 Years........................................... 120 133 113 92
10 Years.......................................... 207 243 243 192
<CAPTION>
NORTHSTAR ADVANTAGE GROWTH FUND
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 62 $ 22 $ 22 $ 20
3 Years........................................... 93 69 69 63
5 Years........................................... 125 138 118 108
10 Years.......................................... 218 253 253 220
<CAPTION>
NORTHSTAR ADVANTAGE SPECIAL FUND
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 62 $ 22 $ 22 $ 22
3 Years........................................... 93 69 69 68
5 Years........................................... 125 138 118 116
10 Years.......................................... 218 253 253 233
<CAPTION>
NORTHSTAR ADVANTAGE STRATEGIC INCOME
FUND
-------------------------------------
CLASS CLASS
CLASS A B* CLASS C T*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year............................................ $ 61 $ 21 $ 21 $ 19
3 Years........................................... 90 66 66 60
5 Years........................................... N/A N/A N/A N/A
10 Years.......................................... N/A N/A N/A N/A
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NORTHSTAR ADVANTAGE INCOME
AND GROWTH FUND
---------------------------
CLASS
CLASS A B* CLASS C
------- ------- -------
<S> <C> <C> <C>
1 year............................................ 62 22 22
3 years........................................... 93 69 69
5 years........................................... 125 118 118
10 years.......................................... 218 253 253
</TABLE>
<TABLE>
<CAPTION>
NORTHSTAR ADVANTAGE HIGH
TOTAL RETURN FUND
---------------------------
CLASS
CLASS A B* CLASS C
------- ------- -------
<S> <C> <C> <C>
1 year............................................ 62 22 22
3 years........................................... 93 69 69
5 years........................................... 125 118 118
10 years.......................................... 218 253 253
</TABLE>
- -----------
* Class B and Class T shares convert to Class A shares eight years after
purchase in the case of B Shares and on the later of eight years after
purchase or May 31, 1998 in the case of T Shares; therefore, Class A expenses
are used after year eight.
The examples above assume the reinvestment of all dividends and distributions
and that the percentage amounts listed under "Annual Operating Expenses"
remain the same each year. The example should not be considered to be a
representation of past or future performance and annual expenses may be
greater or less than those shown. Because the Class A, Class B and Class C
shares of the Growth Fund, Special Fund, Income Fund, Government Securities
Fund, High Yield Fund and Strategic Income Fund have no operating history,
certain expenses under "Other Expenses" are estimates.
11
<PAGE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------
The financial highlights set forth below present certain information and
ratios as well as performance information about the Class T shares of the
Growth, Special, Income, Government Securities, High Yield and Strategic Income
Funds. This information relates to the performance of the Class T shares of the
Funds under investment advisory agreements between each of these Funds and
Boston Security Counsellors, Inc. ("BSC"), which agreements were terminated on
June 2, 1995. Additional information about these Funds' performance is contained
in the Annual Report to Shareholders for these Funds for the year ended December
31, 1994 which may be obtained without charge from the Funds. The financial
highlights for these Funds have been examined by Price Waterhouse LLP,
independent accountants, whose unqualified report thereon is incorporated by
reference in the Statement of Additional Information and should be read in
conjunction with the related audited financial statements and notes thereto.
Class A, Class B and Class C shares of these Funds are new classes of shares; no
financial highlights exist for these classes.
The table also presents audited financial highlights for the Income and Growth
Fund and High Total Return Fund, series of the Northstar Advantage Trust. The
Financial Highlights for the Trust have been examined by Coopers & Lybrand
L.L.P., independent accountants, whose unqualified report thereon is
incorporated by reference in the Statement of Additional Information and should
be read in conjunction with the audited financial statements of the Trust dated
October 31, 1994 and notes thereto, which are contained in the Annual Report for
the Trust. Further information about performance of each Fund is also contained
in the Annual Report, a copy of which may be obtained without charge from the
Trust.
- --------------------------------------------------------------------------------
NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES FUND FOR A CLASS T SHARE OUTSTANDING
THROUGHOUT THE INDICATED PERIOD.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning of
period..................... $ 10.32 $ 9.22 $ 8.99 $ 8.47 $ 8.47 $ 8.26 $ 8.80 $ 9.94 $ 10.00
Income from investment
operations:
Net investment income
(loss)................... 0.56 0.59 0.61 0.67 0.68 0.72 0.75 0.64 0.54
Net realized and
unrealized gain (loss)... (1.56) 1.09 0.23 0.52 -- 0.21 (0.48) (1.10) 0.27
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............... (1.00) 1.68 0.84 1.19 0.68 0.93 0.27 (0.46) 0.81
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income........ (0.57) (0.58) (0.61) (0.67) (0.68) (0.72) (0.75) (0.64) (0.54)
Dividends from net
realized gain............ -- -- -- -- -- -- -- -- (0.33)
Dividends from capital.... (0.01) -- -- -- -- -- (0.06) (0.04) --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions....... (0.58) (0.58) (0.61) (0.67) (0.68) (0.72) (0.81) (0.68) (0.87)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value end of
period..................... $ 8.74 $ 10.32 $ 9.22 $ 8.99 $ 8.47 $ 8.47 $ 8.26 $ 8.80 $ 9.94
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total return(3)............. (9.82)% 18.48% 9.77% 14.73% 8.57% 11.73% 2.97% (4.72)% 8.50%
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets at end of
period (thousands)....... $152,608 $184,156 $144,144 $121,389 $108,420 $123,735 $169,421 $237,190 $223,598
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Ratio of operating
expenses to average net
assets................... 1.29% 1.31% 1.39% 1.44% 1.43% 1.45% 1.88% 1.79% 1.89%(1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Ratio of operating
expenses to average net
assets before waiver or
reimbursement(5)......... 1.49% 1.51% 1.59% 1.64% 1.63% 1.65% -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Ratio of net investment
income to average net
assets................... 6.00% 5.83% 6.81% 7.68% 8.23% 8.57% 8.47% 7.02% 6.38%(1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Portfolio turnover rate... 314.91% 81.41% 120.08% 87.00% 16.77% 73.94% 494.05% 412.29% 241.73%(1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
NORTHSTAR ADVANTAGE INCOME FUND FOR A CLASS T SHARE OUTSTANDING THROUGHOUT THE
INDICATED PERIOD.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning of
period....................... $ 12.94 $ 12.05 $ 11.66 $ 10.13 $ 10.71 $ 9.71 $ 9.11 $ 10.39 $ 10.00
Income from investment
operations:
Net investment income
(loss)..................... 0.57 0.49 0.55 0.57 0.61 0.68 0.62 0.56 0.40
Net realized and unrealized
gain (loss)................ (1.25) 1.20 0.36 1.53 (0.54) 1.00 0.58 (1.04) 0.67
------- ------- ------- ------- ------- ------- ------- ------- ----------
Total from investment
operations................. (0.68) 1.69 0.91 2.10 0.07 1.68 1.20 (0.48) 1.07
------- ------- ------- ------- ------- ------- ------- ------- ----------
Less distributions:
Dividends from net
investment income.......... (0.54) (0.49) (0.52) (0.57) (0.63) (0.68) (0.60) (0.57) (0.40)
Dividends from net realized
gain....................... (0.16) (0.31) -- -- -- -- -- (0.22) (0.28)
Dividends from capital...... (0.02)(4) -- -- -- (0.02) -- -- (0.01) --
------- ------- ------- ------- ------- ------- ------- ------- ----------
Total distributions......... (0.72) (0.80) (0.52) (0.57) (0.65) (0.68) (0.60) (0.80) (0.68)
------- ------- ------- ------- ------- ------- ------- ------- ----------
Net asset value end of
period....................... $ 11.54 $ 12.94 $ 12.05 $ 11.66 $ 10.13 $ 10.71 $ 9.71 $ 9.11 $ 10.39
------- ------- ------- ------- ------- ------- ------- ------- ----------
------- ------- ------- ------- ------- ------- ------- ------- ----------
Total return(3)............... (5.33)% 14.08% 8.06% 21.17% 0.78% 17.70% 13.39% (5.35)% 10.74%
------- ------- ------- ------- ------- ------- ------- ------- ----------
------- ------- ------- ------- ------- ------- ------- ------- ----------
Ratios/supplemental data:
Net assets at end of period
(thousands)................ $73,764 $80,841 $56,823 $49,367 $44,750 $58,006 $57,425 $58,722 $ 49,332
------- ------- ------- ------- ------- ------- ------- ------- ----------
------- ------- ------- ------- ------- ------- ------- ------- ----------
Ratio of operating expenses
to average net assets...... 1.69% 1.77% 2.02% 2.06% 2.10% 2.04% 2.10% 1.98% 2.15%(1)
------- ------- ------- ------- ------- ------- ------- ------- ----------
------- ------- ------- ------- ------- ------- ------- ------- ----------
Ratio of net investment
income to average net
assets..................... 4.36% 3.99% 4.73% 5.21% 5.73% 6.38% 6.30% 5.70% 5.72%(1)
------- ------- ------- ------- ------- ------- ------- ------- ----------
------- ------- ------- ------- ------- ------- ------- ------- ----------
Portfolio turnover rate..... 59.26% 38.26% 58.96% 76.87% 57.39% 56.15% 24.57% 45.91% 78.71%(1)
------- ------- ------- ------- ------- ------- ------- ------- ----------
------- ------- ------- ------- ------- ------- ------- ------- ----------
</TABLE>
- --------------------------------------------------------------------------------
NORTHSTAR ADVANTAGE HIGH YIELD FUND FOR A CLASS T SHARE OUTSTANDING THROUGHOUT
THE INDICATED PERIOD.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
----------------------------------------------------------------
1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period..... $ 9.31 $ 9.09 $ 7.94 $ 6.27 $ 8.55 $ 10.00
Income from investment operations:
Net investment income (loss).......... 0.81 0.85 0.92 1.08 1.12 0.60
Net realized and unrealized gain
(loss)............................... (0.99) 0.80 1.19 1.67 (2.30) (1.45)
-------- -------- -------- -------- -------- ---------
Total from investment operations...... (0.18) 1.65 2.11 2.75 (1.18) (0.85)
-------- -------- -------- -------- -------- ---------
Less distributions:
Dividends from net investment
income............................... (0.83) (0.83) (0.94) (1.08) (1.10) (0.60)
Dividends from net realized gain...... (0.01) (0.60) (0.02) -- -- --
-------- -------- -------- -------- -------- ---------
Total distributions................... (0.84) (1.43) (0.96) (1.08) (1.10) (0.60)
-------- -------- -------- -------- -------- ---------
Net asset value end of period........... $ 8.29 $ 9.31 $ 9.09 $ 7.94 $ 6.27 $ 8.55
-------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- ---------
Total return(3)......................... (2.18)% 18.89% 27.57% 46.49% (14.59)% (8.81)%
-------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- ---------
Ratios/supplemental data:
Net assets at end of period
(thousands).......................... $136,426 $125,095 $ 64,063 $ 25,651 $ 11,342 $ 11,045
-------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- ---------
Ratio of operating expenses to average
net assets........................... 1.34% 1.40% 1.50% 1.50% 1.44% 1.35%(1)
-------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- ---------
Ratio of operating expenses to average
net assets before waiver or
reimbursement(5)..................... -- -- 1.55% 1.96% 2.25% 2.65%(1)
-------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- ---------
Ratio of net investment income to
average net assets................... 9.08% 8.84% 10.30% 14.84% 15.15% 11.44%(1)
-------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- ---------
Portfolio turnover rate............... 86.20% 176.40% 121.51% 57.48% 156.23% 39.63%(1)
-------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- ---------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
NORTHSTAR ADVANTAGE GROWTH FUND FOR A CLASS T SHARE OUTSTANDING THROUGHOUT THE
INDICATED PERIOD.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986
------- --------- ------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning of
period............................ $ 17.33 $ 16.36 $ 16.37 $ 12.49 $ 13.85 $ 11.96 $ 10.47 $ 10.54 $ 10.00
Income from investment operations:
Net investment income (loss)..... 0.08 0.02 0.02 0.09 0.10 0.20 0.16 0.09 0.03
Net realized and unrealized gain
(loss).......................... (1.41) 1.67 1.30 4.62 (0.83) 2.66 1.58 (0.07) 0.87
------- --------- ------- ------- ------- ------- ------- ------- ---------
Total from investment
operations...................... (1.33) 1.69 1.32 4.71 (0.73) 2.86 1.74 0.02 0.90
------- --------- ------- ------- ------- ------- ------- ------- ---------
Less distributions:
Dividends from net investment
income.......................... (0.08) (0.04) (0.02) (0.08) (0.10) (0.20) (0.17) (0.08) (0.03)
Dividends from net realized
gain............................ (0.15) (0.67) (1.31) (0.75) (0.51) (0.76) (0.08) -- (0.33)
Dividends from capital........... (0.02) (0.01)(4) -- -- (0.02) (0.01) -- (0.01) --
------- --------- ------- ------- ------- ------- ------- ------- ---------
Total distributions.............. (0.25) (0.72) (1.33) (0.83) (0.63) (0.97) (0.25) (0.09) (0.36)
------- --------- ------- ------- ------- ------- ------- ------- ---------
Net asset value end of period...... $ 15.75 $ 17.33 $ 16.36 $ 16.37 $ 12.49 $ 13.85 $ 11.96 $ 10.47 $ 10.54
------- --------- ------- ------- ------- ------- ------- ------- ---------
------- --------- ------- ------- ------- ------- ------- ------- ---------
Total return(3).................... (7.66)% 10.36% 8.05% 38.10% (5.24)% 24.25% 16.70% 0.11% 8.91%
------- --------- ------- ------- ------- ------- ------- ------- ---------
------- --------- ------- ------- ------- ------- ------- ------- ---------
Ratios/supplemental data:
Net assets at end of period
(thousands)..................... $76,391 $ 80,759 $56,759 $40,884 $24,927 $29,842 $25,359 $27,493 $ 17,013
------- --------- ------- ------- ------- ------- ------- ------- ---------
------- --------- ------- ------- ------- ------- ------- ------- ---------
Ratio of operating expenses to
average net assets.............. 2.00% 2.04% 2.15% 2.25% 2.33% 2.33% 2.46% 2.29% 2.77%(1)
------- --------- ------- ------- ------- ------- ------- ------- ---------
------- --------- ------- ------- ------- ------- ------- ------- ---------
Ratio of net investment income to
average net assets.............. 0.49% 0.13% 0.09% 0.66% 0.80% 1.39% 1.40% 0.83% 0.37%(1)
------- --------- ------- ------- ------- ------- ------- ------- ---------
------- --------- ------- ------- ------- ------- ------- ------- ---------
Portfolio turnover rate.......... 53.76% 42.27% 46.77% 63.56% 54.22% 74.56% 58.73% 54.72% 32.66%(1)
------- --------- ------- ------- ------- ------- ------- ------- ---------
------- --------- ------- ------- ------- ------- ------- ------- ---------
</TABLE>
- --------------------------------------------------------------------------------
NORTHSTAR ADVANTAGE SPECIAL FUND (2) FOR A CLASS T SHARE OUTSTANDING THROUGHOUT
THE INDICATED PERIOD.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986
------- -------- ------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning of
period....................... $ 20.79 $ 17.40 $ 15.74 $ 10.64 $ 11.67 $ 9.55 $ 7.90 $ 8.92 $ 10.00
Income from investment
operations:
Net investment income
(loss)..................... (0.25) (0.32) (0.33) (0.21) (0.20) (0.06) (0.13) (0.14) (0.06)
Net realized and unrealized
gain (loss)................ (0.76) 3.83 2.61 6.24 (0.83) 2.18 1.78 (0.88) (1.02)
------- -------- ------- ------- ------- ------- ------- ------- ---------
Total from investment
operations................. (1.01) 3.51 2.28 6.03 (1.03) 2.12 1.65 (1.02) (1.08)
------- -------- ------- ------- ------- ------- ------- ------- ---------
Less distributions:
Dividends from net realized
gain....................... (0.14) (0.12) (0.62) (0.93) -- -- -- -- --
------- -------- ------- ------- ------- ------- ------- ------- ---------
Total distributions......... (0.14) (0.12) (0.62) (0.93) -- -- -- -- --
------- -------- ------- ------- ------- ------- ------- ------- ---------
Net asset value end of
period....................... $ 19.64 $ 20.79 $ 17.40 $ 15.74 $ 10.64 $ 11.67 $ 9.55 $ 7.90 $ 8.92
------- -------- ------- ------- ------- ------- ------- ------- ---------
------- -------- ------- ------- ------- ------- ------- ------- ---------
Total return(3)............... (4.86)% 20.16% 14.54% 57.27% (8.83)% 22.20% 20.89% (11.43)% (10.80)%
------- -------- ------- ------- ------- ------- ------- ------- ---------
------- -------- ------- ------- ------- ------- ------- ------- ---------
Ratios/supplemental data:
Net assets at end of period
(thousands)................ $38,848 $ 28,838 $11,336 $ 5,480 $ 3,024 $ 3,958 $ 3,330 $ 3,078 $ 3,823
------- -------- ------- ------- ------- ------- ------- ------- ---------
------- -------- ------- ------- ------- ------- ------- ------- ---------
Ratio of operating expenses
to average net assets...... 2.16% 2.34% 2.84% 2.95% 2.95% 2.95% 2.96% 2.94% 2.90%(1)
------- -------- ------- ------- ------- ------- ------- ------- ---------
------- -------- ------- ------- ------- ------- ------- ------- ---------
Ratio of operating expenses
to average net assets
before waiver or
reimbursement(5)........... -- -- -- 3.69% 4.98% 4.89% 6.01% 4.52% 4.82%(1)
------- -------- ------- ------- ------- ------- ------- ------- ---------
------- -------- ------- ------- ------- ------- ------- ------- ---------
Ratio of net investment
income to average net
assets..................... (1.25)% (1.66)% (2.12)% (1.57)% (0.97)% (0.44)% (1.06)% (1.22)% (0.76)%(1)
------- -------- ------- ------- ------- ------- ------- ------- ---------
------- -------- ------- ------- ------- ------- ------- ------- ---------
Portfolio turnover rate..... 39.43% 34.57% 39.62% 85.43% 71.79% 85.36% 39.88% 57.08% 27.86%(1)
------- -------- ------- ------- ------- ------- ------- ------- ---------
------- -------- ------- ------- ------- ------- ------- ------- ---------
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND FOR A CLASS T SHARE OUTSTANDING
THROUGHOUT THE INDICATED PERIOD.
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
1994(6)
-------------
<S> <C>
Net asset value beginning of period.................................................................. $ 12.00
Income from investment operations:
Net investment income (loss)....................................................................... 0.51
Net realized and unrealized gain (loss)............................................................ (0.25)
------
Total from investment operations................................................................... 0.26
------
Less distributions:
Dividends from net investment income............................................................... (0.49)
Dividends from net realized gain................................................................... (0.05)
Dividends from capital............................................................................. (0.01)(4)
------
Total distributions................................................................................ (0.55)
------
Net asset value end of period........................................................................ $ 11.71
------
------
Total return(3)...................................................................................... 2.14%
------
------
Ratios/supplemental data:
Net assets at end of period (thousands)............................................................ $ 25,252
------
------
Ratio of operating expenses to average net assets.................................................. 1.90%(1)
------
------
Ratio of operating expenses to average net assets before waiver or reimbursement(5)................ 2.53%(1)
------
------
Ratio of net investment income to average net assets............................................... 7.92%(1)
------
------
Portfolio turnover rate............................................................................ 156.34%(1)
------
------
</TABLE>
- --------------------------------------------------------------------------------
NORTHSTAR ADVANTAGE TRUST FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD
FROM EACH INCEPTION OF EACH CLASS THROUGH OCTOBER 31, 1994.
<TABLE>
<CAPTION>
CLASS A
(FOR THE PERIOD CLASS B CLASS C
NOVEMBER 8, 1993 (FOR THE PERIOD FEBRUARY 9 (FOR THE PERIOD MARCH 21
TO OCTOBER 31, 1994) TO OCTOBER 31, 1994) TO OCTOBER 31, 1994)
------------------------ --------------------------- ------------------------
HIGH TOTAL HIGH TOTAL HIGH TOTAL
INCOME AND RETURN INCOME AND RETURN INCOME AND RETURN
GROWTH FUND FUND GROWTH FUND FUND GROWTH FUND FUND
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of the
period.............................. $ 10.00 $ 5.00 $ 10.64 $ 5.20 $ 10.37 $ 5.06
Income from investment operations:
Net investment income............ 0.30 0.41 0.20 0.33 0.20 0.26
Net loss on investments (both
realized and unrealized)........ (0.05) (0.60) (0.65) (0.80) (0.38) (0.65)
Total from investment
operations.................... 0.25 (0.19) (0.45) (0.47) (0.18) (0.39)
Less distributions:
Dividends (from net investment
income)........................... (0.25) (0.40) (0.20) (0.32) (0.20) (0.26)
Net Asset Value, end of the period... $ 10.00 $ 4.41 $ 9.99 $ 4.41 $ 9.99 $ 4.41
----------- ---------- ----------- ---------- ----------- ----------
----------- ---------- ----------- ---------- ----------- ----------
Total Return (excluding sales
charge)............................. 2.48% (4.11%) (4.20%) (9.30%) (1.75%) (7.21%)
Ratios/Supplemental Data:
Net Assets, end of period (in
thousands).......................... 72,223 50,797 37,767 25,880 4,823 2,330
Ratio of expenses to average net
assets.............................. 1.50%(1) 1.50%(1) 2.20%(1) 2.20%(1) 2.20%(1) 2.20%(1)
Ratio of expense reimbursement to
average net assets.................. 0.06%(1) 0.11%(1) 0.16%(1) 0.20%(1) 0.47%(1) 0.99%(1)
Ratio of net investment income to
average net assets.................. 3.73%(1) 10.09%(1) 3.00%(1) 9.72%(1) 2.87%(1) 9.46%(1)
Portfolio Turnover Rate.............. 25.66% 162.59% 25.66% 162.59% 25.66% 162.59%
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
- --------------
(1) Annualized.
(2) Per share amounts calculated based on the average of month-end shares
outstanding.
(3) Total return does not reflect the contingent deferred sales load maximum of
4%. This charge goes into effect only if shares of the Fund are redeemed
within 4 years of purchase. Total returns for 1986 (1989 for High Yield
Fund and 1994 for Strategic Income Fund) represent actual not annualized
percentages. Unaudited prior to 1992.
(4) Represents distribution in excess of net investment income due to
differences in book and tax income.
(5) Reflects ratio which would have existed, in the case of the Government
Securities Fund, had BSC not elected to waive 0.20% of its investment
advisory fee effective January 1, 1989, and, in the case of the High Yield,
Special and Strategic Income Funds, had BSC or affiliates not reimbursed
such Funds for a portion of their expenses.
(6) Period from commencement of operations (July 1, 1994) through December 31,
1994.
</TABLE>
16
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- ----------------------------------------------------------------------
Each of the Funds has different investment objectives and is designed to meet
different investment needs, although diversification is an important
consideration in selecting the portfolio for each Fund. The objectives and
policies of each Fund can be expected to affect the investment return of such
Fund and the degree of market and financial risk to which such Fund is subject.
The investment objective of each Fund other than the Income and Growth Fund and
High Total Return Fund may be changed by that Fund's Trustees without
shareholder approval. Shareholders of those Funds will be notified at least
thirty days in advance of a change in the investment objective of that Fund. If
there is a change in investment objective, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
financial position and needs. There can, of course, be no guarantee that the
investment objectives of any of the Funds will be achieved, due to the
uncertainty inherent in all investments. The Trustees of the Funds reserve the
right to change any of the investment policies, strategies or practices of any
of the Funds, as described in this Prospectus and the Statement of Additional
Information, without shareholder approval, except in those instances where
shareholder approval is expressly required.
NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES FUND. The investment objective of
the Fund is to achieve a high level of current income and to conserve principal
by investing in debt obligations issued or guaranteed by the U.S. Government or
its agencies and instrumentalities ("U.S. Government Securities"). Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
U.S. Government Securities. The remaining portion of the Fund's investments will
be in the other types of investments described in this section. The Fund may
invest in U.S. Government Securities of varying maturities.
From time to time the Fund writes (sells) covered call options to obtain a
return on its investments from the premiums received. These options are
generally written in the over-the-counter market and involve special risks
described below under the heading "General Investment Strategies and
Restrictions and Risk Considerations -- Options and Futures Transactions." In
addition, the Fund may employ certain other investment strategies and techniques
described below under the caption "General Investment Strategies and
Restrictions and Risk Considerations." The Fund's assets will be managed so that
the Fund is a permissible investment for federal credit unions under the Federal
Credit Union Act and rules and regulations established by the National Credit
Union Administration. To the extent that any investment or investment practice
under the Fund's investment policies described herein or in the Statement of
Additional Information are not permissible for federal credit unions, the Fund
shall refrain from purchasing such investment or engaging in such practice. The
Fund will notify shareholders 60 days before making any change to this policy.
Securities of the sort owned by the Fund generally possess a high degree of
dependability with respect to timely payment of principal and interest. However,
such securities fluctuate in market price (but not in ultimate repayment amount)
primarily with interest rate levels and trends, rising when interest rates
decline and declining when interest rates rise. Consequently, the Fund's net
asset value will fluctuate in response to changing interest rates. The Fund's
portfolio frequently is comprised of securities with longer durations. Long
duration securities have greater price movements in response to interest rates
than shorter duration securities and therefore the Fund's net asset value will
also fluctuate more in response to changing rates. The Adviser's determination
of average duration reflects its outlook on interest rates as well as its
determination of best relative value in making investments.
U.S. Government Securities include U.S. Treasury bills, notes and bonds, which
differ only in their interest rates, maturities and times of issuance. Treasury
bills have maturities of one year or less. Treasury notes have maturities of one
to ten years and Treasury bonds generally have maturities of greater than ten
years at the date of issuance. U.S. Government Securities also include
obligations of agencies and instrumentalities of the U.S. Government, including,
but not limited to: Farm Credit System Financial Assistance Corporation
(FCSFAC), Federal Home Loan Banks (FHLB), Federal Home Loan Mortgage Corporation
(FHLMC), Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), Financing Corporation (FICO), Resolution Financing
Corp. (REFCORP), Maritime Administration and Student Loan Marketing Association
(SLMA). The Government Securities Fund may at various times have all or
substantially all of its assets in U.S. Government Securities issued by a single
agency or instrumentality. For example, during periods when the Adviser
considers GNMAs to have favorable yields compared with other U.S. Government
Securities, all or substantially all of the Government Securities Fund's assets
may be invested in GNMAs. Some U.S. Government Securities, such as Treasury
obligations and GNMA certificates, are supported by the full faith and credit of
the United States; others, such as securities of Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; still others, such as
bonds issued by the Federal National Mortgage Association, a private
corporation, are supported only by the credit of the instrumentality. Securities
of an instrumentality are not insured by the U.S. Government and there can be no
assurance that the U.S. Government will support an instrumentality it sponsors.
Because the U.S. Government is not obligated by law to provide support to an
instrumentality it sponsors, the Government Securities Fund will invest in the
securities issued by such an instrumentality only when the Adviser determines
that
17
<PAGE>
the credit risk with respect to the instrumentality does not make the securities
of the instrumentality unsuitable investments. The Adviser does not intend to
invest in excess of 35% of the Government Securities Fund's assets in securities
not supported by the full faith and credit of the United States, nor does it
intend to invest more than 20% of the portfolio in securities issued by any
single instrumentality not supported by the full faith and credit of the United
States.
U.S. Government Securities, including GNMA certificates, may be purchased by
the Government Securities Fund at a premium over the principal or face value in
order to obtain higher current income. The amount of any premium declines during
the term of the security to zero at maturity. Such decline generally is
reflected in the market price of the security. Any such decline is realized for
accounting purposes as a capital loss at maturity or upon resale. Such decline
in value or loss could be offset, in whole or in part, or increased by changes
in the value of the security due to changes in interest rate levels.
Alternatively, if U.S. Government Securities are purchased by the Government
Securities Fund at a discount, the amount of the discount declines during the
term of the security and may be reflected as a capital gain at maturity or upon
resale.
Mortgage-backed U.S. Government Securities such as GNMA certificates have
yield and maturity characteristics corresponding to the underlying mortgage
loans. Thus, for example, unlike U.S. Treasury bonds, which pay a fixed rate of
interest until maturity when the entire principal amount comes due, payments on
GNMA certificates include both interest and a partial repayment of principal.
Fluctuating prepayments of principal may result from the refinancing or
foreclosure of the underlying mortgage loans. Although maturities of the
underlying mortgage loans range up to 30 years, such prepayments may shorten the
effective maturities to approximately 12 years (based upon current government
statistics) or less.
GNMA certificates currently offer yields higher than those available from
other types of U.S. Government Securities, but because of the prepayment feature
may be less effective than other types of securities as a means of "locking in"
attractive long-term interest rates. This is caused by the need to reinvest
repayments of principal generally and the possibility of significant unscheduled
prepayments resulting from declines in mortgage interest rates. As a result,
GNMA certificates may have less potential for capital appreciation during
periods of declining interest rates than other investments of comparable
maturities, while having a comparable risk of decline during periods of rising
interest rates.
THE GOVERNMENT SECURITIES FUND'S SHARES ARE NOT INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT OR ITS AGENCIES OR INSTRUMENTALITIES, OR BY ANY OTHER PERSON OR
ENTITY.
During 1994, the Government Securities Fund experienced a relatively high
portfolio turnover rate of 314.91% due to changes in asset allocation between
U.S. treasury securities, cash equivalents and GNMA certificates. These changes
reflected the portfolio managers' changing assessment of market conditions and
expectations of interest rate movements. It is not expected that the Fund will
experience turnover rates in excess of 100% in the future under normal market
conditions. High portfolio turnover involves correspondingly greater transaction
costs which are borne directly by the Fund and may increase the recognition of
short-term rather than long-term capital gains. See "Dividends, Distribution and
Taxation" and "How Net Asset Value is Determined."
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND. The Fund seeks high current
income. The Fund will, under normal market conditions, allocate its investments
among the following three fixed income securities markets:
THE U.S. GOVERNMENT SECTOR. This sector consists of U.S. Government
Securities. U.S. Government Securities are considered among the most
creditworthy of fixed income securities.
THE HIGH YIELD SECTOR. This sector consists predominantly of high yield, high
risk, lower-rated U.S. and foreign fixed income securities. These securities are
commonly referred to as "junk bonds" and are subject to a greater risk of loss
of principal and interest than higher-rated securities. This sector may also
hold corporate debt securities rated investment grade at the time of purchase or
through a rating upgrade.
THE INTERNATIONAL SECTOR. This sector consists of debt obligations of foreign
governments and their agencies and instrumentalities denominated in the U.S.
dollar or other currencies. These debt obligations will be of investment grade.
The Adviser is of the view that allocation of the Fund's investments among the
U.S. Government, High Yield and International Sectors will better enable the
Fund to achieve its investment objective of high current income and may result
in a reduction in investment risk and lower volatility. As non-fundamental
policies that can be changed by the Trustees of the Fund without shareholder
vote, the Strategic Income Fund will, under normal market conditions, maintain
at least 20% of its total assets in each of the three sectors and may not invest
more than 60% of its total assets in any one sector. The Adviser expects that
under normal market conditions, substantially all of the Fund's assets will be
invested in the three market sectors. See "General Investment Strategies and
Restrictions and Risk Considerations."
18
<PAGE>
In the past, the markets for U.S. Government Securities, high yield, high risk
corporate fixed income securities and debt securities of foreign issuers have
tended to move independently of each other and have at times moved in opposite
directions. There is no assurance that they will continue to do so in the
future. For example, U.S. Government Securities have generally been adversely
affected by inflationary concerns resulting from increased economic activity.
High yield corporate fixed income securities have, however, generally benefitted
from increased economic activity due to improvement in the credit quality of
corporate issuers. The reverse has generally been true during periods of
economic decline. Similarly, U.S. Government Securities have often been
adversely affected by a decline in the value of the dollar against foreign
currencies, while the bonds of foreign issuers held by U.S. investors have
generally benefitted from such decline. The Adviser believes that when financial
markets exhibit such a lack of correlation, the ability to respond strategically
to market forces by allocating the Fund's assets among the foregoing sectors may
produce greater preservation of capital over the long term than would be
obtained by investing exclusively in any one of the markets.
The Adviser will determine the amount of assets to be allocated to each of the
three market sectors in which the Fund will invest based on its assessment of
the maximum level of current income that can be achieved from a portfolio which
is invested in all three sectors without incurring undue risks to principal
value. In making this allocation decision, the Adviser will rely on its analysis
of economic conditions, interest rate risk, currency risk and its analysis of
opportunities in each market sector based on current and historical market data
for each sector. The Adviser will continuously review this allocation of assets
and make such adjustments as it deems appropriate. The Fund's assets allocated
to each of the three market sectors will be managed in accordance with the
investment policies described below. At times, the Fund may hold a portion of
its assets in cash and money market instruments for liquidity purposes and may,
under unusual market conditions, invest up to 100% of its assets in short-term
U.S. Government Securities. See "General Investment Strategies and Restrictions
and Risk Considerations -- Defensive Strategies" below. The Fund may also
purchase and sell futures contracts and related options. See "General Investment
Strategies and Restrictions and Risk Considerations -- Options and Futures
Transactions" below.
THE U.S. GOVERNMENT SECTOR. The Fund will, under normal market conditions,
invest assets allocated to the U.S. Government Sector in U.S. Government
Securities. (For a description of these securities see "Northstar Advantage
Government Securities Fund.") The Fund may at various times have all or
substantially all of the assets allocated to the U.S. Government Sector invested
in U.S. Government Securities issued by a single agency or instrumentality. In
purchasing U.S. Government Securities for the Fund, the Adviser will be able to
take full advantage of the entire range of maturities of U.S. Government
Securities and may adjust the average maturity of the investments held by the
Fund from time to time, depending on the Adviser's assessment of relative yields
of securities of different maturities and its expectations of future changes in
interest rates.
U.S. Government Securities of the type in which the Fund will invest generally
possess a high degree of dependability with respect to timely payment of
principal and interest, although investments in mortgage backed U.S. Government
Securities will be subject to the risk of principal prepayment. However, such
securities fluctuate in market price (but not in ultimate repayment amount)
primarily with interest rate levels and trends, rising when interest rates
decline and declining when interest rates rise. The degree of fluctuation will
generally be greater for securities with longer maturities. Although changes in
the value of U.S. Government Securities will not affect investment income from
these securities, they will affect the Fund's net asset value.
From time to time, the Fund may write (sell) covered call options to reduce
the volatility of the Fund's portfolio. These options are generally written in
the over-the-counter market and involve special risks described below under
"General Investment Strategies and Restrictions and Risk Considerations --
Options and Futures Transactions." U.S. Government Securities may be purchased
by the Fund at a premium over the principal or face value in order to obtain
higher current income. The amount of any premium declines during the term of the
security to zero at maturity. Such decline generally is reflected in the market
price of the security. Any such decline in value or loss could be offset, in
whole or in part, or increased by changes in the value of the security due to
changes in interest rate levels. Alternatively, if U.S. Government Securities
are purchased by the Fund at a discount the amount of the discount declines
during the term of the security and may be reflected as a capital gain at
maturity.
Mortgage-backed U.S. Government Securities have yield and maturity
characteristics corresponding to the underlying mortgage loans. Thus, for
example, unlike U.S. Treasury bonds, which pay a fixed rate of interest until
maturity when the entire principal amount comes due, payments on such securities
include both interest and a partial repayment of principal. Fluctuating
prepayments of principal may result from the refinancing or foreclosure of the
underlying mortgage loans. Although maturities of the underlying mortgage loans
range up to 30 years, such prepayments may shorten the effective maturities
significantly. Thus, because of the prepayment feature such securities may be
less effective than other types of securities as a means of "locking in"
attractive long-term interest rates as a result of the need to reinvest
prepayments of principal generally and the possibility of significant
unscheduled prepayments resulting from declines in mortgage interest rates.
19
<PAGE>
THE HIGH YIELD SECTOR. In the High Yield Sector the Fund will, under normal
market conditions, invest predominantly in high yielding, higher risk,
lower-rated or nonrated foreign government fixed income securities and corporate
fixed income securities traded on the U.S. high yield corporate market. The
foreign government securities in which the Fund invests include securities
issued or guaranteed by foreign national, provincial, state or other governments
with taxing power or their agencies or instrumentalities and include securities
issued by developing countries and issuers located in developing countries. Such
foreign government securities may be denominated in U.S. dollars or other
currencies. The corporate fixed income securities in which the Fund invests are
commonly referred to as junk bonds. The High Yield Sector may also invest in
convertible securities and preferred and preference stocks. The debt securities
in which the Fund may invest include, but are not limited to, bonds, debentures,
notes, equipment lease certificates, equipment trust certificates, pass-through
securities, conditional sales contracts, bank loans and commercial paper
(including obligations, such as repurchase agreements, secured by such
securities). Securities in which the High Yield Sector may invest are rated
below investment grade (I.E., rated below Baa by Moody's or below BBB by S&P)
and typically are subject to greater market fluctuations, and may be less liquid
and subject to greater risk of loss of income and principal due to default by
the issuer than are investments in lower yielding, higher-rated debt
instruments. Investment in these securities involves special risk factors
outlined below under "Risk Factors -- High Yield Securities" and "Risk Factors
- -- Foreign Securities and Non-U.S. Dollar Denominated Securities."
While providing higher yields, high yield, high risk securities, whether rated
or unrated, may be subject to greater market fluctuations and risks of loss of
income and principal than lower yielding, higher-rated fixed income securities.
The Adviser will attempt to maximize income and reduce risk within the High
Yield Sector through diversification of the High Yield Sector's investment in
securities and by credit analysis of each issuer, as well as by monitoring broad
economic trends and corporate developments. The Fund will not necessarily invest
in the highest yielding securities available if, in the Adviser's view the
differences in yield are not sufficient to justify the accompanying higher
risks, and may invest in securities rated investment grade at the time of
purchase.
Included in the group of high yield, high risk securities in which the Fund
may invest are preferred stocks having priorities over other classes of stock as
to distributions of assets or payment of dividends. Some high yield, high risk
securities are convertible into or exchangeable for equity securities or carry
the right, in the form of a warrant or as part of a unit with the security, to
acquire equity securities. The Fund intends under normal market conditions to
purchase such high yield securities for their yield characteristics rather than
for the purpose of exercising the associated rights to obtain equity securities.
If, however, the Fund obtains equity securities through conversion, the exercise
or detachment of warrants or the break up of units, the Fund may hold such
equity securities for a period of time in the interest of the orderly
disposition of portfolio assets or to establish long-term holding periods for
tax purposes.
The High Yield Sector may also invest in participations in (i) interests in
entities organized and operated for the purpose of restructuring the investment
characteristics of instruments issued or guaranteed by foreign governments
("Sovereign Debt Obligations"), and (ii) loans between foreign governments and
financial institutions. In selecting and allocating assets among the countries
in which the Fund will invest, the Adviser will develop a long-term view of
those countries and will engage in an analysis of sovereign risk by focusing on
factors such as a country's public finances, monetary policy, external accounts,
financial markets, stability of exchange rate policy and labor conditions.
SOVEREIGN DEBT OBLIGATIONS -- GENERAL. Sovereign Debt Obligations held by the
Strategic Income Fund will take the form of bonds, notes, bills, debentures,
warrants, short-term paper, loan participations, loan assignments and interests
issued by entities organized and operated for the purpose of restructuring the
investment characteristics of instruments issued or guaranteed by foreign
governments. Sovereign Debt Obligations held by the Strategic Income Fund
generally will not be traded on securities exchanges.
The Strategic Income Fund may invest in the Sovereign Debt Obligations of
countries that are considered emerging market countries at the time of purchase.
As used in this Prospectus, an "emerging market country" is any country that is
considered to be an emerging or developing country by the International Bank for
Reconstruction and Development (the World Bank). The Strategic Income Fund is
not required to invest any specified minimum amount of its total assets in
Sovereign Debt Obligations of issuers located in any particular country.
SOVEREIGN DEBT OBLIGATIONS -- "BRADY BONDS." The Strategic Income Fund may
invest in certain Sovereign Debt Obligations customarily referred to as "Brady
Bonds," which are created through the exchange of existing commercial bank loans
to foreign entities for new obligations in connection with debt restructuring.
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are dollar denominated) and they are actively
traded in the over-the-counter secondary market.
20
<PAGE>
Dollar-denominated, collateralized Brady Bonds which may be fixed rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero coupon obligations which have
the same maturity as the Brady Bonds. Interest payments on these Brady Bonds
generally are collateralized by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "Residual Risk"). In the event of
a default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds had there
been no default. In view of the residual risk of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by the
public and private entities of countries issuing Brady Bonds, investments in
Brady Bonds should be viewed as speculative.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The High Yield Sector of the Strategic
Income Fund may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between an issuer of Sovereign Debt Obligations and
one or more financial institutions ("Lenders"). The Strategic Income Fund
investments in Loans are expected in most instances to be in the form of
participations in Loans ("Participations") and assignment of all or a portion of
Loans ("Assignments") from third parties. The Strategic Income Fund may invest
up to 15% of its net assets in Participations, Assignments and other illiquid
investments. Both the government that is the borrower on the Loan and the bank
selling the Participation or Assignment will be considered by the Strategic
Income Fund to be the issuer of a Participation or Assignment. The Strategic
Income Fund will acquire Participations only if the Lender interpositioned
between the Fund and the borrower is a Lender having total assets of more than
$25 billion and whose senior unsecured debt is rated Baa or higher by Moody's or
BBB or higher by S&P. For further information on Loan Participations and
Assignments see the Statement of Additional Information. The Strategic Income
Fund's investments in Loan Participations and Assignments are illiquid
securities subject to the limitations described under "General Investment
Strategies and Restrictions and Risk Considerations -- Illiquid Securities."
THE INTERNATIONAL SECTOR. In the International Sector, the Fund will invest
in debt obligations and other fixed income securities denominated in U.S.
dollars or in other currencies. Such securities include: (i) debt obligations
issued or guaranteed by foreign national, provincial, state, or other
governments with taxing authority, or by their agencies or instrumentalities;
and (ii) debt obligations of supranational entities (described below).
With respect to its investments in the International Sector, the Fund will,
under normal market conditions, purchase debt securities of issuers whose
long-term debt obligations are rated investment grade at the time of purchase
(I.E. rated Baa or better by Moody's or BBB or better by S&P or in unrated
securities that the Adviser determines to be of equivalent quality). However,
the Fund may make investments in international debt securities rated below
investment grade with respect to the High Yield Sector. The Fund will not be
subject to restrictions on the maturities of the securities it holds in the
International Sector.
The Fund has the flexibility to invest in any country where the Adviser
believes there is the potential for income. Accordingly, the Fund's assets
allocated to the International Sector may be invested in highly developed
countries such as those in Western Europe, Canada, Japan, Australia, and New
Zealand, as well as in the emerging markets of developing countries throughout
the world.
The obligations of foreign governmental entities include obligations issued or
guaranteed by national, provincial, state or other governments with taxing power
or by their agencies or instrumentalities. These obligations may or may not be
supported by the full faith and credit of a foreign government. Supranational
entities include international organizations designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies. Examples of
supranational entities include the World Bank, the Inter-American Development
Bank and the European Bank for Reconstruction and Development.
The Fund may enter into forward foreign currency exchange contracts and
foreign currency futures contracts in order to protect against uncertainty in
the level of future foreign exchange rates between a particular foreign currency
and the U.S. dollar or between foreign currencies in which the Fund's securities
are or may be denominated. A forward foreign currency exchange contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the
21
<PAGE>
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are entered into in the interbank market conducted directly
between currency traders (usually large commercial banks) and the Fund, which
bears the risk that the trader may default on the contract. The Fund may also
enter into foreign currency futures contracts, which are similar to forward
contracts but have standardized terms and are purchased and sold on established
securities or commodities exchanges (rather than privately between two parties).
Certain asset segregation requirements apply when the Fund becomes obligated
under a currency forward or futures contract. Although the Fund's transactions
in currency forward or futures contracts are intended to minimize the risk of
loss due to a decline in the value of the hedged currency, they may also tend to
limit any potential gain from increases in the value of the hedged currency. The
Fund may also purchase put or call options on foreign currencies, either on an
exchange or in a private transaction with another party such as a bank or
brokerage firm. Under options contracts, the Fund has the right (but not the
obligation) to purchase or sell a specified currency at a specified price within
a specified period (or on a particular date). All hedging transactions involve
costs and risks to the Fund. For more information about futures contracts and
options see "General Investment Strategies and Restrictions and Risk
Considerations -- Options and Futures Transactions and their Risks" below and
the Statement of Additional Information.
During the Fund's partial fiscal year (inception on 7/1/94 through 12/31/94),
the Fund experienced a relatively high portfolio turnover rate of 156.34% due to
a large relative increase in assets from inception to $25 million by year end.
It is not expected that the Fund will experience turnover rates in excess of
100% in the future under normal market conditions.
NORTHSTAR ADVANTAGE HIGH YIELD FUND. The primary investment objective of the
Fund is high current income; its secondary investment objective is capital
appreciation. Under normal circumstances, the Fund will be invested
substantially in long-term and intermediate-term fixed income securities, with
emphasis on higher yielding, higher risk, lower-rated or nonrated corporate debt
instruments. Under normal circumstances, at least 65% of the Fund's total assets
will be invested in high-risk, high-yield bonds. These "high yield" debt
instruments are rated below investment grade, typically are subject to greater
market fluctuations and may be less liquid and subject to greater risk of loss
of income and principal due to default by the issuer than are investments in
lower yielding, higher-rated debt instruments. Investment in these bonds
involves special risk factors outlined below under the heading "Risk Factors --
High Yield-High Risk Securities."
While providing higher yields, such securities, whether rated or unrated, may
be subject to greater market fluctuations and risks of loss of income and
principal than lower yielding, higher-rated fixed income securities. The Adviser
will attempt to maximize income and reduce risk through diversification of the
portfolio and by credit analysis of each issuer, as well as by monitoring broad
economic trends and corporate developments. In pursuing its secondary investment
objective of capital appreciation, the Fund may purchase high yield bonds that
are expected by the Adviser to increase in value due to improvements in their
credit quality, ratings or anticipated declines in interest rates. In addition,
the Fund may invest for this purpose up to 25% of its assets in common stocks or
other equity or equity-related securities, such as preferred stocks (which may
or may not have a dividend yield) or warrants. For purposes of this limitation,
bonds which are convertible into equity securities at a conversion price above
the fair market price of the equity security will not be deemed to be equity or
equity-related securities. Equity-type securities normally will be purchased as
part of a unit comprised of bonds and a specified number of shares or warrants
to purchase shares of the bond issuer, or when an opportunity for capital
appreciation is perceived due to anticipated improvement in the issuer's credit
quality or ratings. The Fund also may purchase or hold warrants or rights,
subject to certain limitations set forth in the Statement of Additional
Information. Rights and warrants may exhibit more volatility than the underlying
security and are subject to the risk that they will expire worthless.
Since high current income is its primary investment objective, the Fund may
forego opportunities that could result in capital gains. In pursuing its
objectives of high current income and, secondarily, of capital appreciation, the
Fund in certain circumstances may accept greater risks of loss of income and
principal when the Adviser judges that the additional expected rate of return
should equal or exceed any potential loss of principal or income.
In addition, the Fund may employ certain investment strategies and techniques
described below under the caption "General Investment Strategies and
Restrictions and Risk Considerations."
During 1993, the High Yield Fund experienced a relatively high portfolio
turnover rate of 176.40% due to changes in asset allocation between
non-convertible and convertible securities, as well as active participation by
the Fund in the market for newly issued securities. The turnover reflected
attempts primarily to improve the yield of the portfolio and secondarily to
position the Fund to achieve capital appreciation in the high yield and
convertible bond markets. In 1994, the portfolio turnover rate was 86.20%. It is
not expected that the Fund will experience turnover rates in excess of 100% in
the future under normal market conditions. High portfolio turnover involves
correspondingly greater transaction costs which are borne directly by the Fund
and may increase the recognition of short-term, rather than long-term capital
gains.
22
<PAGE>
NORTHSTAR ADVANTAGE INCOME FUND. The Fund's primary investment objective is
income. As a secondary objective, the Fund also seeks capital appreciation. The
Fund invests in debt securities (including bonds and notes), common and
preferred stocks of companies which are listed or traded on domestic securities
exchanges or in the over-the-counter market, and debt securities and preferred
stocks convertible into common stocks of those companies. Investments in debt
securities are made primarily in investment grade debt securities, which are
securities rated in the four highest rating categories by a nationally
recognized rating service. However, the Fund may invest up to 10% of its total
assets in debt securities which are rated lower than Baa by Moody's or BBB by
S&P, or are not rated, but normally will not invest in securities rated below B
by Moody's or S&P. These securities are considered speculative investments and
generally involve greater risk, including the risk of loss of income and
principal, than higher-rated securities. In addition, the yield and price of a
lower-rated security may tend to fluctuate more than the yield and price of a
higher-rated security. Investment in these securities involves special risk
factors outlined below under the heading "Risk Factors -- High Yield-High Risk
Securities." For a detailed description of the rating categories including their
speculative characteristics, see the Appendix to this Prospectus. The Fund may
also invest in guaranteed investment contracts ("GICs") which are issued by
insurance companies, or similar securities which are issued by banks, and under
which the Fund is guaranteed a minimum interest rate on deposits maintained with
the GIC issuer. Because of restrictions on resale, no more than 15% of the
Fund's net assets may be invested in GICs and all other illiquid securities at
any time.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in income producing securities. The remaining portion of the Fund's
investments may be made in the other types of investments described in this
section. The Fund expects to receive income principally from interest on debt
securities and dividends on common and preferred stocks. In addition, the Fund
may employ certain investment strategies and techniques described below under
the caption "General Investment Strategies and Restrictions and Risk
Considerations."
Securities of the sort owned by the Fund tend to fluctuate in market price
inversely with interest rates and trends, rising when interest rates decline and
declining when interest rates rise. Lower grade debt securities also fluctuate
with changes in the perceived quality of the credit of issuers. The Adviser
believes that over time a fund investing in both fixed income instruments and
equities should prove less volatile than a fund investing solely in equities.
NORTHSTAR ADVANTAGE GROWTH FUND. The Fund's primary investment objective is
long-term growth of capital. As a secondary objective, the Fund also seeks
income. At least 65% of the Fund's total assets will be invested in securities
purchased to seek to achieve growth of capital. The Fund invests principally in
common stocks of companies which are listed on the domestic securities exchanges
or are traded in the domestic over-the-counter markets but may, to a limited
extent, invest in securities traded in markets outside the United States. The
Fund may also invest in preferred stocks and convertible securities issued by
such companies which will be rated B or better by Moody's or S&P. The Fund
invests in industries and companies which, in the opinion of the Adviser, have
potential primarily for capital growth and secondarily for income. The Adviser
generally selects securities of companies with records of above-average earnings
growth or companies which, in its view, are substantially undervalued in
relation to assets. Although income is not a primary consideration, most of the
securities in the Fund's portfolio are income producing. In seeking income for
the Fund, the Adviser attempts to select securities which have potential for
long-term growth of dividend income.
Some of the equity securities in which the Fund invests may be speculative and
involve substantial risk, since they may experience significant price
fluctuations in both rising and declining markets. The Fund may invest up to 10%
of its total assets in debt securities which are rated Ba by Moody's or below,
BB by S&P or below, or are not rated. These debt securities (which will
generally be convertible) are considered speculative investments and generally
involve greater risk, including the risk of loss of income and principal, than
higher-rated securities. Investment in these debt securities involves special
risk factors outlined below under the heading "Risk Factors -- High Yield-High
Risk Securities."
In addition, the Fund may employ certain investment strategies and techniques
described below under the caption "General Investment Strategies and
Restrictions and Risk Considerations."
NORTHSTAR ADVANTAGE SPECIAL FUND. The Fund's investment objective is capital
appreciation. The Fund invests in a diversified portfolio of equity securities
selected on the basis of their potential for growth. The Fund does not seek
current income. The Fund invests in equity securities of companies which are
listed on the domestic securities exchanges or are traded in the over-the-
counter markets. The securities acquired by the Fund are primarily issues of
smaller, lesser-known companies which the Adviser believes possess above-average
potential for appreciation. These securities may be subject to greater price
volatility and risk than securities of more mature companies. Equity securities
in which the Fund may invest consist of common stocks, preferred stocks,
convertible securities, warrants and other stock purchase rights, equity
interests in trusts, limited partnerships and joint ventures and interests in
real estate investment trusts.
23
<PAGE>
Certain sectors of the economy may grow faster than the economy as a whole.
This may be the result of technological change, new or improved goods and
services, or other similar factors. In recent years, some of the industries
which have grown rapidly include electronics instrumentation, health care, data
processing and communications. While the Fund does not limit itself to small
companies, many of its investments are in small, emerging growth companies.
Small companies are those, for example, with annual revenues of less than $500
million. Emerging growth companies are those that, while still in the
developmental stage have demonstrated, or are expected to achieve, growth of
earnings over major business cycles.
Securities in which the Fund invests may be speculative and may involve
substantial risk. A risk of investing in small, emerging companies is that they
often have limited product lines, markets or financial resources, and their
securities may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or market averages in general.
The Fund may employ certain investment strategies and techniques described
below under the caption "General Investment Strategies and Restrictions and Risk
Considerations."
NORTHSTAR ADVANTAGE INCOME AND GROWTH FUND The investment objective of the
Fund is seeking current income balanced with the objective of achieving capital
appreciation. The investment objective of the Fund is a fundamental policy which
may not be changed without the approval of the holders of a majority of the
outstanding shares of the Fund. Under normal circumstances, the Fund will invest
at least 65% of its total assets in income-producing securities. To achieve its
objective, the Fund will invest in common and preferred stocks of domestic and
foreign issuers that have prospects for dividend income and growth of capital,
as well as selected fixed-income securities of domestic and foreign private and
government issuers. These securities would include U.S. Government securities
(see "Northstar Advantage Government Securities Fund" for a description of these
securities) foreign and domestic investment grade bonds, and bonds issued by
foreign governments considered stable by the Adviser and supported through the
authority to levy taxes by national state or provincial governments or similar
political subdivisions. The Fund may also purchase debt securities and preferred
stocks convertible into common stocks. See "Convertible Securities" below. The
proportion of holdings in common stocks, debt securities and preferred stocks
will vary in accordance with the level of return that can be obtained from these
various types of securities. In normal circumstances, the Fund seeks to earn an
annual return that equals or exceeds the annual dividend yield of the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500"). Securities are also
purchased on the basis of fundamental attraction regarding capital appreciation
prospects. In this way, income is "balanced" with capital. The Fund may purchase
common and preferred stocks that are listed on the New York Stock Exchange or
American Stock Exchange or that are traded on the over-the-counter market. The
common and preferred stocks purchased by the Fund will typically be of large
well-established companies but may include, to a limited extent, small
capitalization companies. Fixed income securities purchased by the Fund (other
than convertible securities) will only be securities rated investment grade
(I.E., in the top four rating categories of a nationally recognized statistical
rating organization ("NRSRO")) at the time of purchase. Securities that are in
the lowest investment grade debt category may have speculative characteristics
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than in the
case with higher grade securities. In the event that an existing holding is
downgraded to below investment grade, the Fund may nevertheless retain the
security. The Fund may invest directly or in the form of sponsored depository
receipts in the securities of issuers from various countries. It is anticipated
that its foreign investments will be primarily in securities of issuers from the
major industrialized nations. See "Risk Factors -- Foreign Securities and
Non-U.S. Dollar Denominated Securities."
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. Convertible securities purchased by the
Fund may be rated below investment grade by an NRSRO; however, the Fund will
limit investments in non-investment grade convertible securities to no more than
30% of the Fund's assets, determined at the time of purchase, and normally will
not invest in securities rated below B by S&P or Moody's. See "Risk Factors:
High Yield-High Risk Securities." A convertible security entitles the holder to
receive interest generally paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have several unique investment
characteristics such as (1) higher yields than common stocks, but lower yields
than comparable nonconvertible securities, (2) a lesser degree of fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (3) the potential for capital appreciation if the market price of the
underlying common stock increases. A convertible security might be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security held by the Fund is
called for redemption, the Fund may be required to permit the issuer to redeem
the security, convert it into the underlying common stock or sell it to a third
party.
24
<PAGE>
NORTHSTAR ADVANTAGE HIGH TOTAL RETURN FUND. The investment objective of the
Fund is to seek high income. The investment objective of the Fund is a
fundamental policy which may not be changed without shareholder approval. Under
normal market conditions, the Fund will seek to achieve its investment objective
by investing at least 65% of its total assets in higher-yielding, lower-rated
U.S. dollar-denominated debt securities, which may involve high risk and are
predominantly speculative in character. These securities are commonly known as
"junk bonds." Investments in lower-rated long-term debt obligations, including
securities rated from Ba to C in the case of Moody's and BB to D in the case of
S&P or equivalent ratings by other NRSROs, involve special risks as compared
with investments in higher-rated debt obligations, including potentially greater
sensitivity to federal economic downturns and significant increases in interest
rates, greater market price volatility and/or a less liquid secondary trading
market, among others. See "Risk Factors -- High Yield-High Risk Securities". The
net asset value per share of the Fund can be expected to increase or decrease
depending on real or perceived changes in the credit risks associated with its
portfolio investments, changes in interest rates and other factors affecting the
credit markets generally.
Most of the debt securities in which the Fund invests are rated, at the time
of investment, at least Caa by Moody's or at least CCC by S&P or equivalent
ratings by other NRSROs, or if not rated, are of equivalent quality in the
opinion of the Adviser. Such securities are regarded by Moody's as being of poor
standing and may be in default or there may be present, in Moody's view,
elements of danger with respect to payments of principal or interest. Debt rated
CCC by S&P is regarded by S&P, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the contract. The Fund will emphasize investments in securities rated B
by Moody's or S&P or which are not rated but which are of equivalent credit
quality in the opinion of the Adviser. Securities rated B by Moody's are viewed
by Moody's as generally lacking characteristics of the desirable investment and,
in Moody's view, assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small. While
such debt, in S&P's view, will likely have some quality and protective
characteristics, these are out-weighed by large uncertainties or major risk
exposures to adverse conditions.
Certain of the debt securities in which the Fund invests are rated, at the
time of investment, or may be downgraded while held by the Fund, to ratings
below Caa in the case of Moody's or CCC by S&P or equivalent ratings by other
NRSROs, or if not rated, their credit quality, in the opinion of the Adviser may
be, or may decline to, levels less than equivalent to such ratings. Such debt
securities are highly speculative and may be in default of payment of interest
and/or repayment of principal may be in arrears. The issuers of such debt
securities may be involved in bankruptcy or reorganization proceedings and/or
may be restructuring outstanding debt. Investing in bankrupt and troubled
companies involves special risks. The Fund will not invest more than 10% of the
Fund's assets in debt securities rated below Caa by Moody's or CCC by S&P or
equivalent ratings by other NRSROs or in unrated securities which are of
comparable quality in the opinion of the Adviser, determined at the time of
investment. The Fund is not required to dispose of debt securities whose credit
quality declines while held in the Fund's portfolio; however, no more than 25%
of the Fund's assets will be invested at any particular time in securities rated
less than Caa by Moody's or CCC by S&P or equivalent ratings by other NRSROs, or
be of less than comparable quality in the opinion of the Adviser. Moody's lowest
rating for bonds is C, which is applied to bonds which, in Moody's view, have
extremely poor prospects of ever attaining any real investment standing. S&P's
lowest ratings for bonds are CI, which is reserved for income bonds on which no
interest is being paid and D, which is for debt in default and in respect of
which payment of interest and/or repayment of principal is in arrears. Other
than as set forth above, there is no restriction on the percentage of the Fund's
assets which may be invested in securities of a particular rating. A complete
description of ratings is set forth in the Appendix to this prospectus. See
"Risk Factors".
Rated securities (excluding short-term investments) represented 79.65% of the
Fund's average total assets computed monthly during the year ended October 31,
1994. The following table sets forth the weighted average ratings of such debt
securities in its investment portfolio within the indicated rating categories of
Moody's and S&P, respectively, calculated as a percentage of total assets
computed monthly during the Fund's fiscal year ended October 31, 1994.
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BAA/BBB
- ----------- --------- --------- -----------
<S> <C> <C> <C>
.77% 0% 0% .59%
</TABLE>
<TABLE>
<CAPTION>
BA/BB B/B CAA/CCC
- --------- --------- -----------
<S> <C> <C>
9.45% 63.01% 5.83%
</TABLE>
Unrated debt securities (excluding short-term investments) represented 10.59%
of the Fund's average total assets computed monthly during the year ended
October 31, 1994.
25
<PAGE>
Such securities were deemed by the Adviser as of that date to be of equivalent
quality to securites rated in the rating categories set forth below (in each
case calculated as a percentage of average total assets computed monthly during
the year ended October 31, 1994.
<TABLE>
<CAPTION>
BA/BB CAA/CCC D
- --------- ----------- ---------
<S> <C> <C>
9.11% 1.38% .10%
</TABLE>
U.S. DEBT SECURITIES. Under normal market conditions the Fund invests at
least 65% of its assets in fixed income securities, which include debt
securities denominated in U.S. dollars, that are issued by domestic corporations
in a variety of industries or are issued or guaranteed by the U.S. government or
one of its agencies or instrumentalities. These debt securities may have varying
maturities, may pay interest in cash or in additional securities, at fixed or
adjustable rates or may be zero-coupon securities and may be convertible into
common stock or other securities. The Adviser selects securities for the Fund's
portfolio by considering, among other factors, price and yield, interest
coverage and financial resources, the liquidity of the secondary trading market
in the security, factors relating to the issuer's industry in general and its
sensitivity to economic conditions, its operating history and quality of
management and regulatory matters.
FOREIGN DEBT SECURITIES. The Fund may invest up to 35% of its assets in debt
securities issued by non-U.S. corporations or issued or guaranteed as to
principal and interest by foreign national, provincial, state or other
governments with taxing authority or by their agencies or instrumentalities, and
supranational entities. Debt securities issued by some foreign governmental
entities may not be supported by the full faith and credit of the government.
The term "supranational entity" refers to those entities organized or supported
by foreign governments to promote economic reconstruction and development. In
making investments in foreign securities, the Fund will utilize the same rating
requirements as it uses with respect to U.S. debt securities.
PREFERRED STOCK, COMMON STOCK AND WARRANTS. The Fund may invest up to 10% of
its assets in preferred stock of domestic and foreign issuers. Preferred stock
has a preference in liquidation (and, generally dividends) over common stock but
is subordinated in liquidation to debt. As a general rule the market value of
preferred stocks with fixed dividend rates and no conversion rights varies
inversely with interest rates and perceived credit risk, with the price
determined by the dividend rate. Some preferred stocks are convertible into
other securities, for example common stock, at a fixed price and ratio or upon
the occurrence of certain events. The market price of convertible preferred
stocks generally reflects an element of conversion value. Because many preferred
stocks lack a fixed maturity date, these securities generally fluctuate
substantially in value when interest rates change; such fluctuations often
exceed those of long-term bonds of the same issuer. Some preferred stocks pay an
adjustable dividend that may be based on an index, formula, auction procedure or
other dividend rate reset mechanism. In the absence of credit deterioration,
adjustable rate preferred stocks tend to have more stable market values than
fixed rate preferred stocks.
All preferred stocks are also subject to the same types of credit risks of the
issuer as those described above for corporate bonds. In addition, because
preferred stock is junior to debt securities and other obligations of an issuer,
deterioration in the credit rating of the issuer will cause greater changes in
the value of a preferred stock than in a more senior debt security with similar
yield characteristics. Preferred stocks may be rated by S&P, Moody's, or another
NRSRO, although there is no minimum rating which a preferred stock must have
(and a preferred stock may not be rated) to be an eligible investment for the
Fund. The Adviser expects, however, that generally the preferred stocks in which
the Fund invests will be rated at least Caa by Moody's or CCC by S&P or an
equivalent rating by another NRSRO, or, if unrated, will be determined by the
Adviser to be of equivalent quality. Preferred stocks rated Caa by Moody's are
likely to be in arrears on dividend payments. Moody's rating does not purport to
indicate the future status of payment. Preferred stocks rated CCC by S&P are
regarded by S&P on balance as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations and represent the highest
degree of speculation among securities rated between BB and CCC. While such
issuers will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
The Fund may invest in securities convertible into High Yield Securities or
exchangeable for equity securities, or which carry the right -- in the form of a
warrant or as part of a unit with the security -- to acquire equity securities.
A Fund's investment in warrants (other than warrants acquired by a Fund as part
of a unit or attached to securities at the time of purchase), valued at the
lower of cost or market, may not exceed 5% of the value of the Fund's net
assets, of which not more than 2% may be invested in warrants not listed on a
recognized U.S. or foreign stock exchange. The Fund would ordinarily purchase
these securities for their yield characteristics rather than for the purpose of
exercising the associated rights to obtain equity securities. However, if the
Fund obtains equity securities, the Fund may hold these equity securities for
such period of time as the Adviser deems prudent.
26
<PAGE>
RISK FACTORS
- ----------------------------------------------------------------------
HIGH YIELD-HIGH RISK SECURITIES. A substantial portion of the total assets of
the High Yield Fund, the High Total Return Fund, and the Strategic Income Fund
will be invested in high yield, high risk bonds, up to 30% of the assets of the
Income and Growth Fund, and up to 10% of the assets of the Income Fund and the
Growth Fund may be invested in high yield, high risk securities. Each of High
Yield Fund's, High Total Return Fund's and Strategic Income Fund's investment in
such bonds (commonly known as "junk bonds") is subject to the risk factors
outlined below. To the extent that a portion of their portfolios may be
comprised of high yield securities, the Income Fund and the Growth Fund will
also be subject to these risk factors. In the case of the Income and Growth
Fund, such investments are limited to convertible securities rated below
investment grade. For further information on high yield-high risk securities,
see the Statement of Additional Information.
HIGH YIELD SECURITIES. High yield securities generally include those rated Ba
or below by Moody's or BB or below by S&P or which are not rated but considered
to be of equivalent quality by the Adviser. Securities rated Baa or below by
Moody's or BBB or below by S&P are considered speculative, and even securities
rated Baa/BBB by Moody's and S&P, respectively, which are considered investment
grade, possess some speculative characteristics. The High Yield Fund and the
Strategic Income Fund may invest without limitation in securities rated as low
as Ca by Moody's or CC by S&P (or in securities which are not rated but
considered by the Adviser to be of equivalent quality). Securities rated Ca or
CC are considered speculative to a high degree; they are often in default or
have other marked shortcomings. In addition, the High Yield Fund may invest up
to 1% of its total assets in, and the Strategic Income Fund may invest up to 10%
of its total assets allocated for investment in the High Yield Sector in,
securities rated (at the time of investment) C by Moody's or D by S&P (or in
securities which are not rated but considered by the Adviser to be of equivalent
quality). Securities rated C or D generally are in default or arrears and are
described as having extremely poor prospects of attaining any real investment
standing. Although C or D rated securities are generally in default or arrears,
the Adviser may attempt to add value by choosing C or D rated securities on
which it believes that payments will actually be made. If the Adviser is
correct, this will support a high rate of return. The High Total Return Fund may
invest up to 10%, and may hold up to 25% of its assets, in securities rated
below Caa by Moody's or CC by S&P. For a detailed description of the rating
categories, including their speculative characteristics, see the Appendix to
this Prospectus.
YOUTH AND GROWTH OF THE HIGH YIELD BOND MARKET. The high yield bond market is
relatively new and at times is subject to volatility and adverse changes in
liquidity of the market. An economic downturn or increase in interest rates in
the future may have a significant effect on the high yield bonds in a Fund's
portfolio and their markets, as well as on the ability of the bonds' issuers to
repay principal and interest. Issuers of high yield bonds may be of low
creditworthiness and the high yield bonds may be subordinated to the claims of
senior lenders. During periods of economic downturn or rising interest rates,
the issuers of high yield bonds may have greater potential for insolvency, and a
higher incidence of high yield bond defaults may be experienced.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The prices of high yield
bonds tend to be less sensitive to interest rate changes than higher-rated
investments, but are more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
which would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to obtain
additional financing. If the issuer of a high yield bond owned by a Fund
defaults, the Fund may incur additional expenses in seeking recovery. Periods of
economic change and uncertainty can be expected to result in increased
volatility of market prices of high yield bonds and Fund asset value. Yields on
high yield bonds will fluctuate over time. Furthermore, in the case of high
yield bonds structured as zero coupon or pay-in-kind securities, their market
prices are affected to a greater extent by interest rate changes and thereby
tend to be more volatile than market prices of securities which pay interest
periodically and in cash.
PAYMENT EXPECTATIONS. High yield bonds present risks based on payment
expectations. For example, high yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the affected Fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely, a
high yield bond's value will decrease in a rising interest rate market, as will
the value of the assets of the Fund holding that bond. If a Fund experiences
unexpected net redemptions, this may force it to sell its high yield bonds,
without regard to their investment merits, thereby decreasing the asset base
upon which the Fund's expenses can be spread and possibly reducing the Fund's
rate of return.
LIQUIDITY AND VALUATION. The secondary market for high yield-high risk bonds
may at times become less liquid or respond to adverse publicity or investor
perceptions making it more difficult for the Funds to accurately value high
yield bonds or dispose of them to meet the Fund's liquidity needs or in response
to a specific economic event such as a deterioration of the creditworthiness of
the
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<PAGE>
issuer. To the extent a Fund owns or may acquire illiquid or restricted high
yield bonds, these securities may involve special registration responsibilities,
liabilities, costs and liquidity difficulties, and judgment will play a greater
role in valuing these securities because there are less reliable, objective data
available.
TAXATION. Special tax considerations are associated with investing in high
yield bonds structured as zero coupon or pay-in-kind securities. A Fund will
report a portion of the excess of the face value of these securities over the
issue price as income each year even though it receives no cash interest until
the security's maturity or payment date. Further, the Fund must distribute
substantially all of its income to its shareholders to qualify for pass-through
treatment under federal tax law. Accordingly, such a Fund may have to dispose of
its portfolio securities under disadvantageous circumstances to generate cash,
or may have to leverage itself by borrowing cash, to satisfy distribution
requirements.
CREDIT RATINGS. Credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield bonds. Since credit rating
agencies may fail to timely change the credit ratings to reflect subsequent
events, the Adviser monitors the issuers of high yield bonds in a Fund's
portfolio to determine if the issuers will have sufficient cash flow and profits
to meet required principal and interest payments, and to attempt to assure the
bonds' liquidity so the Fund can meet redemption requests. To the extent that a
Fund invests in high yield bonds, the achievement of the Fund's investment
objective may be more dependent on the Fund's own credit analysis than is the
case with higher quality bonds. A Fund may retain a portfolio security whose
rating has been changed, subject to limitations set forth above.
Based upon the monthly weighted average ratings of all bonds held by the Funds
named below during 1994, the percentage of the total investments of the High
Yield Fund, the Income Fund and the Strategic Income Fund represented by bonds
rated by Moody's or by S&P, separated into each rating category, is as follows:
<TABLE>
<CAPTION>
RATING
- ------------------------------- STRATEGIC
MOODY'S OR S&P'S HIGH YIELD FUND INCOME FUND(1) INCOME FUND
- --------- --------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Aaa AAA 4.12% 9.76% 36.76%
Aa AA 0.00% 0.00% 0.00%
A A 0.00% 9.74% 4.27%
Baa BBB 2.11% 17.43% 0.00%
Ba BB 8.86% 4.62% 9.45%
B B 52.21% 1.38% 34.03%
Caa CCC 9.88% 0.00% 0.00%
Ca CC 0.00% 0.00% 0.00%
C C 0.00% 0.00% 0.00%
Not Rated Not rated 10.52%(2) 0.43%(3) 13.25(4)
</TABLE>
<TABLE>
<S> <C>
- -----------
(1) At December 31, 1994, the investment portfolio of the Income Fund, as a
percentage of net assets, consisted of: convertible preferred and preferred
stock -- 5.58%; common stock -- 35.20%; convertible bonds -- 5.97%;
non-convertible bonds -- 29.52%; Government obligations -- 10.59%; and
short-term investments -- 11.29%.
(2) Such not rated bonds are considered by the High Yield Fund to be comparable
to rated bonds as follows: B -- 5.24%; Caa -- 5.28%.
(3) Such not rated bonds are considered by the Income Fund to be comparable to
rated bonds as follows: B -- 0.43%.
(4) Such not rated bonds are considered by the Strategic Income Fund to be
comparable to rated bonds as follows: AAA -- 5.51%; BB -- 5.15%; B --
2.59%.
</TABLE>
SECURITIES OF BANKRUPT AND OTHER TROUBLED ISSUERS. Investments in
fixed-income securities of companies involved in bankruptcy or reorganization
proceedings and companies which are restructuring their debt pose all of the
risks described above with regard to investments in high yield-high risk
securities. While such investments may offer the potential for particularly high
returns, their risks are commensurably high and the Fund may lose all or
substantially all of its investment in any particular instance. In addition,
investments in securities of such companies are, in certain circumstances,
subject to certain liabilities which may exceed the cost of a Fund's original
investment. In addition, under certain circumstances, payments to a Fund may be
reclaimed if any such payment is later determined to have been a fraudulent
conveyance or a preferential payment.
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<PAGE>
FOREIGN SECURITIES AND NON-U.S. DOLLAR DENOMINATED SECURITIES. Investments in
non-U.S. securities involve special risks and considerations that are not
present when the Funds invest in domestic securities.
EXCHANGE RATES. Since the Funds, except the Government Securities Fund, may
purchase securities quoted or denominated in foreign currencies, changes in
foreign currency exchange rates may affect the U.S. dollar value of such Fund's
assets. Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities, and net investment income and gains, if any, to be distributed to
shareholders by the Funds. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. The Strategic Income Fund may seek to protect
itself against the adverse effects of currency exchange rate fluctuations, by
entering into currency forward, futures or options contracts. Hedging
transactions will not always be fully effective in protecting against adverse
exchange rate fluctuations. Furthermore, hedging transactions involve
transaction costs and the risk that the Fund will lose money, either because
exchange rates move in an unexpected direction or because another party to a
hedging contract defaults or for other reasons.
EXCHANGE CONTROLS. The values of foreign investments and the investment
income derived from them may also be affected (either favorably or unfavorably)
by exchange control regulations. Although the Funds will invest only in
securities quoted or denominated in foreign currencies that are fully
exchangeable into U.S. dollars without legal restriction at the time of
investment, there is no assurance that currency controls will not be imposed
after the time of investment. In addition, the values of foreign fixed-income
investments will fluctuate in response to changes in U.S. and foreign interest
rates.
LIMITATIONS OF FOREIGN MARKETS. There is often less information publicly
available about a foreign issuer than about a U.S. issuer, and foreign issuers
are not generally subject to accounting, auditing, and financial reporting
standards and practices comparable to those in the United States. The securities
of some foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions, custodial
expenses, and other fees are also generally higher than for securities traded in
the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delay in payment or delivery of securities or in
the recovery of a Fund's assets held abroad) and expenses not present in the
settlement of domestic investments. A delay in settlement could hinder the
ability of a Fund to take advantage of changing market conditions with a
possible adverse effect on net asset value. There may also be difficulties in
enforcing legal rights outside the United States.
FOREIGN LAWS, REGULATIONS AND ECONOMIES. There may be a possibility of
nationalization or expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial instability, and
diplomatic developments which could affect the value of a Fund's investments in
certain foreign countries. Legal remedies available to investors in certain
foreign countries may be more limited than those available with respect to
investments in the United States or in other foreign countries. The laws of some
foreign countries may limit a Fund's ability to invest in securities of certain
issuers located in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, inflation rate, capital reinvestment, resource
self-sufficiency and balance of payment positions.
FOREIGN TAX CONSIDERATIONS. Income received by a Fund from sources within
foreign countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by a Fund will reduce the
net income of the Fund available for distribution to shareholders. Special tax
considerations apply to foreign securities. See the Statement of Additional
Information.
EMERGING MARKETS. Risks may be intensified in the case of investments in
emerging markets or countries with limited or developing capital markets.
Security prices in emerging markets can be significantly more volatile than in
more developed nations, reflecting the greater uncertainties of investing in
less established markets and economies. In particular, countries with emerging
markets may have relatively unstable governments, present the risk of
nationalization of business, restrictions on foreign ownership, or prohibitions
on repatriation of assets, and may have less protection of property rights than
more developed countries. The economies of countries with emerging markets may
be predominantly based on only a few industries, may be highly vulnerable to
changes in local or global trade conditions and may suffer from extreme and
volatile debt or inflation rates. Local securities markets may trade a small
number of securities and may be unable to respond effectively to increases in
trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to more
abrupt or erratic price movements.
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<PAGE>
Debt obligations of developing countries may involve a high degree of risk and
may be in default or present the risk of default. Governmental entities
responsible for repayment of the debt may be unwilling to repay principal and
interest when due and may require renegotiation or rescheduling of debt
payments. In addition, prospects for repayment of principal and interest may
depend on political as well as economic factors.
GENERAL INVESTMENT STRATEGIES AND RESTRICTIONS
AND RISK CONSIDERATIONS
- ----------------------------------------------------------------------
In pursuit of the investment objectives and policies set forth above, each
Fund may invest in or employ one or more of the following investments or
strategies in order to enhance investment results:
OPTIONS AND FUTURES TRANSACTIONS AND THEIR RISKS. The Adviser may at times
seek to hedge against either a decline in the value of securities included in a
Fund's portfolio or an increase in the price of securities which it plans to
purchase for the Fund through the writing and purchase of options and the
purchase and sale of financial futures contracts and related options, including
options and futures on stock indices. In addition, a Fund may seek to increase
the current return of its portfolio by writing covered call or secured put
options.
The Funds, other than the Government Securities Fund, generally expect that
their options and futures transactions will be conducted on securities
exchanges. In certain instances, however, a Fund may purchase and sell options
in the over-the-counter market. Generally, options transactions by the
Government Securities Fund will be in the over-the-counter market.
The Funds may buy and sell futures contracts on securities (including U.S.
Government Securities), foreign securities, securities indices and foreign
currencies for hedging purposes, all to the extent permitted by applicable law.
A futures contract is a contract to buy or sell a certain amount of a particular
U.S. Government Security, foreign fixed-income security or foreign currency at
an agreed price on a specified future date. Depending on the change in the value
of the security or currency when a Fund enters into and terminates a futures
contract, the Fund realizes a gain or loss. A Fund may purchase and sell futures
contracts on foreign securities as a substitute for direct investment in foreign
securities. A Fund may purchase and sell options on futures contracts in
addition to, or as an alternative to, purchasing and selling futures contracts
or, to the extent permitted by applicable law, to earn additional income. A Fund
may engage in options and futures transactions on securities exchanges and in
the over-the-counter market. The staff of the Commission considers
over-the-counter options and their underlying securities to be illiquid and
accordingly no more than 15% of a Fund's net assets may be subject to such
options or will be invested in other illiquid securities at any time. A Fund's
ability to terminate option positions established in the over-the-counter market
may be more limited than in the case of exchange-traded options and may also
involve the risk that securities dealers participating in such transactions
would fail to meet their obligations to the Fund. In the case of certain options
and futures transactions, a Fund may be required to maintain in a segregated
account at its custodian bank, cash or short-term U.S. Government Securities
with a value equal to or greater than the Fund's obligation under the option or
futures contract.
The use of options and futures strategies by a Fund involves certain risks,
including the risk that no liquid market will exist and that the Fund will be
unable to effect closing transactions at any particular time or at an acceptable
price and the risk of imperfect correlation between movements in options and
futures prices and movements in the price of securities which are the subject of
the hedge. The successful use of options the futures strategies depends on the
ability of the Adviser to forecast correctly rate movements and general stock
market price movements. Expenses and losses incurred as a result of these
hedging strategies will reduce the current return of the Fund.
A Fund may seek to increase its current return by writing covered call and put
options on U.S. Government Securities, foreign fixed income securities and
foreign currencies. The Fund receives a premium from writing a call or put
options, which increases the Fund's return if the option expires unexercised or
its closed out at a net profit. When a Fund writes a call option, it foregoes
the opportunity to profit from any increase in the price of a security or
currency above the exercise price of the option; when a Fund writes a put
option, the Fund takes the risk that it will be required to purchase a security
or currency from the option holder at a price above the current market price of
the security or currency. A Fund may terminate an option prior to its expiration
by entering into a closing purchase transaction in which it purchases an option
having the same term as the option written. A Fund may also buy and sell put and
call options for hedging purposes. A Fund may also from time to time buy and
sell combinations of put and call options on the same underlying security or
currency to earn additional income. A Fund's use of these strategies may be
limited by applicable law.
30
<PAGE>
The markets for options and futures on foreign fixed income securities and
foreign currencies are relatively new, in various stages of development and are
subject to certain regulatory constraints. Accordingly, a Fund's ability to
engage in such transactions may be limited. Certain provisions of the Internal
Revenue Code may also limit a Fund's ability to engage in options and futures
transactions.
REPURCHASE AGREEMENTS. A Fund may invest in repurchase agreements either for
temporary defensive purposes due to adverse market conditions or to generate
income from its cash balances. Repurchase agreements maturing more than seven
days in the future are considered illiquid, and a Fund will invest no more than
5% of its net assets in such repurchase agreements at any time. Repurchase
agreements acquired by a Fund will always be fully collateralized by money
market instruments (generally securities issued by the U.S. Government, bankers'
acceptances, or certificates of deposit) as to principal and interest and will
be entered into only with commercial banks, brokers and dealers considered by
the Adviser to be creditworthy under guidelines adopted by the Trustees of the
Fund. The Adviser will review and monitor the creditworthiness of such banks and
dealers. The use of repurchase agreements involves certain risks such as default
by, or insolvency of, the other party to the repurchase agreement. A Fund's
right to liquidate its collateral in the event of a default could involve
certain costs, losses or delays and, to the extent that proceeds from any sale
upon default of the obligation to repurchase are less than the repurchase price,
the Fund could suffer a loss.
LENDING PORTFOLIO SECURITIES. In order to obtain a return on its investments,
a Fund may lend portfolio securities to brokers, dealers and other financial
institutions in amounts up to one-third of the value of its total assets. Loans
of portfolio securities will always be fully collateralized and will be made
only to borrowers considered by the Adviser to be creditworthy under guidelines
adopted by the Trustees of the Fund. The Funds may invest cash collateral in
high yielding, short-term investments, including any combination of U.S
Government Securities, bank letters of credit, repurchase agreements or
investment grade commercial paper, rated in the top two ranking categories by a
nationally recognized statistical rating organization. Lending portfolio
securities involves the risk of delay in the recovery of the loaned securities
and in some cases the loss of rights in the collateral should the borrower fail
financially.
FORWARD COMMITMENTS. A Fund may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") if it holds, and maintains until the settlement date in a
segregated account at its custodian bank, cash or high grade debt obligations in
an amount sufficient to meet the purchase price, or if it enters into offsetting
contracts for the forward sale of other securities it owns. Forward commitments
may be considered securities in themselves and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the Fund's other
assets. While these securities may be sold prior to the settlement date, it is
intended that the Funds will take delivery of these securities unless a sale
appears desirable for investment reasons. Where such purchases are made through
dealers, the Fund relies on the dealer to consummate the sale. The dealer's
failure to do so may result in the loss to the Fund of an advantageous yield or
price. The Income and Growth Fund and High Total Return Fund may not invest more
than 25% of the Fund's net assets (determined at the time of investment) in such
securities.
FLOATING OR VARIABLE RATE INSTRUMENTS. Each Fund may invest in floating or
variable rate instruments, which provide for interest rate adjustments at
specified intervals. Rate adjustments on such securities are usually set at the
issuer's discretion, in which case the Fund would normally have the right to
resell the security to the issuer or its agent. Alternatively, rate revisions
may be determined in accordance with a prescribed formula or other contractual
procedure. A Fund may also acquire put options in combination with the purchase
of underlying securities or may separately acquire put options that relate to
securities held in the Fund's portfolio. Such put options would give the Fund
the right to require the issuer or some other person to purchase the underlying
security at an agreed upon price.
DISCOUNT OBLIGATIONS. A portion of a Fund's investments in debt securities
may be in (i) securities which were originally issued at a discount from their
face value and (ii) securities purchased by the Fund at a price less than their
stated face value amount. Under current federal tax law, a Fund will accrue as
current income each year a portion of the discount even though the Fund does not
receive during the year cash interest payments on the obligation corresponding
to the accrued discount. As an investment company, each Fund must pay out
substantially all of its net investment income each year. Accordingly, a Fund
may be required to pay out as income distribution each year an amount which is
greater than the total amount of cash interest the Fund actually received. Such
distributions will be made from the cash assets of a Fund or by liquidation of
its portfolio securities, if necessary.
DEFENSIVE STRATEGIES. When adverse market conditions warrant a temporary
defensive strategy, the Funds may invest in U.S. Government Securities and money
market instruments. Money market instruments include high grade commercial paper
(promissory notes issued by corporations to finance their short-term credit
needs), negotiable certificates of deposit, non-negotiable fixed time deposits
with maturities of less than seven days, bankers' acceptances and repurchase
agreements. Investments in commercial paper will be rated Prime-1 or Prime-2
(and with respect to the High Yield Fund, Prime-3) by Moody's or A-1 or A-2 (and
with respect
31
<PAGE>
to the High Yield Fund, A-3) by S&P or F-1 or F-2 (and with respect to the High
Yield Fund, F-3) by Fitch Investors Service, Inc. Investments in bank
instruments will be in instruments which are issued by U.S. banks having assets
at the time of investment of $1 billion or more and which generally mature in
one year or less from the date of acquisition.
In addition, the Strategic Income Fund may temporarily reduce or suspend its
option writing activities, shift its portfolio emphasis to higher-rated
securities in the High Yield Sector, hedge currency risks in the International
Sector, or generally reduce the average maturity of its holdings in any or all
three sectors.
FOREIGN INVESTMENTS. Each of the Growth, Special, Income, and High Yield
Funds may invest up to 20% of its net assets in securities of foreign issuers
and up to 10% of each Fund's net assets may be invested in securities of foreign
issuers that are not listed on a U.S. securities exchange. Such securities
include securities that are traded on a stock exchange or on an established
over-the-counter market outside the United States and privately placed
securities that are resold to U.S. institutional buyers. The Strategic Income
Fund may invest up to 80% of its net assets in securities of foreign issuers and
is not subject to any limit with respect to issuers not listed on a U.S.
Securities exchange. The Income and Growth Fund is not subject to any limit on
investments in foreign issuers; the High Total Return Fund may not invest more
than 35% of its assets in securities of foreign issuers. For a discussion of the
risks of investing in securities of foreign issuers, see "Risk Factors."
The Funds may invest in the securities of foreign issuers through the purchase
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs")
and International Depositary Receipts ("IDRs"). ADRs are U.S. dollar-denominated
certificates issued by U.S. banks or trust companies and represent the right to
receive securities of a foreign issuer deposited in a domestic bank or foreign
branch of a U.S. bank. EDRs and IDRs are receipts issued in Europe, generally by
non-U.S. banks or trust companies, that evidence ownership of non-U.S.
securities. ADRs are traded on domestic exchanges or in the U.S.
over-the-counter market and, generally, are in bearer form. Investments in ADRs
have certain advantages over direct investment in the underlying non-U.S.
securities, because (i) ADRs are U.S. dollar-denominated investments which are
registered domestically, easily transferable, and for which market quotations
are readily available, and (ii) issuers whose securities are represented by ADRs
are generally subject to the same auditing, accounting and financial reporting
standards as domestic issuers. There may be less information concerning foreign
issuers whose securities are represented by ADRs that are sponsored by U.S.
banks or trust companies rather than by the issuers themselves. For a discussion
of the risks of investing in securities of foreign issuers, see "Risk Factors."
ZERO-COUPON TREASURY SECURITIES. The High Yield Fund, the Income Fund, the
Growth Fund and the Special Fund may each invest up to 5% of their total assets
in "zero coupon" Treasury securities which consist of stripped interest or
principal components of U.S. Treasury bonds or notes ("STRIPs"). STRIPs involve
the separation of the corpus (face amount) of the bond or note from the coupon
(interest portion). The U.S. Treasury redeems the bond or note corpus (zero
coupon bond or note) for the face value thereof at maturity and redeems the
stripped coupon (interest portion) beginning at the date specified thereon. Zero
coupon Treasury securities pay no interest to holders during their life and
usually trade at a deep discount from their face or par value. They are subject
to greater fluctuations of market value in response to changing interest rates
than debt obligations of comparable maturities which make periodic distributions
of interest. On the other hand, zero coupon securities eliminate reinvestment
risk and lock in a rate of return to maturity. The Government Securities Fund
and the Strategic Income Fund are not subject to the foregoing limitation on
investments in zero coupon Treasury securities. Stripped interests in U.S.
Treasury securities that are not issued through the U.S. Treasury's STRIPs
program are not considered to be U.S. Government Securities.
Under current federal tax law, a Fund will receive net investment income in
the form of interest by virtue of holding Treasury bills, notes and bonds, and
will recognize interest attributable to it from holding zero coupon Treasury
securities. Current federal tax law requires that a holder of a zero coupon
security accrue a portion of the discount at which the security was issued as
income each year even though the Fund receives no interest payment in cash on
the security during the year. As an investment company, each Fund must pay out
substantially all of its net investment income each year. Accordingly, a Fund
may be required to pay out as an income distribution each year an amount which
is greater than the total amount of cash interest the Fund actually received.
Such distributions will be made from the cash assets of the Fund or by
liquidation of portfolio securities, if necessary.
ZERO COUPON, STEP COUPON AND PIK BONDS. Each of the High Total Return Fund
and Income and Growth Fund may invest its assets in any combination of zero
coupon bonds, step coupon bonds and bonds on which interest is payable in kind
("PIK bonds"). A zero coupon bond is a bond that does not pay interest currently
for its entire life. Step coupon bonds frequently do not entitle the holder to
any periodic payments of interest for some initial period after the issuance of
the obligation; thereafter, step coupon bonds pay interest for fixed periods of
time at particular interest rates (a "step coupon bond"). In the case of a zero
coupon bond, the nonpayment of interest on a current basis may result from the
bond having no stated interest rate, in which case the bond pays only principal
at maturity and is initially issued at a discount from the face value.
Alternatively, a zero coupon obligation may provide for a
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<PAGE>
stated rate of interest, but provide that such interest is not payable until
maturity, in which case the bond may initially be issued at par. The value to
the investor of a zero coupon or step coupon bond is represented by the economic
accretion either of the difference between the purchase price and the nominal
principal amount (if no interest is stated to accrue) or of accrued, unpaid
interest during the bond's life or payment deferral period. PIK bonds are
obligations which provide that the issuer thereof may, at its option, pay
interest on such bonds in cash or in the form of additional debt securities.
Such securities benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are
willing to defer receipt of such cash. The Funds generally will accrue income on
such investments for tax and accounting purposes, which is distributable to
shareholders from available cash or liquidated assets. See "Dividends,
Distributions and Taxes." The market prices of zero coupon, step coupon and PIK
bonds are more volatile than the market prices of securities that pay interest
periodically in cash, and are likely to respond to changes in interest rates to
a greater degree than do bonds that have similar maturities and credit quality
on which regular cash payments of interest are being made.
PRIVATE PLACEMENT AND RULE 144A SECURITIES. The Funds may purchase securities
which have been privately issued and are subject to legal restriction on resale
or which are issued to qualified institutional investors under special rules
adopted by the Securities and Exchange Commission (the "SEC"). Such securities
may offer higher yields than comparable publicly traded securities but may have
the effect of increasing the Funds' illiquidity. Such securities ordinarily can
be sold by the Fund in secondary market transactions to certain qualified
investors pursuant to rules established by the SEC, in privately negotiated
transactions to a limited number of purchasers or in a public offering made
pursuant to an effective registration statement under the Securities Act of 1933
(the "1933 Act"). Private sales often require negotiation with one or more
purchasers and may produce less favorable prices than the sale of similar
unrestricted securities. Public sales generally involve the time and expense of
the preparation and processing of a registration statement under the 1933 Act
(and the possible decline in value of the securities during such period) and may
involve the payment of underwriting commissions. In some instances, the Funds
may have to bear certain costs of registration in order to sell such shares
publicly. Except in the case of securities determined to be liquid under special
rules adopted by the SEC as described below, these securities will be considered
illiquid. Each Fund may invest up to 15% of its net assets in illiquid
securities. The Funds' Adviser may determine that a particular Rule 144A
security is liquid and thus not subject to the Funds' limits on investment in
illiquid securities pursuant to guidelines adopted by the Board of Trustees.
Factors that must be considered in determining whether a particular Rule 144A
security is liquid include frequency of trading of the security, the size of the
issue, whether the security is underwritten by a major national underwriting
firm, the size and quality of the issuing corporation, and other factors deemed
relevant by the Adviser.
OTHER INVESTMENT TECHNIQUES. Each Fund may engage in a variety of other
investment techniques which are described in the Statement of Additional
Information. The Funds' Adviser currently does not intend to employ any of these
investment techniques. Should the Adviser determine to employ any such
technique, it would be in a manner such that no more than 5% of a Fund's net
assets would be placed at risk with respect to any particular technique.
INVESTMENT RESTRICTIONS. For information on certain fundamental and
nonfundamental investment restrictions applicable to each Fund, see "Investment
Restrictions" in the Statement of Additional Information.
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PERFORMANCE INFORMATION
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The Funds may, from time to time, include their yield and total returns in
advertisements or reports to shareholders or prospective investors. Both yield
and total return figures are computed separately for each class of shares of
each Fund in accordance with formulas specified by the Commission. Both yield
and total return figures are based on historical earnings and are not intended
to indicate future performance. The yield for each class of a Fund will be
computed by dividing (a) net investment income over a 30-day period by (b) an
average value of invested assets (using the average number of shares entitled to
receive dividends and the maximum offering price per share or the maximum
redemption price per share) at the end of the period, as appropriate, all in
accordance with applicable regulatory requirements. Such amounts will be
compounded for six months and then annualized for a twelve-month period to
derive the yield of each class.
Standardized quotations of average annual total return for each class of
shares will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the class of shares over a period of 1, 5
and 10 years (or up to the life of the class of shares). Standardized total
return quotations reflect the deduction of a proportional share of expenses (on
an annual basis) of a class, deduction of the maximum initial sales load or the
maximum CDSC applicable to a complete redemption of the investment, as
appropriate, and assume that all dividends and distributions are reinvested when
paid. The Funds also may quote a supplementary rate of total return over
different periods of time or by non-standardized means. In addition, the Funds
may from time to time publish materials citing historical volatility for shares
of each Fund. Volatility is the standard deviation of day to day logarithmic
price changes expressed as an annualized percentage.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Composite Stock Index
("S&P 500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices
so that investors may compare a Fund's results with those of a group of
unmanaged securities 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 which
ranks mutual funds by overall performance, investment objective, and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds by 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 performance rates such as
Solomon Brothers, Federal Reserve Bulletin, American Banker 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 information for each Fund reflects only the performance of a
hypothetical investment in each class of shares of that Fund during the
particular time period on which the calculations are based. Performance
information should be considered in light of each Fund's investment objective
and policies, characteristics and qualities of the portfolio, and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future. Performance for Class B
and Class C shares typically will be less favorable than that for Class A and
Class T shares, due to the higher expense ratios for Class B and Class C shares.
Performance for Class T shares will be less favorable than Class A shares due to
higher distribution and service fees. For a description of the methods used to
determine total return for the Funds, see the Statement of Additional
Information.
PORTFOLIO TURNOVER
- ----------------------------------------------------------------------
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 mark-ups or brokerage
or underwriting commissions and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
Portfolio turnover rate for a fiscal year is the percentage determined by
dividing the lesser of the cost of purchases or proceeds from sales of portfolio
securities by the average of the value of portfolio securities during such year,
all excluding securities whose maturities at acquisition were one year or less.
Each Fund cannot accurately predict its portfolio turnover rate, but the Adviser
anticipates that each Fund's rate will not exceed 100% under normal market
conditions. 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. A high turnover rate would increase commission expenses and
may involve realization of gains that would be taxable to shareholders. The
ability of a Fund to make purchases and sales of securities and to engage in
options
34
<PAGE>
and futures transactions will be limited by certain requirements of the Internal
Revenue Code, including a requirement that less than 30% of the Fund's annual
gross income be derived from gains on the sale of securities and certain other
assets held for less than three months. See "Dividends, Distributions and
Taxes."
HOW NET ASSET VALUE IS DETERMINED
- ----------------------------------------------------------------------
The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m. EST) on each business day that the Exchange
is open. Net asset value per share is computed by determining the value of a
Fund's assets (securities held plus cash and other assets, including dividends
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 shares because of the higher distribution fees or
other class specific expenses borne by each of the Class B, Class C and Class T
shares. However, the net asset value per share of each class will tend to
converge immediately after the payment of dividends.
On a daily basis, under normal market conditions, prices for securities are
obtained from independent pricing services determined as set forth in the
Registration Statement for each Fund. For each Fund in the Northstar Advantage
Trust, equity securities are valued at the last sale price on the exchange or in
the principal over-the-counter 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 Advantage Special,
Growth, Income, High Yield, Strategic Income, and Government Securities Funds,
portfolio securities, options and futures contracts and options thereon which
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 which are traded in the over-the-counter 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 with an initial maturity or remaining maturity of 60
days or less may be valued at amortized cost, provided that it approximates
market value. Securities (including over-the-counter 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 which determine calculations for such securities using methods
based, among other things, upon market transactions for comparable securities
and various relationships between securities which are generally recognized as
relevant.
MANAGEMENT OF THE FUNDS
- ----------------------------------------------------------------------
THE TRUSTEES
The Trustees of each Fund ("Trustees") are responsible for the overall
supervision of the operations of such Fund and perform the various duties
imposed on trustees by the laws of the Commonwealth of Massachusetts and the
1940 Act. The Trustees elect the officers of each Fund annually.
- --------------------------------------------------------------------------------
THE ADVISER
Pursuant to an Investment Advisory Agreement with each Fund, Northstar
Investment Management Corporation acts as the investment adviser to each Fund.
In this capacity, the Adviser, subject to the authority of the Trustees, is
responsible for furnishing continuous investment supervision to the Funds and is
responsible for the management of the Funds' portfolios.
The Adviser is an indirect, majority owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar"). Combined minority interests held by members of senior
management currently equal 20%. ReliaStar is a publicly traded holding company
whose subsidiaries specialize
35
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in the life and health insurance businesses. Through Northwestern National Life
Insurance Company and other subsidiaries, ReliaStar issues and distributes
individual life insurance, annuities and mutual funds, group life and health
insurance and life and health reinsurance, and provides related investment
management services. The address of the Adviser is Two Pickwick Plaza,
Greenwich, CT 06830. The address of ReliaStar is 20 Washington Avenue South,
Minneapolis, Minnesota 55401. Prior to June 2, 1995, the Northstar Advantage
Special, Growth, Income, High Yield, Strategic Income and Government Securities
Funds were managed by Boston Security Counsellors, Inc. ("BSC").
The Adviser'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 0.75% on the first $250
million of each Fund's average daily net assets in the case of the Northstar
Advantage Income and Growth and High Total Return Funds, scaled down to 0.55%
for assets over $1 billion, and at the following rates for the other Northstar
Advantage Funds: Government Securities Fund -- 0.45%; High Yield Fund -- 0.45%;
Income Fund -- 0.65%; Growth Fund -- 0.75%; Special Fund -- 0.75%; Strategic
Income Fund -- 0.65% (each of which may be subject to voluntary waiver or
reimbursement by the Adviser and its affiliates). The investment advisory fees
paid by Income and Growth Fund, High Total Return Fund, Growth Fund and Special
Fund are higher than the fees paid by most mutual funds.
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PORTFOLIO MANAGEMENT
Margaret D. Patel is the portfolio manager of the Government Securities Fund
and the Income Fund. Ms. Patel is Vice President of the Funds and of the Adviser
and prior to June 2, 1995 was Senior Vice President of BSC. She has been
primarily responsible for the day-to-day management of the Government Securities
Fund since 1988, and recently became the manager of the Income Fund.
Prescott B. Crocker, C.F.A., is the portfolio manager of the High Yield Fund
and co-manager of the Strategic Income Fund. Mr. Crocker is Vice President of
the Funds, and of the Adviser and until June 2, 1995 was Senior Vice President
and Director of Fixed Income Investments at BSC. Prior to joining BSC in 1993,
Mr. Crocker served for eighteen years in various capacities, including Group
Head for corporate and international fixed income at Colonial Management
Associates, Inc. He has been primarily responsible for the day-to-day management
of the High Yield Fund since December 1993, and for the Strategic Income Fund
since its inception.
Thomas Ole Dial is the portfolio manager of the High Total Return Fund, and
co-manager of the Strategic Income Fund. Mr. Dial is a Vice President of each
Fund and Executive Vice President and Chief Investment Officer - Fixed Income of
the Adviser. Mr. Dial also serves as manager of the Northstar High Yield Bond
Fund and Northstar Multi-Sector Bond Fund, series of a separate open-end
management investment company sponsored by the Adviser. Prior to employment by
the Adviser, Mr. Dial served as Executive Vice President and Chief Investment
Officer - Fixed Income of National Securities & Research Corporation, and as
portfolio manager for National Bond Fund, National Asset Reserve, and National
Multi-Sector Fixed Income Fund. Prior to National, Mr. Dial managed high yield
securities portfolios through Dial Capital Management and Gibraltar Savings. Mr.
Dial also manages investments for T.D. Partners, for which the Adviser serves as
subadviser.
Ernest Mysogland is the portfolio manager for the Income and Growth Fund and
the Growth Fund. Mr. Mysogland is a Vice President of the Funds and since
October 1993 has served as Executive Vice President and Chief Investment Officer
- - Equities of the Adviser. Mr. Mysogland also serves as a manager of the
Northstar Income and Growth Fund and Northstar Growth Fund, series of a separate
open-end management investment company sponsored by the Adviser. Prior to
employment by the Adviser, Mr. Mysogland served as Senior Vice President and
Chief Investment Officer -- Equities for National Securities and Research
Corporation ("National"), and was portfolio manager for National Income and
Growth Fund, National Total Return Fund, and National Worldwide Opportunities
Fund. Prior to National, Mr. Mysogland served as an investment manager for
Reinoso Asset Management, Gintel Equity Management, L.F. Rothschild Asset
Management, Wertheim Asset Management and Kemper Financial Services. Mr.
Wadsworth is a Vice President, and serves as co-manager of, these Funds with Mr.
Mysogland. Mr Wadsworth was formerly a Vice President of National, serving as
portfolio manager of the National Stock Fund, and assistant manager of
National's other equity funds.
Robert L. Thomas is the portfolio manager of the Special Fund. Mr. Thomas is a
Vice President of the Fund and is President of the Adviser. Until June 2, 1995,
Mr. Thomas served as President and Chief Executive Officer of BSC and President
of the former Advest Advantage Funds. He has been primarily responsible for the
day-to-day management of the Special Fund since 1989.
36
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THE ADMINISTRATOR
Northstar Administrators Corporation ("Administrator") serves as administrator
for the Funds pursuant to an Administrative Services Agreement with the Funds.
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
the Funds' Adviser under the Investment Advisory Agreement, the custodian and
accounting services agent for the Funds under the Custodian Agreement and the
transfer agent and Blue Sky administrator under the Transfer Agency and
Shareholder Servicing Contract. The Administrator acts as liaison among these
service providers to the Funds. The Administrator prepares and files all
periodic reports required by law to be filed on behalf of the Funds, and is
responsible for ensuring that the Funds operate in compliance with applicable
legal requirements. The Administrator also monitors the Adviser for compliance
with requirements under applicable law and with the investment policies and
restrictions of the Funds.
The Administrator is an affiliate of the Adviser. The address of the
Administrator is Two Pickwick Plaza, Greenwich, CT 06830.
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 .10% of each
Fund's average daily net assets. In addition, the Administrator charges an
annual account service fee of $5.00 for each account of beneficial holders of
shares in a Fund for providing certain shareholder services and assisting
broker-dealers service their clients' Fund accounts. Until June 2, 1995 the
Administrator will receive no compensation from the Special, Growth, Income,
High Yield, Strategic Income and Government Securities Funds.
- --------------------------------------------------------------------------------
THE CUSTODIAN, FUND ACCOUNTING AGENT AND TRANSFER AGENT
The custodian for the Income and Growth and High Total Return Funds is
Custodial Trust Company (the "Custodian"), a bank organized under the laws of
New Jersey, located at 101 Carnegie Center, Princeton, New Jersey 08540-6231.
The custodian and fund accounting services agent for the Special, Growth,
Income, High Yield, Strategic Income and Government Securities Funds is State
Street Bank and Trust Company (the "Custodian"), located at 225 Franklin Street,
Boston, Massachusetts 02110. The transfer agent and Blue Sky administrator for
all Funds is The Shareholder Services Group, Inc. ("TSSG" or the "Transfer
Agent"), located at One Exchange Place, Boston, Massachusetts, 02109. Advest
Transfer Services, Inc., One Commercial Plaza, 280 Trumbull Street, Hartford,
Connecticut 06103, serves as the sub-transfer agent for those Funds offering
Class T shares.
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THE UNDERWRITER
Pursuant to Underwriting Agreements with each Fund, Northstar Distributors,
Inc. (the "Underwriter"), is the underwriter of each Fund's shares. The
Underwriter is an affiliate of the Adviser. The address of Northstar
Distributors, Inc. is Two Pickwick Plaza, Greenwich, Connecticut 06830. The
Underwriter 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 through investment dealers. Class T shares will be offered for
sale only to existing Class T shareholders or holders of interests in the Advest
Advantage Insured Account under certain limited circumstances. The Underwriter
purchases such copies of each Fund's prospectuses, reports and communications to
shareholders as it may require for sales purposes at printer's over-run costs.
At various times, the Underwriter implements programs under which (a) a
dealer's sales force may be eligible to win cash or material awards for certain
sales efforts or under which (b) the Underwriter will reallow an amount not
exceeding the total applicable sales charges on the sales generated by the
dealer during such programs to any dealer that (i) sponsors sales contests or
recognition programs conforming to criteria established by the Underwriter or
(ii) participates in sales programs sponsored by the Underwriter.
The Underwriter will also provide advisory services consisting of written
informational material to dealers with whom it has sales agreements, relating to
sales incentive campaigns conducted by such dealers for their representatives.
The Underwriter, at its expense, will from time to time provide additional
compensation to dealers in connection with sales of shares of each Fund.
Compensation may include financial assistance to dealers in connection with
shareholder services and shareholder account maintenance, conferences, sales or
training programs for their employees, seminars for the public, and/or
advertising campaigns regarding one or more of the Funds. In connection with its
sales and education programs, the Underwriter will pay in whole or in part for
travel expenses, including lodging, incurred in connection with attendance by
registered representatives to locations within or without the United States. In
most instances, compensation is made available only to dealers whose
representatives have sold or are expected to sell significant amounts
37
<PAGE>
of shares. 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.
Pursuant to a Purchase Agreement that was entered into in connection with the
assumption of management of the Funds by the Adviser, the Underwriter has agreed
to provide Advest, Inc. ("Advest") with certain additional compensation until
June 2, 1998. Any additional compensation is payable annually and is based upon
(a)(i) the level of sales by Advest of shares of the Funds and other
investment companies managed by the Adviser during such year and (ii) the rate
of redemption of Class T shares during such year and (b) the level of sales of
the Funds by persons other than Advest. Such compensation, which is paid out of
the assets of the Underwriter and not the Funds, is in addition to the
compensation otherwise payable to a dealer in connection with sale of the Funds'
shares.
HOW TO PURCHASE SHARES
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GENERAL INFORMATION
Each Fund currently offers or intends to offer three classes of shares on a
continuous basis by which shares may be purchased at a price equal to their net
asset value per share, plus a sales load which, at the election of the
purchaser, may be imposed at the time of purchase (or on purchases of over $1
million, as a contingent deferred sales charge) (the "Class A shares"), or which
may be imposed as a contingent deferred sales charge (the "Class B shares" and
"Class C shares"). The contingent deferred sales charge will be imposed on most
Class A share redemptions (where applicable) made within 18 months of purchase,
on most Class B share redemptions made within five years of purchase and on most
Class C share redemptions made within one year of purchase. Each class of shares
pays ongoing distribution and service fees at a combined annual rate (i) for
Class A shares, of up to 0.30% of the Fund's aggregate average daily net assets
attributable to the Class A shares, (ii) for Class B shares, of up to 1.00% of
the Fund's aggregate average daily net assets attributable to the Class B
shares, and (iii) for the Class C shares, of up to 1.00% of the Fund's aggregate
average daily net assets attributable to the Class C shares. These alternatives
permit an investor to choose the method of purchasing shares that the investor
prefers given the amount of the purchase, the length of time the investor
expects to hold the shares and other circumstances. The Funds intend to reject
purchase orders over $250,000 for Class B shares and recommend instead the
purchase of Class A shares.
Shares of each Fund, excluding Class T shares, may be purchased from
investment dealers having a sales agreement with the Underwriter. The minimum
initial purchase is $2,500, except in the case of IRA accounts, for which the
minimum is $250. The minimum may be lowered in the discretion of the Adviser in
the case of employee payroll deduction plans, organized group plans and other
benefit programs or arrangements offered by certain dealers, and in the
discretion of the Adviser, the minimum initial investment may be waived from
time to time. A shareholder may make additional investments at any time of $100
or more ($25 for IRA accounts) through an investment dealer or by sending a
check payable to The Northstar Advantage Funds, c/o The Shareholder Services
Group, P.O. Box 9756, Providence, RI 02940, for the purchase of full and
fractional shares. As a convenience to investors and to avoid unnecessary
expense to the Funds, share certificates of a Fund will not be issued except
upon written request to the Fund by the shareholder or his authorized dealer or
agent. This book-entry system facilitates later redemption and relieves
shareholders of the responsibility and inconvenience of preventing the
certificates from becoming lost or stolen. Shareholders requesting certificates
may incur a fee for lost or stolen certificates and no certificates are issued
for fractional shares (which shares remain in the shareholder's account in book
entry form). Shareholders with certificates may not participate in certain
shareholder services, such as telephone exchanges and redemptions, check-writing
and the withdrawal program. In addition, redemptions and exchanges by
shareholders holding certificates may take longer to effect than similar
transactions involving non-certificated shares, because physical delivery and
processing of properly executed certificates is required. ACCORDINGLY, IT IS
RECOMMENDED THAT SHAREHOLDERS DO NOT REQUEST ISSUANCE OF CERTIFICATES.
Management reserves the right to refuse to sell shares of the Funds to any
person. Sales personnel of broker-dealers distributing shares of the Funds may
receive differing compensation for selling different classes of shares. For more
detailed information on accounts and services, see "Investor Accounts and
Services Available."
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ALTERNATIVE SALES ARRANGEMENTS
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INTRODUCTION
The alternative purchase arrangement permits an investor to choose the method
of purchasing shares that the investor prefers given the amount of the purchase,
the length of time the investor expects to hold the shares, whether the investor
wishes to receive distributions in cash or to reinvest them in additional shares
of a Fund, and other circumstances. Investors should consider whether, during
the anticipated life of their investment in a Fund, the accumulated continuing
distribution and service fees on Class B and Class C shares, and the contingent
deferred sales charges for the first year on Class C shares, and on Class B
shares for five years after investment, would be less than the initial sales
charge and accumulated distribution and service fees on Class A shares purchased
at the same time, and to what extent such differential would be offset by the
higher yield of Class A shares. In this regard, Class A shares will be more
beneficial to the investor who qualifies for certain reduced initial sales
charges.
Class A shares are subject to a lower distribution fee and, accordingly, pay
correspondingly higher dividends per share. However, because initial sales
charges are deducted at the time of purchase for Class A shares, such investors
would not have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for substantially reduced
initial sales charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because the accumulated
continuing distribution charges on Class B and Class C shares may exceed the
initial sales charge on Class A shares during the life of the investment and
Class A shares offer the benefit of having a larger initial investment. Other
investors might determine that it would be more advantageous to purchase Class B
shares to have all their funds invested initially, although remaining subject to
higher continuing distribution charges and, for a five-year period, being
subject to a contingent deferred sales charge. Other investors who do not
qualify for reduced sales loads on Class A shares who wish to have all their
funds invested initially but who do not intend to remain invested for a
substantial number of years might benefit from investing in Class C shares. The
Funds intend to reject Class B share purchase orders over $250,000 and recommend
instead the purchase of Class A Shares.
Each Fund has received from the Internal Revenue Service (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 Internal Revenue Code, and (ii) that any
conversion feature associated with a class of shares does not constitute a
taxable event under federal income tax law.
Class T shares are no longer offered for sale by a Fund, except in connection
with reinvestment of dividends and other distributions, upon exchanges of Class
T shares of another Fund, upon exchange of shares from the Class T Account of
the Money Market Portfolio and, until November 30, 1995, upon purchase of Class
T shares with funds withdrawn from an Advantage Insured Account; provided that
such funds were in the account on June 2, 1995. When Class T shares are redeemed
within four years after their purchase, a contingent deferred sales load will be
imposed at rates declining from a maximum of 4% of the lesser of the net asset
value or total cost of shares redeemed within a year of purchase to 1% of such
amount for shares redeemed after three years. No contingent deferred sales
charge will be imposed on Class T shares redeemed after four years or acquired
through reinvestment of dividends and distributions, or on amounts derived from
increases in a Fund's net asset value per share. In determining whether a
contingent deferred sales charge will be payable and, if so, the percentage
charge applicable, shares acquired through reinvestment and then shares held the
longest will be considered the first to be redeemed. 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
lump-sum or other form of distribution following retirement, 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 Internal Revenue Code, or on any redemption
that results from a tax-free return of an excess contribution pursuant to
Section 408(d)(4) or (5) 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. Class T Shares
convert to Class A shares at the end of the month which is the later of (i)
eight years after the Class T Shares
39
<PAGE>
were purchased or (ii) May 31, 1998. The holding period for determining the
deferred sale load, if any, of Class T shares purchased with proceeds from
Advantage Insured Account shares includes any holding period applicable to the
withdrawal charge on such account.
For purposes of conversion to Class A shares, shares purchased through the
reinvestment of dividends and distributions paid in respect of Class B or Class
T shares in a shareholder's Fund account will be considered to be held in a
separate subaccount. Each time any Class B or Class T shares in the
shareholder's Fund account (other than those in the subaccount) convert to Class
A, an equal pro rata portion of the Class B or Class T shares in the subaccount
will also convert to Class A.
- --------------------------------------------------------------------------------
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The public offering price of Class A shares for purchasers choosing the
initial sales charge alternative is the net asset value plus a sales charge, as
set forth below. The offering price so determined becomes effective at the close
of the general trading session of the New York Stock Exchange. Orders received
by dealers prior to such time are confirmed at the offering price next
determined, provided the order is received by the Underwriter prior to its close
of business. The dealer is responsible for the timely transmission of orders to
the Underwriter. The Underwriter's commission is the sales charge shown below
less any applicable discount or commission "reallowed" to selected dealers and
agents. The Underwriter will reallow discounts to selected dealers and agents in
the amounts indicated in the table. In this regard, the Underwriter may elect to
reallow the entire sales charge to selected dealers and agents for all sales
with respect to which orders are placed with the Underwriter. A selected dealer
who receives a reallowance in excess of 90% of such a sales charge may be deemed
to be an "underwriter" under the Securities Act of 1933.
CLASS A SALES CHARGES
<TABLE>
<CAPTION>
CONCESSION TO
% OF NET % OF DEALERS AS A %
AMOUNT OFFERING OF OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
- --------------------------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C>
Up to $99,999.................................................................... 4.99% 4.75% 4.00%
$100,000 to 249,999.............................................................. 3.90 3.75 3.10
250,000 to 499,999............................................................... 2.83 2.75 2.30
500,000 to 999,999............................................................... 2.04 2.00 1.70
*1,000,000 and above............................................................. -- -- --
</TABLE>
- --------------
* The Underwriter may pay investment dealers or financial service firms a
commission from its own resources of up to 1.00% of the amount invested for
amounts from $1,000,000 to $2,499,999, up to 0.50% on amounts of $2,500,000
to $4,999,999 and up to 0.25% on amounts of $5 million and above. Class A
shareholder accounts of brokers qualifying for the full commission are
subject to a 1% contingent deferred sales charge (scaled down to 0.50% for
amounts of $2.5 million or more, and 0.25% on amounts over $5 million) if the
account is redeemed within eighteen months after the date of purchase, for
the purpose of reimbursing the Underwriter for commissions paid to the
dealer.
PURCHASES AT NET ASSET VALUE
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) the Adviser 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 Internal Revenue Code or plans under Section
457 of the Internal Revenue Code, provided that such shares are purchased by an
employer sponsored plan with at least 100 eligible employees. There is also no
initial sales charge for "Purchasers" (defined below) if the initial amount
invested in the Fund(s) is at least $1,000,000 or the Purchaser signs a
$1,000,000 Letter of Intent, as hereinafter defined.
HOW TO OBTAIN REDUCED SALES CHARGES ON CLASS A SHARES
Investors choosing the initial sales charge 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
40
<PAGE>
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
pension, profit-sharing or other employee benefit trusts created pursuant to a
plan qualified under Section 401 of the Internal Revenue 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 below.
RIGHTS OF ACCUMULATION. A Purchaser may qualify for reduced initial sales
charges based upon the Purchaser's existing investment in shares of the Funds at
the time of purchase. The applicable sales charge is determined by aggregating
the dollar amount of the new purchase and the greater of the Purchaser's total
(i) net asset value or (ii) cost of all shares owned in the Funds sold subject
to a front-end sales charge and/or designated as "Class A" shares then held by
such Purchaser, and applying the sales charge applicable to such aggregate.
In order to obtain this discount, the Underwriter (if a purchase is made
through an investment dealer) or Transfer Agent (if made by mail) must be
provided with sufficient information, including the Purchaser's total cost at
the time of purchase, to permit verification that the Purchaser qualifies for a
cumulative quantity discount, and confirmation of the order is subject to such
verification. The privilege of cumulative quantity discounts may be modified or
discontinued at any time.
LETTER OF INTENT. Purchasers may also qualify for reduced sales charges by
signing a Letter of Intent ("LOI"). This enables the Purchaser to aggregate
purchases over a 13-month period of all Funds sold subject to a front-end sales
charge and/or designated as "Class A" shares. The sales charge is based on the
total amount invested during the 13-month period. A 90-day back-dated period can
be used to include earlier purchases (with a partial retroactive downward
adjustment in an amount equal to the commission paid to the broker-dealer); the
13-month period would then begin on the date of the first purchase during the
90-day period. No retroactive adjustment will be made if purchases exceed the
amount indicted in the LOI. A shareholder must notify the Transfer Agent
whenever a purchase is being made pursuant to a LOI.
The LOI is not a binding obligation on the investor to purchase the full
amount indicated; however, on the initial purchase, if required (or on
subsequent purchases if necessary), 5% of the dollar amount specified in the
Statement will be held in escrow by the Transfer Agent in shares registered in
the shareholder's name in order to assure payment of the proper sales charge. If
total purchases pursuant to the LOI (less any dispositions and exclusive of any
distributions on such shares automatically reinvested) are less than the amount
specified, the investor will be requested to remit to the Underwriter an amount
equal to the difference between the sales charge paid and the sales charge
applicable to the aggregate purchases actually made. If not remitted within 20
days after written request, an appropriate number of escrowed shares will be
redeemed in order to realize the difference.
- --------------------------------------------------------------------------------
DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES
Investors choosing the deferred sales charge alternative purchase Class B
shares at net asset value per share without the imposition of a sales charge at
the time of purchase. Class B shares are sold without an initial sales charge so
that the full amount of the investor's purchase payment will be invested.
However, investors who redeem their shares within five years of the date of
purchase will be subject to the contingent deferred sales charge described
below.
Proceeds from the contingent deferred sales charge are paid as compensation
to, and are used in whole or in part by, the Underwriter to defray its expenses
related to providing distribution related services to the Fund in connection
with the sale of the Class B shares, such as the payment of compensation to
selected dealers and agents. The combination of the contingent deferred sales
charge and the distribution fee facilitates the ability of the Fund to sell the
Class B shares without a sales charge being deducted at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are redeemed within
five years of purchase will be subject to a contingent deferred sales charge at
the rate set forth below charged as a percentage of the dollar amount subject
thereto. The charge will be assessed on an amount equal to the lesser of the
current market value or the cost of the shares being redeemed. Accordingly, no
sales charge will be imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares derived from
investment of dividends or capital gains distributions.
41
<PAGE>
The Underwriter intends to pay investment dealers a sales commission of 4% of
the sale price of Class B shares sold by such dealers, subject to future
amendment or termination. The Underwriter will retain all or a portion of the
continuing distribution fee assessed to Class B shareholders and will receive
the entire amount of the contingent deferred sales charge paid by shareholders
on the redemption of shares to finance the payment of such sales commission,
plus financing costs and related marketing expenses.
The amount of the contingent deferred sales charge, if any, will vary
depending on the number of years from the time of payment for the purchase of
Class B shares until the time of redemption of such shares. Solely for purposes
of determining the number of years from the time of any payment for the
purchases of shares, all payments during a month will be aggregated and deemed
to have been made on the last day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- -------------------------------------------------------------------------------------- -------------------------------
<S> <C>
First................................................................................. 5%
Second................................................................................ 4%
Third................................................................................. 3%
Fourth................................................................................ 2%
Fifth................................................................................. 2%
Thereafter............................................................................ 0%
</TABLE>
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation will be determined in the manner that results in the
lowest possible rate being charged. Therefore, it will be assumed that the
redemption is first of any Class A shares, Class T shares held for more than
four years in the shareholder's Fund account or Class C shares held for over one
year, second of Class B shares held for over five years or shares acquired
pursuant to reinvestment of dividends or distributions, and third of shares held
longest during the five-year period, unless the shareholder directs otherwise.
The charge will not be applied to dollar amounts representing an increase in the
net asset value since the time of purchase.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If, at such time the investor
makes his first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 4% (the
applicable rate in the second year after purchase).
The contingent deferred sales charge is waived on redemptions of shares (a)
following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code, of a shareholder if redemption is made within one year of
the death or disability of the shareholder, as relevant; (b) in connection with
redemptions of shares made pursuant to a shareholder's participation in any
systematic withdrawal plan adopted by the Funds provided, however, that such
withdrawals shall not exceed in any calendar year 7% (9% in the case of the High
Total Return Fund and the High Yield Fund) of the original principal amount
invested (any excess being assessed the applicable deferred sales charge, if
any), and provided further that the redeeming shareholder reinvests all
dividends and capital gain distributions during his/her participation in the
withdrawal plan; (c) in connection with a partial or complete redemption in
connection with distributions under Individual Retirement Accounts ("IRAs") or
other qualified retirement plans in connection with a lump-sum or other form of
distribution following retirement, 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 Internal Revenue Code, or on any redemption resulting from the tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; and (d) in connection with the exercise of certain exchange privileges
among Class B shares of the Funds, including shares of the Class B Account of
the Money Market Portfolio.
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.
- --------------------------------------------------------------------------------
LEVEL SALES CHARGE ALTERNATIVE -- CLASS C SHARES
Investors choosing Class C shares purchase shares at net asset value without
imposition of a sales charge at the time of purchase. Class C shares are sold
without an initial sales charge so that the Fund invested in will receive the
full amount of the investor's purchase payment. Investors who redeem their
shares within one year of the date of purchase will be subject to a contingent
deferred
42
<PAGE>
sales charge equal to 1% of the lesser of the market value of the investment or
the cost of the shares being redeemed. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase price nor on
shares derived from investment of dividends or capital gains distributions
during the first year of investment.
The Underwriter intends to pay investment dealers a sales commission of 1% of
the sale price of Class C shares sold by such dealers, subject to future
amendment or termination. The Underwriter will retain the distribution fee
assessed against Class C shareholders in the first year of investment, and the
entire amount of the contingent deferred sales charge paid by Class C
shareholders upon redemption in year one, in order to compensate the Underwriter
for providing distribution related services to the Funds in connection with the
sale of Class C shares, and will be used in whole or in part to reimburse the
Underwriter for the commissions (and any related financing costs) paid to
dealers at the time of purchase. The contingent deferred sales charge on Class C
shares will be waived under the same circumstances as those set forth above for
Class B shares; provided, however, that the waiver on exchanges is applicable
only on exchanges for the same class of shares of another Northstar Advantage
Fund. There is no conversion feature associated with Class C shares; therefore
Class C shareholders will be subject to the higher distribution fee associated
with such shares for the life of the shareholder's investment.
INVESTOR ACCOUNTS AND SERVICES AVAILABLE
- ----------------------------------------------------------------------
An account will be opened for each investor after an initial investment is
made. Class T shareholders wishing to add to their investment or to purchase
shares of another Fund must opt to purchase Class A, Class B or Class C shares
of the Fund, and the Transfer Agent will establish a new account for the
shareholder in another Class of a Fund selected by the shareholder. Shares
purchased will be held in the shareholder's account by the Transfer Agent which
may forward a statement each time there is a change in the number of shares in
the account. At any time, a shareholder may request that a certificate be
issued, subject to certain conditions, representing any number of full shares
held in the investor's account. Requests for assistance or additional
information should be directed to the Adviser at (800) 595-7827.
The Funds mail periodic reports to shareholders. Only one copy of most Fund
reports will be mailed to households for multiple accounts with the same surname
at the same household address. Please contact the Adviser to request additional
copies of shareholder reports.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS REINVESTMENT OPTIONS
Shareholders of Class A, Class B and Class C shares may direct that income
dividends and capital gain distributions be paid to them through any one of the
following options:
1. Income dividends and capital gain distributions both paid in additional
shares of the same class of a designated Fund at net asset value;
2. Income dividends paid in cash and capital gain distributions paid in
additional shares of the same class of a designated Fund at net asset value;
or
3. Income dividends and capital gain distributions both paid in cash.
43
<PAGE>
If a shareholder does not indicate which option is preferred upon the opening
of an account, both income dividends and capital gain distributions will be paid
in additional shares of the Fund from which the investor earned such
distributions. Class T shareholders may elect only to receive all distributions
in cash or to reinvest in additional shares, regardless of whether such
distribution is an income dividend or a capital gains distribution. In addition,
Class T shareholders opting to reinvest dividends and capital gains may only
invest such proceeds in the Fund making the distribution. Payment options may be
changed at any time by notifying the Adviser in writing. Any income dividends
that are reinvested and any capital gains distributed in shares are credited at
the ex-date's net asset value (without any sales charge) as of the close of
business on their payment dates.
If a shareholder selects either Option Number 2 or Option Number 3 above, 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.
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
Shareholders may elect to purchase shares (other than Class T shares) through
the establishment of an Automatic Investment Plan, in which case the minimum
investment in order to open an account is $25. An Automatic Investment
Authorization Form (available on request from the Adviser) provides for funds to
be automatically drawn on a shareholder's bank account and deposited in his or
her Fund account ($25 per month minimum). The shareholder's bank may charge a
nominal fee in connection with the establishment and use of automatic deposit
services. Automatic Investment Plans are not available with respect to Class T
shares.
- --------------------------------------------------------------------------------
WITHDRAWAL PROGRAM
A shareholder owning $5,000 or more worth of shares of a Fund in book-entry
form, as determined by the then current net asset value per share, may establish
a withdrawal program with the Fund and provide for the payment monthly or
quarterly of any requested dollar amount ($50 minimum per payment) from his
account to his order. Withdrawal programs are not available with respect to
Class T shares. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. The purchase of shares while
participating in a withdrawal program will ordinarily be disadvantageous to the
investor, since a sales charge will be paid by the investor on the purchase of
shares at the same time the shares are being redeemed in the case of Class A
shares. For this reason, shareholders may not maintain an Automatic Investment
Plan while participating in the withdrawal program. In the case of Class A,
Class B or Class C shares subject to a contingent deferred sales charge, unless
the investor qualifies for a waiver (described above), the investor may incur a
sales charge at the time of each withdrawal. A Fund may terminate an investor's
withdrawal program if the account value falls below $5,000 due to the transfer
or redemption of shares from the account. See the enclosed application form.
- --------------------------------------------------------------------------------
TAX-SHELTERED RETIREMENT PLANS
Shares of the Funds may be offered in connection with the following qualified
prototype retirement plans: IRA and Rollover IRA, SEP-IRA, Profit-Sharing and
Money Purchase Pension Plans which can be adopted by self-employed persons
("Keogh") and by corporations. Call or write Northstar for further information.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGES
Shareholders may exchange shares of a Fund for the same class of shares of
another Fund. Exchange requests in proper form will be honored prior to 4:00
p.m. Eastern time. Shareholders may also exchange their shares for shares of The
Cash Management Fund of Salomon Brothers Investment Series (an open-end
management investment company comprised of various portfolios, hereafter
referred to as "Money Market Portfolio," that is not one of the Funds, but is
available by purchase or exchange through the Underwriter). The following
conditions must be met for all exchanges among the Funds and the Money Market
Portfolio: (1) the shares that will be acquired in the exchange (the "Acquired
Shares") are available for sale in the shareholder's state of residence; (2) the
Acquired Shares will be registered to the same shareholder account as the shares
to be surrendered (the "Exchanged Shares"); (3) the Exchanged Shares must have
been held in the shareholder's account for at least 30 days prior to the
exchange;
44
<PAGE>
(4) 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 (5) a properly executed exchange request has been received by
the Transfer Agent.
Exchanges will be based upon each Fund's net asset value per share next
computed following receipt of a properly executed exchange request, without a
sales charge; provided, however, in the case of exchanges from the Money Market
Portfolio into Class A shares of a Fund, a sales charge will be imposed in
accordance with the sales charge table that is applicable to direct purchases of
the Acquired Shares. Such charge will not be imposed, however, if the Exchanged
Shares were acquired or deemed to be acquired in an exchange from Class A shares
of a Fund. Collection of the CDSC will be deferred on shares subject to a CDSC
that are exchanged for shares of the same class of another Fund, or converted to
shares of the Money Market Portfolio. Under these circumstances, the combined
holding period of shares in each Fund, or in a Fund and the Money Market
Portfolio, shall be used to determine the CDSC at the time of redemption, if
any.
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 the Adviser 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, the Adviser generally
restricts shareholders to a maximum of six exchanges out of a Fund each calendar
year. If a shareholder exceeds this limit, future exchange requests may be
denied.
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 and the Money Market Portfolio have
different investment objectives and policies. Shareholders should, therefore,
obtain and review the prospectus of the fund into which the exchange is to be
made before any exchange requests are made.
The exchange of shares from one Fund to another is treated as a sale of the
Exchanged Shares and a purchase of the Acquired Shares for Federal income tax
purposes. The shareholder may, therefore, realize a taxable gain or loss. ("See
Dividends, Distributions and Taxes" for information concerning the federal
income tax treatment of a disposition of shares.)
TELEPHONE EXCHANGES. Arrangements have been made for the acceptance of
instructions by telephone to exchange Class A, B or C shares held in book-entry
form if certain preauthorizations or indemnifications are accepted and are on
file. Telephone exchanges are not available with respect to Class T shares.
Neither the Adviser, the Underwriter nor the Funds will be liable for any loss,
damages, expense or cost arising out of any telephone exchange effected in
accordance with the Funds' telephone exchange procedures, upon instructions
believed to be genuine. Shareholders who elect the telephone exchange option
bear the risk of any loss, damages, expense or cost arising from their election
of the telephone exchange option, including risk of unauthorized use, provided
however, that the Funds shall employ reasonable procedures to confirm that all
telephone instructions are genuine. For this purpose, the Fund or its agent will
require all individuals delivering telephone instructions to provide specific
information to identify themselves as the account holder, such as the name in
which the account is registered, the account holder's social security number,
account number, and broker of record. In the absence of such procedures or
should the Fund or its agents for any reason fail to follow such procedures, the
Fund or its agents may be liable for losses due to unauthorized or fraudulent
telephone instructions. Further information and telephone exchange forms are
available from the Transfer Agent or Underwriter.
HOW TO REDEEM SHARES
- ----------------------------------------------------------------------
Shareholders have the right to have a Fund buy back shares at the net asset
value next determined after receipt of a redemption request and any other
required documentation in proper form. (See "How Net Asset Value Is
Determined.") In the case of Class B, Class C and Class T share redemptions and
in limited circumstances, Class A redemptions, investors will be subject to the
applicable deferred sales charge, if any, for such shares. (See "Alternative
Sales Arrangements" above.) The Transfer Agent requires a written request, with
the signature guaranteed by an eligible guarantor institution, as determined in
accordance with procedures established by the Transfer Agent. The Transfer Agent
may waive the signature guarantee requirement in the case of book-entry share
redemption requests of less than $50,000 if the proceeds are payable to the
account as registered and mailed to the address of record. Such requests must be
signed by each person in whose name the account is registered. In addition, a
shareholder may sell shares back to a Fund through dealers who are members of
the selling group. The redemption price in such case will be the price as of the
close of the
45
<PAGE>
New York Stock Exchange on that day, provided the order is received by the
dealer prior to the close of the Exchange and is transmitted to the Underwriter
prior to the close of its business. The dealer is responsible for the timely
transmission of orders to the Underwriter. No service charge is made by a Fund
on redemptions, but shares tendered through investment dealers may be subject to
a service charge by such dealers. Payment for shares redeemed is made within
three days. Redemptions may not be effected until the check used for the
purchase has been cleared for payment by the investor's bank, which may take up
to 15 days after receipt of the check; however, redemption proceeds will be
forwarded promptly upon clearance.
In certain circumstances, such as for redemptions by corporations,
partnerships or other organizations, executors, administrators, trustees,
custodians, guardians, or from IRA's or other retirement plans, the Transfer
Agent may request additional documentation which it believes necessary to ensure
proper authorization. In the case of corporations and other associations, the
Transfer Agent will require a stock power or letter of instruction signed
descriptively by an authorized officer with the signature guaranteed, together
with a copy of the authorizing corporate resolution, certified by an officer
other than the officer who signed the stock power form or letter of instruction.
In the case of partnerships, the stock power or letter of instruction must be
signed descriptively by a general partner. Additional documentation including,
but not limited to, trust instruments, death certificates, or evidence of
appointment of executor or administrator may be required in certain
circumstances.
To avoid delay in redemption or transfer, shareholders having questions about
specific requirements, including eligible guarantor institutions, should contact
the Adviser at (800) 595-7827. Redemption requests will not be honored until all
required documents in the proper form have been received.
TELEPHONE REDEMPTIONS. Shareholders holding shares in book-entry form may
authorize the Funds to accept telephone redemptions. Telephone redemptions are
not available with respect to Class T shares. Shareholders may redeem up to
$50,000 worth of their shares by telephoning the Adviser prior to 4:00 p.m.
Eastern time. Redemption proceeds must be payable to the record holder of the
shares and mailed to the shareholder's address of record or wire transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System, normally within one business day, but in no event longer
than three days after the request. The minimum amount for a wire transfer is
$1,000. If at any time the Funds shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
Information on this service is included in the Application and is available from
the Adviser. Neither the Adviser, Underwriter nor the Funds will be liable for
any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Funds' telephone redemption procedures, upon
instructions believed to be genuine. Shareholders who utilize the telephone
redemption option bear the risk of any loss, damages, expense or cost arising
from their election of the telephone redemption option, including risk of
unauthorized use; provided, however that the Funds shall employ reasonable
procedures to confirm that all telephone instructions are genuine. For this
purpose, the Fund or its agent will require all individuals delivering telephone
instructions to provide specific information to identify themselves as the
account holder, such as the name in which the account is registered, the account
holder's social security number, account number, and broker of record. In the
absence of such procedures or should the Fund or its agents for any reason fail
to follow such procedures, the Fund or its agents may be liable for losses due
to unauthorized or fraudulent telephone instructions.
REDEMPTION OF ACCOUNTS BY THE FUNDS. Due to the high cost of maintaining
accounts with small account values, each Fund reserves the right to close all
accounts that have been in existence for at least one year and have a value that
is less than $500. In such cases, shareholders will receive 60 days' written
notice during which time they shall have the right to bring the value up to $500
or more. If the account value is not raised to $500 or more during that time
period, the Fund will redeem all shares in the account and send the proceeds to
the shareholder's address of record. Shareholders holding shares whose
cumulative value has decreased below the minimum amount of $500 shall not be
subject to this policy in those instances in which the decrease in account value
has occurred solely as a result of market price fluctuations.
Each Fund reserves the right to close all accounts of a shareholder who has
failed to provide a social security number or other taxpayer identification
number and certification (if required) that such number is correct.
REINSTATEMENT PRIVILEGE. Shareholders have a one time privilege of
reinstating their investment into any of the Funds, subject to the terms of
exchange (see "Exchange Privileges") at the net asset value next determined
after the request for reinstatement is made. For Federal income tax purposes, a
redemption and reinstatement will be treated as a sale and purchase of shares;
special rules may apply in computing the amount of gain or loss in these
situations. (See "Dividends, Distributions and Taxes" for information on the
Federal income tax treatment of a disposition of shares.) A written request for
reinstatement must be received by the Underwriter within 30 days of the
redemption, accompanied by payment for the shares (not in excess of the
redemption). Shareholder accounts will be credited with an amount equal to any
CDSC (or pro rata portion thereof for a partial reinstatement) assessed at the
time of redemption.
46
<PAGE>
DISTRIBUTION PLANS
- ----------------------------------------------------------------------
Each Fund has adopted a distribution plan under Rule 12b-1 of the 1940 Act for
each class of shares of that 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 the Fund. Pursuant to
the Plans, each Fund shall pay the Underwriter 0.30% annually of the average
daily net assets of each Fund's Class A shares, 1.00% annually of the average
daily net assets of each Fund's Class B and Class C shares, and 0.95% annually
of the average daily net assets of each Fund's Class T shares in the case of the
Growth Fund, Special Fund and Strategic Income Fund, 0.75% annually of the
average daily net assets of the Class T shares in the case of the Income Fund
and 0.65% annually of the average daily net assets of the Class T shares in the
case of the Government Securities Fund and High Yield Fund. Under the NASD
rules, fees of this type are limited to 0.75% annually for sales charges and
0.25% annually for service fees, with an aggregate limit of 6.25% of new gross
sales after inception of a 12b-1 plan plus interest on outstanding balances at
the prime rate plus 1% per annum.
Expenditures incurred under the Plans may consist of: (i) commissions to sales
personnel for selling shares of a Fund (including underwriting fees and finance
charges related to 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 which have entered
into agreements with the Underwriter in the form of the Dealer Agreement for the
Funds for services rendered in connection with the sale and distribution of
shares of each Fund and provision of shareholder services; (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 each Fund's Prospectus and
Statement of Additional Information for distribution to potential investors; and
(vii) such other similar services that the Trustees of the Fund determine are
reasonably calculated to result in the sale of shares of the Fund; provided,
however, that a portion of such amount paid to the Underwriter may be paid for
reimbursing the costs of providing services to shareholders, including
assistance in connection with inquiries related to shareholder accounts (the
"Service Fee"). From the Service Fee, the Underwriter expects to pay a quarterly
fee to qualifying broker/dealers firms, as compensation for providing personal
services to shareholders and/or for the maintenance of shareholder accounts with
respect to shares sold by such firms. In order to receive Service Fees under the
Plans, participants must meet such qualifications to be established in the sole
discretion of the Underwriter. This fee will not exceed on an annual basis 0.25%
of the average annual net asset value of such shares, and will be in addition to
sales charges on Fund shares which are paid or reallowed to such firms. To the
extent that the entire amount of such Service Fee is not paid to such firms, the
balance will serve as compensation for personal and account maintenance services
furnished to shareholders by the Underwriter. With respect to the 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 servicing Class T shareholder
accounts and reimbursement for its prior distribution and shareholder servicing
activities in connection with Class T shares.
The amount paid to the Underwriter under the early years of any Plan relating
to a newly established fund or class is not likely to reimburse the Underwriter
for the total distribution expenses it will actually incur as a result of the
fund having fewer assets and the Underwriter incurring greater promotional
expenses during the start-up phase. However, if in any year the amount paid
pursuant to a Plan exceeds the amount of expenses incurred by the Underwriter,
the Underwriter will realize a profit from these arrangements.
If the Plans are terminated in accordance with their terms, the obligations of
the Funds to reimburse the Underwriter for distribution related expenses
incurred after the date of termination will cease. However, subject to approval
by the Trustees in accordance with the Plans of the Class A, B and C shares, and
the annual limitations on payment, the Underwriter may be entitled to payment
for unreimbursed expenses made prior to termination of such Plans.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- ----------------------------------------------------------------------
The following discussion is intended for general information only. An investor
should consult with his or her own tax advisor as to the tax consequences of an
investment in a Fund.
Each Fund intends to distribute to shareholders substantially all of its net
investment income and any net capital gains. It is intended that dividends from
net investment income will be paid monthly on the High Total Return Fund, the
Government Securities Fund, the High Yield Fund and the Strategic Income Fund
and quarterly on each of the other Funds; each Fund intends to distribute any
net undistributed short-term capital gains and net long-term capital gains, if
any, at least annually.
47
<PAGE>
In order to maintain a more stable monthly distribution, the High Total Return
Fund, the Government Securities Fund, the High Yield Fund and the Strategic
Income Fund 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.
As a result, the distributions paid by these Funds for any particular period may
be more or less than the amount of net investment income and short-term capital
gains actually earned by the Fund during such period. There can be no assurance
that any amounts retained by the Government Securities Fund, the High Yield Fund
and the Strategic Income Fund will be available for future distribution.
Current realized capital gains of a Fund distributed during the course of a
fiscal year may be offset by the subsequent realization of capital losses later
in that year. This could result in treatment of all or a portion of such
distributions as a return of capital. Distributions constituting returns of
capital may also arise as a result of differences between federal income tax
rules and the accounting principles adopted by the Funds. Shareholders are not
subject to current federal income tax on returns of capital, but their basis in
their shares would be reduced by the amount of the return of capital. To the
extent that the amount of any such return of capital 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. A more detailed
description of certain tax consequences to shareholders is set forth in the
Statement of Additional Information under the heading "Dividends, Distributions
and Taxes." The Government Securities Fund, the High Yield Fund and the
Strategic Income Fund will each adjust their distribution rate from time to time
in an effort to avoid or minimize any returns of capital. Distributions made by
a Fund which constitute a return of capital will reduce the Fund's net asset
value and may impair its ability to achieve its investment objectives concerning
preservation of principal or capital appreciation.
Each Fund intends to continue to qualify annually and elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify, each Fund must meet certain income, distribution and
diversification requirements. In any year in which a Fund qualifies as a
regulated investment company and timely distributes all of its taxable income,
the Fund generally will not pay any U.S. federal income or excise tax.
Dividends paid out of a Fund's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to a
shareholder as ordinary income. If a portion of the Fund's income consists of
dividends paid by U.S. corporations, a portion of the dividends paid by the Fund
may be eligible for the corporate dividends-received deduction. Distributions of
net capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, designated as capital gain dividends are taxable as
long-term capital gains, regardless of how long the shareholder has held the
Fund's shares. Dividends are taxable to shareholders in the same manner whether
received in cash or reinvested in additional Fund shares.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by a Fund in October, November or December with a record
date in such a month and paid by the Fund during January of the following
calendar year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
Each year the Fund will notify shareholders of the tax status of dividends and
distributions.
Investments in zero coupon securities will result in income to a Fund each
year equal to a portion of the excess of the face value of the securities over
their issue price, even though the Fund receives no cash interest payments from
the securities.
Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a capital gain or loss which will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares.
Each Fund may be required to withhold U.S. federal income tax at the rate of
31% of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal income tax
liability.
Further information relating to tax consequences is contained in the Statement
of Additional Information.
Fund distributions also may be subject to state, local and foreign taxes.
Shareholders should consult their own tax advisors regarding the particular tax
consequences of an investment in a Fund.
48
<PAGE>
GENERAL INFORMATION
- ----------------------------------------------------------------------
ORGANIZATION OF THE FUNDS
The Northstar Advantage Trust (the "Trust") and each separate Fund is
organized under Massachusetts law as a business trust. The Trust's Declaration
of Trust, as amended and each Fund's Amended and Restated Declaration of Trust
provides that the Trustees are authorized to create an unlimited number of
series and, with respect to each series, to issue an unlimited number of full
and fractional shares of one or more classes and to divide or combine the shares
into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in the series. All shares have equal voting
rights, except that only shares of the respective series or separate classes
within a series are entitled to vote on matters concerning only that series or
class. As of the date of this Prospectus, each Fund within the Trust has three
classes of shares; each of the remaining Funds has four classes of shares.
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.
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT
This prospectus does not contain all the information included in the
Registration Statement filed for each Fund with the Securities and Exchange
Commission under the Securities Act of 1933 and the 1940 Act, with respect to
the securities offered hereby, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
Each Registration Statement, including the exhibits filed therewith, may be
examined at the office of the Securities and Exchange Commission in Washington,
D.C.
49
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
50
<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 know 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 make 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 MOODY'S NOTE RATINGS
Moody's Short-Term Loan Ratings -- Moody's ratings for short-term obligations
will be designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of major importance in
bond risk are of lesser importance over the short run.
Rating symbols and their meanings follow:
MIG-1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG-3 -- This designation denotes favorable quality. All security elements are
accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG-4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
- --------------------------------------------------------------------------------
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
aaa: An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa: An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a: An issue which is rated a is considered to be an upper medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classifications, earnings and asset protection are, nevertheless expected
to be maintained at adequate levels.
A-1
<PAGE>
baa: An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
ba: An issue which is rated ba is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b: An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payment.
ca: An issue which is rated ca is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
c: This is the lowest rated class of preferred or preference stock. 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 rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
- --------------------------------------------------------------------------------
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P") CORPORATE DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher-rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest 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 due 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.
- --------------------------------------------------------------------------------
DESCRIPTION OF S&P NOTE RATINGS
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria are used in making that assessment: (a)
Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note), and (b) Source of
payment (the more dependent the issue is on the market for its refinancing, the
more likely it will be treated as a note).
Note ratings are as follows:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
DEMAND BONDS. S&P assigns "Dual" ratings to all long-term debt issues that
have as part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/ A-1+"). For the newer "Demand notes," S&P note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+").
A-2
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF S&P PREFERRED STOCK RATINGS
AAA: This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA: A preferred stock issue rated AA also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
A: An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effect of
changes in circumstances and economic conditions.
BBB: An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B, CCC: Preferred stock rated BB, B, and CCC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. BB indicates the lowest degree of speculation and CCC the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock in arrears on dividends or
sinking fund payments but that is currently paying.
C: A preferred stock rated C is a non-paying issue.
D: A preferred stock rated D is a non-paying issue with the issuer in default
on debt instruments.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
- --------------------------------------------------------------------------------
DESCRIPTION OF BOND RATINGS BY FITCH INVESTOR SERVICES, INC. ("FITCH"):
AAA -- Bonds considered to be investment grade and of the highest quality. The
obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "A" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A -- Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs however, are not used in the "AAA" category.
NR -- indicates that Fitch does not rate the specific issue.
Conditional -- A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
Suspended -- A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn -- A rating will be withdrawn when an issue matures or is called or
refinanced and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FitchAlert -- Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
Credit Trend -- Credit Trend indicators show whether credit fundamentals are
improving, stable, declining or uncertain.
Credit Trend indicators are not predictions that any rating change will occur,
and have a longer-term time frame than issues placed on FitchAlert.
FitchAlert speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" and "B") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and
operating performance of the issuer and any guarantor, as well as the economic
and political environment, that might affect the issuer's future financial
strength.
A-3
<PAGE>
Bonds that have the same rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
BB -- Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category.
- --------------------------------------------------------------------------------
DESCRIPTION OF BOND RATINGS BY DUFF & PHELPS CREDIT RATING CO. ("D&P"):
<TABLE>
<S> <C>
Highest credit quality. The risk factors are only slightly more than for risk-free
Triple A U.S. Treasury debt.
Double A High credit quality. Protection factors are strong. Risk is modest but varies
High slightly from time to time because of economic conditions.
Middle
Low
Single A Good quality investment grade securities. Protection factors are average but
High adequate. However, risk factors are more variable and greater in periods of
Middle economic stress.
Low
Triple B Below average protection factors but still considered sufficient for institutional
High investment. Considerable variability in risk during economic cycles.
Middle
Low
Double B Below investment grade but deemed likely to meet obligations when due. Protection
High factors fluctuate according to economic conditions. Overall quality may move up or
Middle down frequently within the category.
Low
Single B Below investment grade and possessing risk that obligations will not be met when
High due. Protection factors will fluctuate widely according to economic cycles.
Middle Potential exists for frequent changes in rating within this category or into a
Low higher or lower quality rating grade.
</TABLE>
A-4
<PAGE>
[LOGO]
PRINCIPAL UNDERWRITER
Northstar Distributors, Inc.
Two Pickwick Plaza
Greenwich, CT 06830
INVESTMENT ADVISER
Northstar Investment Management Corporation
Two Pickwick Plaza
Greenwich, CT 06830
TRANSFER AGENT
The Shareholder Services Group
53 State Street
Boston, MA 02109-2873
1-800-595-7827
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and, if given or made, such information or representations must not
be relied upon. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
state in which, or to any person to whom it is unlawful to make such an offer.
Neither the delivery of this prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that information herein is correct at
any time subsequent to its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Summary......................................... 2
Table of Fees and Expenses...................... 5
Financial Highlights............................ 12
Investment Objectives and Policies.............. 17
Risk Factors.................................... 27
General Investment Strategies and Restrictions
and Risk Considerations........................ 30
Performance Information......................... 34
Portfolio Turnover.............................. 34
How Net Asset Value is Determined............... 35
Management of the Funds......................... 35
<CAPTION>
PAGE
---
<S> <C>
How to Purchase Shares.......................... 38
Alternative Sales Arrangements.................. 39
Initial Sales Charge Alternative -- Class A
Shares......................................... 40
Deferred Sales Charge Alternative -- Class B
Shares......................................... 41
Level Sales Charge Alternative -- Class C
Shares......................................... 42
Investor Accounts and Services Available........ 43
How to Redeem Shares............................ 45
Distribution Plans.............................. 47
Dividends, Distributions and Taxes.............. 47
General Information............................. 49
Appendix........................................ A-1
</TABLE>
<PAGE>
November 1, 1995
NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES FUND
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND
NORTHSTAR ADVANTAGE HIGH YIELD FUND
NORTHSTAR ADVANTAGE HIGH TOTAL RETURN FUND
NORTHSTAR ADVANTAGE INCOME FUND
NORTHSTAR ADVANTAGE INCOME AND GROWTH FUND
NORTHSTAR ADVANTAGE GROWTH FUND
NORTHSTAR ADVANTAGE SPECIAL FUND
TWO PICKWICK PLAZA
GREENWICH, CONNECTICUT 06830
(203) 863-6200
(800) 595-7827
STATEMENT OF ADDITIONAL INFORMATION
Northstar Advantage Government Securities Fund, Northstar Advantage Strategic
Income Fund, Northstar Advantage High Yield Fund, Northstar Advantage High Total
Return Fund, Northstar Advantage Income Fund, Northstar Advantage Income and
Growth Fund, Northstar Advantage Growth Fund and Northstar Advantage Special
Fund (the "Funds") are open-end diversified management investment companies,
each with its own investment objectives and specific investment goals. Each
Fund is a separate investment company, except for the Northstar Advantage High
Total Return Fund and Northstar Income and Growth Fund, each of which is a
series of the Northstar Advantage Trust, which is a separate investment
company.
NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES FUND ("GOVERNMENT SECURITIES FUND")
seeks to achieve a high level of current income and to conserve principal by
investing in debt obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities.
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND ("STRATEGIC INCOME FUND") seeks to
achieve high current income. The Fund generally allocates its investments among
the following three sectors of the fixed income securities markets: debt
obligations of the U.S. Government, its agencies and instrumentalities; high
yield, high risk, lower rated and nonrated U.S. and foreign fixed-income
securities; and investment grade debt obligations of foreign governments, their
agencies and instrumentalities.
NORTHSTAR ADVANTAGE HIGH YIELD FUND ("HIGH YIELD FUND") seeks high current
income and, secondarily, capital appreciation. This Fund invests primarily in
long-term and intermediate-term fixed income securities, with emphasis on high
yield, high risk, lower rated and nonrated corporate debt instruments.
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NORTHSTAR ADVANTAGE HIGH TOTAL RETURN FUND ("HIGH TOTAL RETURN FUND") is a
diversified portfolio whose investment objective is to seek high income. The
Fund invests primarily in a diversified group of fixed income securities which
are selected for high income, including lower rated fixed income securities,
convertible securities, securities issued by U.S. companies in foreign
currencies, and securities issued by foreign governments and companies.
NORTHSTAR ADVANTAGE INCOME FUND ("INCOME FUND") seeks to realize income and,
secondarily, capital appreciation. Basically conservative, this Fund invests in
a balance of debt securities (generally investment grade), common and preferred
stocks, and debt securities and preferred stocks convertible into common stock.
NORTHSTAR INCOME AND GROWTH FUND ("INCOME AND GROWTH FUND") is a diversified
portfolio with the investment objective of current income balanced with the
objective of achieving capital appreciation. The Fund will seek to achieve its
objective through investments in a diversified group of securities selected for
their prospects of current yield and capital appreciation
NORTHSTAR ADVANTAGE GROWTH FUND ("GROWTH FUND") seeks to achieve long-term
growth of capital and, secondarily, to realize income. This Fund invests
principally in common stocks and, to a lesser extent, it may also invest in
preferred stocks and convertible securities.
NORTHSTAR ADVANTAGE SPECIAL FUND ("SPECIAL FUND") seeks to achieve capital
appreciation through investment in a diversified portfolio of equity securities
selected for their potential for growth. This Fund does not seek current
income. The Fund invests primarily in smaller, lesser-known companies that may
be subject to greater price volatility than more mature companies.
There can be no assurance that a Fund will achieve its investment objective. In
general, the assets of each Fund are kept fully invested in securities selected
to meet the investment objective of each Fund; however, for temporary defensive
purposes, any part of a Fund's assets may be held from time to time in cash or
cash equivalents. At such times when a Fund's assets are invested for temporary
defensive purposes, the Fund will not be investing in accordance with its
investment objective. THE HIGH TOTAL RETURN, HIGH YIELD AND STRATEGIC INCOME
FUNDS MAY NOT BE APPROPRIATE FOR ALL INVESTORS. (SEE "RISK FACTORS" IN THE
CURRENT PROSPECTUS.)
Northstar Investment Management Corporation (the "Adviser") is the investment
adviser for each Fund. Northstar Distributors, Inc. (the "Underwriter") is the
underwriter to the Funds, and Northstar Administrators Corporation is the Funds'
administrator (the "Administrator"). The Underwriter and Administrator are
affiliates of the Adviser.
This document is not the Prospectus of the Funds but is incorporated therein by
reference and should be read in conjunction with the Prospectus dated
November 1, 1995. Copies of the
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Prospectus may be obtained upon request and without charge by contacting the
Adviser at the address or phone number above.
Investment Restrictions 4
Other Investment Techniques 8
Portfolio Transactions and Brokerage 38
Services of the Adviser and Administrator 40
Net Asset Value 44
How to Buy Shares 44
Alternative Purchase Arrangements 44
Exchange Privileges 46
Redemption of Shares 47
Dividends, Distributions and Taxes 47
Underwriter and Distribution Services 52
Trustees and Officers 56
Other Information 61
Performance Information 61
Financial Statements 71
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INVESTMENT RESTRICTIONS
I. NORTHSTAR ADVANTAGE TRUST
The investment objective of each of the High Total Return and Income and
Growth Fund and the following investment restrictions for such Funds are
fundamental and cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities (defined in the 1940 Act as
the lesser of (a) more than 50% of the outstanding shares or (b) 67% or more of
the shares represented at a meeting at which more than 50% of the outstanding
shares are represented). All other investment policies or practices are
considered by the Funds to be non-fundamental and accordingly may be changed
without shareholder approval. If a percentage restriction on investment or use
of assets set forth below is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing market values will not be
considered a deviation from this policy.
A Fund may not: borrow money, issue senior securities, or pledge, mortgage
or hypothecate its assets, except that it may (i) borrow from banks or enter
into reverse repurchase agreements or employ similar investment techniques, but
only if immediately after such borrowing there is asset coverage of 300% and
(ii) enter into transactions in options, futures, and options on futures as
described in the Fund's Prospectus and Statement of Additional Information (the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a when-issued or delayed delivery
basis and collateral arrangements with respect to initial or variation margin
deposits for futures contracts will not be deemed to be pledges of the Fund's
assets); underwrite the securities of others; purchase or sell real property,
including real estate limited partnerships (but each Fund may purchase
marketable securities of companies which deal in real estate or interests
therein, including real estate investment trusts); deal in commodities or
commodity contracts except in the manner described in the current Prospectus and
Statement of Additional Information of the Trust; make loans to other persons
(but each Fund may, however, lend portfolio securities, up to 33% of net assets
at the time the loan is made, to brokers or dealers of other financial
institutions not affiliated with the Fund or the Adviser, subject to conditions
established by the Adviser (See "Lending of Securities" in the Prospectus), 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
Statement of Additional Information of the Trust; participate in any joint
trading accounts; 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; sell short, except that the Fund may enter into short sales against the
box in the manner described in the current Prospectus and Statement of
Additional Information for the Fund; invest more than 25% of its assets in any
one industry or related group of industries; 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; or
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.
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The following policies are non-fundamental and may be changed without
shareholder approval. A Fund may not: 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; purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except that the
Fund may purchase shares of other investment companies subject to such
restrictions as may be imposed by the Investment Company Act of 1940 and rules
thereunder or by any state in which shares of the Fund are registered; 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 the Adviser
who each own beneficially more than 1/2 of 1% of its securities; make an
investment for the purpose of exercising control or management; or 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 determined there
is no 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 which legally
or in the Adviser's or Trustees opinion may be deemed illiquid; invest in
interests in oil, gas or other mineral exploration development programs
(including oil, gas or other mineral leases).
A Fund, notwithstanding any other investment policy or limitation (whether
or not fundamental) set forth herein, may invest all of its assets in the
securities or beneficial interests of a singly pooled investment fund having
substantially the same objectives, policies and limitations as the Fund.
As a fundamental policy, the Funds may borrow money from banks to the
extent permitted under the Investment Company Act of 1940. As an operating
(non-fundamental) policy, the 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, the Funds will not make additional investments when its borrowings are
in excess of 5% of total assets. If a Fund 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. This operating policy
applies only to unsecured bank borrowings by each Fund and not to the use of
certain investment techniques, such as reverse repurchase agreements and dollar
rolls, which are generally regarded as a form of borrowing.
In addition to the restrictions described above, each of the 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. Any such additional
restrictions that would have a material bearing on a Fund's operations will be
reflected in the Prospectus or a Prospectus supplement and may require
shareholder approval. In particular, the Trust has undertaken to South Dakota
to abide by certain limitations. Specifically, for those Funds in the Northstar
Advantage Trust which do not invest more than 80% of assets in
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debt securities, such Fund(s) shall not have more than 10% of total assets in
restricted securities (which for purposes hereof shall not include 144A
securities), nor more than 10% of total assets in real estate investment trusts
or investment companies. Furthermore, the Funds will not invest in real estate
or interests therein, excluding readily marketable securities, or in commodities
futures or options.
II. NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES, STRATEGIC INCOME, HIGH YIELD,
INCOME, GROWTH AND SPECIAL FUNDS
FUNDAMENTAL INVESTMENT POLICIES. Each Fund has adopted certain fundamental
investment policies. These fundamental investment policies cannot be changed
unless the change is approved by the lesser of (i) 67% or more of the voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding voting securities of the Fund.
These policies, which are identical for each of the Funds, provide, that a
Fund may not: (i) 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; (ii) 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; (iii) 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; (iv) 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); (v) make
any investment in real estate, commodities or commodities contracts, except that
the Fund may: (a) purchase or sell readily marketable securities which are
secured by interest in real estate or issued by companies which 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 Funds' Prospectus; (vi) make loans, except that the Fund 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;
and (vii) issue senior securities, except as appropriate to evidence
indebtedness which 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.
NON-FUNDAMENTAL INVESTMENT POLICIES. Each Fund has adopted certain
investment restrictions which may be changed at any time by the Trustees without
a vote of shareholders.
These non-fundamental limitations provide that a Fund may not: borrow money
in excess of 5% of its total assets (taken at market value); (2) 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
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of assets.); purchase more than 10% of the voting securities of any one issuer,
except U.S. Government Securities; 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; purchase securities of any issuer with a record of less than 3 years
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; purchase securities on margin, except a Fund 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); 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;
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%.); invest in
securities of any issuer if any officer or trustee of the Fund or any officer or
director of the Fund's investment adviser 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; invest in
interests in oil, gas or other mineral exploration or development programs
(although it may invest in issuers which own or invest in such interests);
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; in any event, a Fund may not purchase more than 3% of the outstanding
voting securities of another investment company, may not invest more than 5% of
its total assets in another investment company and may not invest more than 10%
of its total assets in other investment companies; 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); and 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 may not
invest in interests of real estate limited partnerships.
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OTHER INVESTMENT TECHNIQUES
I. NORTHSTAR ADVANTAGE TRUST
COVERED CALL OPTIONS. Each Fund may sell call options and purchase options
to close out options previously written. The Funds, in return for the premium
received upon the sale of a call option, gives up the opportunity to benefit
from a price increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the security decline. A
Fund has no control over when it may be required to sell the underlying
securities, since it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a seller.
Because call options give the purchaser the right to purchase a specified
security at a designated strike price for a limited period of time, the option
is likely to be exercised only when and if the market price of the security
exceeds the strike price. If the market price never exceeds the strike price
during the option term, the purchaser's loss will be limited to the cash premium
paid to the seller of the option. However, if the market price does exceed the
strike price during the option term by an amount greater than the premium paid
for the option, the purchaser may exercise the option and purchase the security
at the strike price and realize a profit to the extent the proceeds exceed the
amount of premiums and transaction costs. In either circumstance, the seller of
the option retains the premium received for the option but foregoes any
potential profit from an increase in the market price of the underlying security
over the strike price. The option will be terminated upon expiration of the
option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security upon the exercise of the option.
Each Fund will sell only covered call options, meaning that a Fund will
only sell a call option on a security which it already owns. The Funds will not
write call options on when-issued securities. In additions, the Funds will not
sell a covered call option if, as a result, the aggregate market value of all
portfolio securities of the Fund covering call options or subject to put options
exceeds 10% of the market value of the Fund's net assets.
If a Fund desires to sell a particular security from its portfolio on which
it has written a call option, or purchased a put option, it will seek to effect
a closing transaction prior to, or concurrently with, the sale of the security.
There is no assurance that the Fund will be able to effect such closing
transactions at a favorable price. If the Fund cannot enter into such a
transaction, it may be required to hold a security that it might otherwise have
sold, in which case it would continue to be at market risk on the security.
SHORT SALES. The Funds may each 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 a Fund contemporaneously owns or has the
right to obtain securities identical to those sold short.
OVER-THE-COUNTER OPTIONS. The Funds may invest in Over-the-Counter options
("OTC") on U.S. Government securities. OTC options are purchased from or sold
(written) to
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dealers or financial institutions which have entered into direct agreements with
a Fund. With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between a Fund and the transacting dealer, without
the intermediation of a third party such as the Options Clearing Corporation.
The Adviser monitors the creditworthiness of dealers with whom a Fund enters
into OTC option transactions under the general supervision of the Trustees of
the Funds. If the transaction dealer fails to make or take delivery of the U.S.
Government securities underlying an option it has written in accordance with the
terms of the option as written, the Funds would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Funds will
engage in OTC option transactions only with primary U.S. Government securities
dealers recognized by the Federal Reserve Bank of New York.
STOCK INDEX OPTIONS. The Funds may purchase options to hedge against risks
of broad price movements in the equity markets which in some market environments
may correlate more closely with movements in the value of lower rated bonds than
to changes in interest rates. When a Fund sells an option on a stock index, it
will have to establish a segregated account with its custodian in which the Fund
will deposit cash or cash equivalents or a combination of both in an amount
equal to the market value of the option, and will have to maintain the account
while the option is open. For some options, no liquid secondary market may
exist or the market may cease to exist.
PRIVATELY ISSUED COLLATERALIZED MORTGAGE-BACKED OBLIGATIONS ("CMOS"),
INTEREST OBLIGATIONS ("IOS") AND PRINCIPAL OBLIGATIONS ("PSS"). Each 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 the Adviser believes that such investments are
consistent with the Fund's investment objective. Collateralized mortgage
obligations or "CMOs" are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, privately issued CMOs are
collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but also
may be collateralized by whole loans or private pass-throughs (such collateral
collectively hereinafter referred to as "Mortgage Assets"). Privately issued
CMOs are per se illiquid. Multi-class pass-through securities are equity
interest in a trust composed of Mortgage Assets. Unless the context indicates
otherwise, all references herein to CMOs include multi-class pass-thorough
securities. Payments of principal of and interest on the Mortgage Assets, and
any reinvestment income thereon, are the source of funds used to pay debt
service on the CMOs or make scheduled distribution on the multi-class
pass-through securities.
In 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.
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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, the Funds 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 the Adviser 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.
FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS AND FOREIGN CURRENCY
TRANSACTIONS. Each Fund may enter into futures contracts, options on futures
contracts and foreign currency transactions. The Funds will enter into these
transactions solely for the purpose of hedging against the effects of changes in
the value of its portfolio securities or those it intends to purchase due to
anticipated changes in interest rates and currency values, and not for the
purpose of speculation.
FUTURES CONTRACTS. Each Fund may enter into both interest rate futures
contracts and foreign currency futures contracts on domestic and foreign
exchanges. A futures contract to sell a debt security or foreign currency (a
"Short" futures position), creates an obligation by the seller to deliver a
specified amount of the underlying security or foreign currency at a certain
future time and price. A futures contract to purchase a debt security or
foreign currency (a "long" futures position) creates an obligation by the
purchase to take delivery of a specified amount of
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the underlying security or foreign currency at a certain future time and price.
Although the terms of futures contracts specify actual delivery or receipt of
the underlying commodity, futures contracts generally are closed out before the
delivery date without making or taking delivery by entering into an opposite
position in the same commodity on the same (or a linked) exchange.
Upon entering into a futures contract, a Fund will be required to deposit
with a broker an amount of cash or cash equivalents equal to approximately 1% to
5% of the contract price, which amount is subject to change by the exchange on
which the contract is traded or by the broker. This amount, which is known as
"initial margin," does not involve the borrowing of funds to finance the
transactions; rather, it is in the nature of a performance bond or good faith
deposit on the contract that will be returned to the Fund upon termination of
the contract, assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin," to and from the broker, will
be made daily as the price of the instrument underlying the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable ("marking-to-market").
Interest Rate Futures Contracts. An interest rate futures contract
provides for the future sale and purchase of a specified amount of a certain
debt security at a stated date, place and price. The Funds may enter into
interest rate futures contracts to protect against fluctuations in interest
rates affecting the value of debt securities that a Fund either holds or intends
to acquire. Interest rate futures contracts currently are based on long-term
Treasury Bonds, Treasury Notes, three-month Treasury Bills and Government
National Mortgage Association modified pass-through mortgage-backed securities
("GNMA pass-through securities"), and 90-day commercial paper.
Foreign Currency Futures Contracts. A foreign currency futures contract
provides for the future sale and purchase of a specified amount of a certain
foreign currency at a stated date, place and price. The Funds may enter into
foreign currency futures contracts to attempt to establish the rate at which it
would be entitled to make a future exchange of United States dollars for another
currency. At present, foreign currency futures contracts are based on British
pounds, German deutschmarks, Canadian dollars, Japanese yen, French francs,
Swiss francs, and ECUs.
OPTIONS ON FUTURES CONTRACTS. The Funds may purchase and sell put and call
options on interest rate futures contracts as a hedge against changes in
interest rates and on foreign currency futures contracts as a hedge against
fluctuating currency values, in lieu of purchasing and writing options directly
on the underlying security or currency or purchasing and selling the underlying
futures contracts.
The purchase of an option on an interest rate futures contract will give
the Funds the right to enter into a futures contract to purchase (in the case of
a call option) or to enter into a futures contract to sell (in the case of a put
option) a particular debt security at a specified exercise price at any time
prior to the expiration date of the option. The potential loss related to the
purchase of an option on a futures contract is limited to the premium paid for
the option plus related transaction costs. A call option sold by a Fund exposes
the Fund during the term of the option to the possible loss of an opportunity to
realize appreciation in the market price of the underlying
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security or to the possible continued holding of a security which might
otherwise have been sold to protect against depreciation in the market price of
the security. In selling puts, there is a risk that a Fund may be required to
buy the underlying security at a disadvantageous price. Options on interest
rate futures contracts currently are available with respect to Treasury Bonds,
Treasury Notes, and Eurodollars.
Options on Interest Rate Futures. Each Fund may purchase a put option on
an interest rate futures contract to hedge against a decline in the value of its
portfolio securities as a result of rising interest rate. Each Fund may
purchase a call option on an interest rate futures contract to hedge against the
risk of an increase in the price of securities it intends to purchase resulting
from declining interest rates. The Funds may sell put and call options on
interest rates futures contracts as part of closing sale transactions to
terminate its option positions.
Options on Foreign Currency Futures. The purchase of options on foreign
currency futures contracts gives each Fund the right to enter into a futures
contract to purchase (in the case of a call option) or to sell (in the case of a
put option) a particular currency at a specified price at any time during the
period before the option expires. Options on foreign currency futures currently
are available with respect to British pounds, German deutsche marks and Swiss
francs. The Funds may purchase options on foreign currency futures as a hedge
against fluctuating currency values.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Funds may engage in foreign
currency exchange transactions to hedge against uncertainty in the level of
future exchange rates. The Funds may conduct currency exchange transactions on
a "spot" (i.e., cash) basis at the rate then prevailing in the currency exchange
market, or on a forward basis, by entering into futures or forward contracts to
purchase or sell currency. The Fund's dealings in foreign currency exchange
contracts is limited to hedging.
Forward Foreign Currency Contracts A forward foreign currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the date of the contract. Forward
currency contracts are entered into in the interbank market on a principal basis
directly between currency dealers, which usually are large commercial banks and
brokerage houses, and their customers, and therefore generally involve no
margin, commissions or other fees. Forward currency contracts will establish a
rate of exchange that can be achieved in the future and thus the risk of loss
due to a decline in the value of the hedged currency increases.
Options on Foreign Currency. The Funds may also purchase and sell put and
call options for the purpose of hedging against changes in future currency
exchange rates. An option on a foreign currency gives the purchasers, in return
for a premium paid plus related transaction costs, the right to sell (in the
case of a put option) or to buy (in the case of a call option) the underlying
currency at a specified price until the option expires. The value of an option
on foreign currency depends upon the value of the foreign currency when compared
to the value of the United States dollar.
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Currency options traded on United States of other exchanges may be subject
to position limits, which may affect the ability of the Fund to hedge its
positions. The Funds will purchase and sell options on foreign exchanges to the
extent permitted by the Commodity Futures Trading Commission ("CFTC").
The Funds may purchase or sell options on currency only when the Adviser
believes that a liquid secondary market exists for these option; however, no
assurance can be given that a liquid secondary market will exist for a
particular option at any specific time.
RISK FACTORS AND SPECIAL CONSIDERATIONS. Futures Contracts and Related
Options. The Funds will not use leverage when it enters into long futures
contracts or related options. For each long position that a Fund enters into,
it will segregate cash or cash equivalents having a value equal to the market
value of the contract as collateral with the custodian of the Fund. A Fund will
not enter into futures contracts and related options if as a result the
aggregate of the initial margin deposits on a Fund's existing futures and
premiums paid for unexpired options exceeds 5% of the fair market value of that
Fund's assets.
Using futures contracts and related options involves certain risks,
including (1) the risk of imperfect correlation between fluctuations in the
value of a futures contract and the portfolio security that is being hedged; (2)
the risk that a Fund may underperform a fund that does not make use of these
instruments; (3) the risk that no active market will be available to offset a
position; and (4) the risk that the Adviser will not be able to predict
correctly movements in the direction of the interest rate and foreign currency
markets. Loss from futures transaction is potentially unlimited.
Certain exchanges on which futures are traded may establish daily limits in
the amount that the price of a futures or related option contract may fluctuate
from the previous day's settlement price. When a daily limit has been reached
in a particular contract, no trades may be made that day at a price beyond that
limit. If a daily limit were reached, a Fund might be prevented from
liquidating unfavorable positions and thus incur losses. In certain situations,
a Fund might be unable to close a position and might also have to make daily
cash payments of variation margin.
Foreign Currency Exchange Transactions. Foreign currency futures contracts
and related options, forward foreign currency contracts and options on foreign
currency may be traded on foreign exchanges. The regulation of transactions on
these exchanges may be less extensive than the regulation of United States
exchanges. The funds will trade only those options approved by the CFTC.
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Transactions on foreign exchanges also may not involve a clearing mechanism
and related guarantees and may be subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
positions also could be affected adversely by (1) foreign, political, legal and
economic factors; (2) a lack of information on which to make trading decisions
compared to that which is available in the United States; (3) a delay in the
ability to act on significant events occurring in the foreign markets during
non-business hours in the United States, (4) different exercise and settlements
terms from those imposed in the United States; and (5) less trading volume than
occurs on United States exchanges.
In addition, foreign exchanges offer less protection against defaults in the
forward trading of currencies than is available on United States exchanges.
Because a forward foreign currency contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive the Fund of unrealized
profits or would force the Fund to cover its commitments for purchase of resale,
if any, at the current market price.
II. NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES, STRATEGIC INCOME, HIGH YIELD,
INCOME, GROWTH AND SPECIAL FUNDS
OPTIONS AND FUTURES STRATEGIES. The Adviser may at times seek to hedge
against a decline in the value of securities included in a Fund's portfolio or
an increase in the price of securities which it plans to purchase for a Fund
through the writing and purchase of options and the purchase and sale of
financial futures contracts and related options. Expenses and losses incurred
as a result of such hedging strategies will reduce the current return of the
Funds employing these hedging strategies. In addition, the Adviser may seek to
increase the current return of a Fund's portfolio by writing covered call or
secured put options.
The ability of the Funds to engage in options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Accordingly, no assurances can be given that the Funds will be
able to use these instruments effectively for the purposes stated below.
Options and futures transactions will involve certain risks which are described
below under "Risks of Options and Futures Strategies." The Funds will not
engage in options and futures transactions for leveraging purposes.
Writing Covered Options on Securities. Each Fund may write covered call
options and covered put options on securities of the types in which it is
permitted to invest from time to time as the Adviser determines is appropriate
in seeking to attain its investment objectives. Call options written by a Fund
give the holder the right to buy the underlying security from the Fund at a
stated exercise price; put options written by a Fund give the holder the right
to sell the underlying security to the Fund at a stated price.
A Fund may only write call options on a covered basis or for cross-hedging
purposes and will only write secured put options. A call option is covered if
the Fund owns or has the right to acquire the underlying securities subject to
the call option (or comparable securities satisfying the cover requirements of
securities exchanges) at all times during the option period. A call
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option is for cross-hedging purposes if it is not covered, but is designed to
provide a hedge against another security which the Fund owns or has the right to
acquire. In the case of a call written for cross-hedging purposes or a put
option, the Fund will maintain in a segregated account at its custodian bank
cash or short-term U.S. Government Securities, or, in the case of the Strategic
Income Fund, short-term debt obligations, with a value equal to or greater than
the Fund's obligation under the option. The Funds may also write combinations
of secured puts and covered calls on the same underlying security.
A Fund will receive a premium from writing an option, which increases the
Fund's return in the event the option expires unexercised or is terminated at a
profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option, and the volatility of the market
price of the underlying security. By writing a call option, a Fund will limit
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, a Fund will assume the risk that it may be required to purchase the
underlying security for an exercise price higher than its then-current market
price, resulting in a potential capital loss if the purchase price exceeds the
market price plus the amount of the premium received.
A Fund may terminate an option which it has written prior to its expiration
by entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. The Fund will realize a profit (or
loss) from such transaction if the cost of such transaction is less (or more)
than the premium received from the writing of the option. Because increases in
the market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from the repurchase of a
call option may be offset in whole or in part by unrealized appreciation of the
underlying security owned by the Fund.
When a Fund writes a call option but does not own the underlying security,
and when it writes a put option, the Fund may be required to deposit cash or
securities with its broker as "margin", or collateral, for its obligation to buy
or sell the underlying security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
Purchasing Put and Call Options on Securities. Each Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. This protection is provided during the life of the put
option since the Fund, as holder of the put, is able to sell the underlying
security at the exercise price regardless of any decline in the underlying
security's market price. For the purchase of a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, any profit which the Fund purchasing the put option might
otherwise have realized on the underlying security will be reduced by the
premium paid for the put option and by transaction costs.
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A Fund may also purchase a call option to hedge against an increase in
price of a security that it intends to purchase. This protection is provided
during the life of the call option since the Fund, as holder of the call, is
able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. For the purchase of a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this manner, any profit which the Fund
purchasing the call option might have realized had it bought the underlying
security at the time it purchased the call option will be reduced by the premium
paid for the call option and by transaction costs.
Each Fund does not intend to purchase put or call options if, as a result
of any such transaction, the aggregate cost of options held by a Fund at the
time of such transaction would exceed 5% of the total assets of such Fund.
Risk Factors in Options Transactions. The successful use of a Fund's
options strategies depends in large part on the ability of the Adviser to
forecast correctly interest rate and market movements. For example, if a Fund
were to write a call option based on the Adviser's expectation that the price of
the underlying security would fall, but the price rose instead, the Fund could
be required to sell the security upon exercise at a price below the current
market price. Similarly, if a Fund were to write a put option based on the
Adviser's view that the price of the underlying security would rise, but the
price fell instead, the Fund could be required to purchase the security upon
exercise at a price higher than the current market price.
When a Fund purchases an option, it runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless
the Fund exercises the option or enters into a closing sale transaction before
the option's expiration. If the price of the underlying security does not rise
(in the case of a call) or fall (in the case of a put) to an extent sufficient
to cover the option premium and transaction costs, the Fund will lose part or
all of its investment in the option. This contrasts with an investment by the
Fund in the underlying security, since the Fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on a Fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. There
is no assurance that a Fund will be able to effect closing transactions at any
particular time or at an acceptable price.
If a secondary market in options were to become unavailable, the Funds
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A market may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if
unusual events, such as volume in excess of trading or clearing capability, were
to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions. For
example, if an underlying security ceases to meet qualifications imposed by the
market or the Options Clearing Corporation, new series of
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options on that security will no longer be opened to replace expiring series,
and opening transactions in existing series may be prohibited. If an options
market were to become unavailable, a Fund, as a holder of an option would be
able to realize profits or limit losses only by exercising the option, and the
Fund, as option writer, would remain obligated under the option until expiration
or exercise.
Disruptions in the markets for the securities underlying options purchased
or sold by a Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with considerable losses if trading in the security reopens
at a substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If the
Options Clearing Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by the writers of
all outstanding calls in the event of exercise, it may prohibit indefinitely the
exercise of put options. The Fund, as holder of such a put option, could lose
its entire investment if the prohibition remained in effect until the put
option's expiration.
Special risks are presented by internationally-traded options. Because of
time differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign options
markets may be open for trading during hours or on days when United States
markets are closed. As a result, option premiums may not reflect the current
prices of the underlying interest in the United States.
Over-the-Counter Options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission (the "SEC") has taken the
position that over-the-counter ("OTC") options purchased by a Fund are illiquid
securities. Although the Staff has indicated that it is continuing to evaluate
this issue, pending further developments, the Funds intend to enter into OTC
options transactions only with primary dealers in U.S. Government Securities
and, in the case of OTC options written by a Fund, only pursuant to an agreement
that will assure that the Fund will at all times have the right to repurchase
the option written by it from the dealer at a specified formula price. The Fund
will treat the amount by which such formula price exceeds the amount, if any, by
which the option may be "in-the-money" as an illiquid investment. It is the
present policy of the Funds not to enter into any OTC option transaction if, as
a result, more than [15%] of the Fund's net assets would be invested in
(i) illiquid investments (determined under the foregoing formula) relating to
OTC options written by the Fund, (ii) OTC options purchased by the Fund,
(iii) securities which are not readily marketable, and (iv) repurchase agreement
maturing in more than seven days.
Futures Contracts. A financial futures contract sale creates an obligation
by the seller to deliver the type of financial instrument called for in the
contract in a specified delivery month for a stated price. A financial futures
contract purchase creates an obligation by the purchaser to take delivery of the
type of financial instrument called for in the contract in a specified delivery
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month at a stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until on or near that date.
The determination is made in accordance with the rules of the exchange on which
the futures contract sale or purchase was made. Futures contracts are traded
in the United States only on commodity exchanges or boards of trade, known as
"contract markets," approved for such trading by the Commodity Futures Trading
Commission (the "CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of commodities or securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a futures contract
for the same aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale of the
futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the seller realizes a
loss. Similarly, the closing out of a futures contract purchase is effected by
the purchaser's entering into a futures contract sale. If the offsetting sale
price exceeds the purchase price, the purchaser realizes a gain, and if the
purchase price exceeds the offsetting sale price, he realizes a loss. In
general, 40% of the gain or loss arising from the closing out of a futures
contract traded on an exchange approved by the CFTC is treated as short-term
gain or loss, and 60% is treated as long-term gain or loss.
A Fund may sell financial futures contracts in anticipation of an increase
in the general level of interest rates. Generally, as interest rates rise, the
market value of the securities held by the Funds will fall, thus reducing their
net asset value. This interest rate risk can be reduced without employing
futures as a hedge by selling such securities and either reinvesting the
proceeds in securities with shorter maturities or by holding assets in cash.
However, this strategy entails increased transaction costs in the form of dealer
spreads and brokerage commissions and would typically reduce the Fund's average
yield as a result of the shortening of maturities.
The sale of financial futures contracts provides a means of hedging against
rising interest rates. As rates increase, the value of a Fund's short position
in the futures contracts will also tend to increase, thus offsetting all or a
portion of the depreciation in the market value of the Fund's investments which
are being hedged. While the Fund will incur commission expenses in selling and
closing out futures positions (which is done by taking an opposite position in
the futures contract), commissions on futures transactions tend to be lower
than transaction costs incurred in the purchase and sale of portfolio
securities.
A Fund may purchase interest rate futures contracts in anticipation of a
decline in interest rates when it is not fully invested. As such purchases are
made, the Fund intends that an equivalent amount of futures contracts will be
closed out.
Unlike when a Fund purchases or sells a security, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Upon
entering into a contract, the Fund is required to deposit with its custodian in
a segregated account in the name of the futures broker an
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amount of cash and/or U.S. Government Securities. This amount is known as
"initial margin." The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract margin does not involve the borrowing of funds to finance the
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called variation margin or "maintenance margin" to and
from the broker (or the custodian) are made on a daily basis as the price of the
underlying security or commodity fluctuates, making the long and short positions
in the futures contract more or less valuable. This is known as "marking to the
market." For example, when a Fund has purchased a futures contract on a
security and the price of the underlying security has risen, that position will
have increased in value and the Fund will receive from the broker a variation
margin payment based on that increase in value. Conversely, when a Fund has
purchased a security futures contract and the price of the underlying security
has declined, the position would be less valuable and the Fund would be required
to make a variation margin payment to the broker.
A Fund may elect to close some or all of its futures positions at any time
prior to their expiration in order to reduce or eliminate a hedge position then
currently held by the Fund. The Fund may close its positions by taking opposite
positions which will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin are then made, additional
cash is required to be paid by or released to the Fund, and the Fund realizes a
loss or a gain. Such closing transactions involve additional commission costs.
Options on Futures Contracts. A Fund may purchase and write call and put
options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions.
Options on futures contracts give the purchaser the right in return for the
premium paid to assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. A Fund may use
options on futures contracts in lieu of purchasing or writing options directly
on the underlying securities or purchasing and selling the underlying futures.
For example, to hedge against a possible decrease in the value of its portfolio
securities, a Fund may purchase put options or write call options on futures
contracts rather than selling futures contracts. Similarly, a Fund may purchase
call options or write put options on futures contracts, rather than purchasing
such futures, to hedge against possible increases in the price of debt
securities which the Fund intends to purchase. Such options generally operate
in the same manner as options purchased or written directly on the underlying
investments.
A Fund, when engaging in transactions in futures and related options on
such futures will be required to deposit initial margin and variation margin to
reflect changes in the value of the futures contract. See the discussion above
under "Futures Contracts". Brokers may establish deposit requirements higher
than exchange minimums.
Limitations. A Fund will not purchase or sell futures contracts or options
on futures contracts or indices if, as a result, the sum of the margin deposits
on its existing futures contracts
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and related options positions and premiums paid for options on futures contracts
would exceed 5% of the Fund's total assets. In addition, with respect to each
futures contract purchased or long position in an option, the Fund will set
aside in a segregated account at its custodian bank an amount of cash or short
term U.S. Government Securities equal to the total market value of such
contracts less the initial margin deposited therefor.
A Fund will sell futures contracts only to offset expected declines in the
value of portfolio securities, and the value of such futures contracts will not
exceed the total market value of those securities (plus such additional amount
as may be necessary because of differences in the volatility factor of the
portfolio securities vis-a-vis the futures contracts).
Risks of Transactions in Futures Contracts and Related Options. Successful
use of futures contracts by a Fund is subject to the Adviser's ability to
predict movements in the direction of interest rates and other factors
affecting securities markets. For example, if a Fund has hedged against the
possibility of decline in the values of its investment and the values of its
investments increase instead, the Fund will have lost part or all of the benefit
of the increase through payments of daily maintenance margin. A Fund may have
to sell investments at a time when it may be disadvantageous to do so in order
to meet margin requirements.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
securities which are the subject of the hedge. The successful use of these
strategies also depends on the ability of the Adviser to forecast correctly
interest rate movements and general stock market price movements. The risk
increases as the composition of the portfolio of a Fund using these strategies
diverges from the composition of the relevant option or futures contract.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to a Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to a Fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
The effective use of options and futures strategies by a Fund depends,
among other things, on the Fund's ability to terminate options and futures
positions at times when the Adviser deems it desirable to do so. Although a
Fund will not enter into an option or futures position unless the Adviser
believes that a liquid market exists for such option or future, there can be no
assurance that the Fund will be able to effect closing transactions at any
particular time or at an acceptable price. The Funds generally expect that
their options and futures transactions will be
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conducted on recognized securities exchanges. In certain instances, however, a
Fund may purchase and sell options in the over-the-counter market. The Staff of
the Securities and Exchange Commission considers over-the-counter options and
securities underlying them to be illiquid. A Fund's ability to terminate
option positions established in the over-the-counter market may be more limited
than in the case of exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail to meet their
obligations to the Fund.
For instance, to reduce or eliminate a hedge position held by a Fund, the
Fund may seek to close out a position. The ability to establish and close out
positions will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop or continue
to exist for particular futures contracts or options. Reasons for the absence
of a liquid secondary market on an exchange include the following: (i) there may
be insufficient trading interest in certain contracts or options; (ii)
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of contracts or options,
or underlying securities; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
contracts or options (or a particular class or series of contracts or options),
in which event the secondary market on that exchange for such contracts or
options (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
U.S. Treasury Security Futures Contracts and Options. If a Fund invests in
tax-exempt securities issued by a governmental entity, the Fund may purchase and
sell futures contracts and related options on U.S. Treasury securities when, in
the opinion of the Adviser, price movements in Treasury security futures and
related options will correlate closely with price movements in the tax-exempt
securities which are the subject of the hedge. U.S. Treasury security futures
contracts require the seller to deliver, or the purchaser to take delivery of,
the type of U.S. Treasury security called for in the contract at a specified
date and price. Options on U.S. Treasury security futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
U.S. Treasury security futures contract at the specific option exercise price at
any time during the period of the option.
Successful use of U.S. Treasury security futures contracts by a Fund is
subject to the Adviser's ability to predict movements in the direction of
interest rates and other factors affecting markets for debt securities. For
example, if a Fund had sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates which would
adversely affect tax-exempt securities held in its portfolio, and the prices of
the Fund's tax-exempt securities increase instead as a result of a decline in
interest rates, the Fund will lose part or all of the benefit of the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has
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insufficient cash, it may have to sell securities to meet daily maintenance
margin requirements at a time when it may be disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury security futures
contracts and related options will not correlate closely with price movements in
markets for tax-exempt securities. For example, if a Fund has hedged against a
decline in the values of tax-exempt securities held by it by selling U.S.
Treasury security futures, and the values of U.S. Treasury securities
subsequently increase while the values of its tax-exempt securities decrease,
the Fund would incur losses on both the U.S. Treasury security futures contracts
written by it and the tax-exempt securities held in its portfolio. The Adviser
will seek to reduce this risk by monitoring movements in markets for U.S
Treasury security futures and options and for tax-exempt securities closely.
Index Futures Contracts. An index futures contract is a contract to buy or
sell units of an index at a specified future date at a price agreed upon when
the contract is made. Entering into a contract to buy units of an index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is the current value of the index. A Fund may enter into stock index futures
contracts, debt index futures contracts, or other index futures contracts
appropriate to its objective. A Fund may also purchase and sell options on
index futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are listed on the
New York Stock Exchange. The S&P 500 assigns relative weightings to the common
stocks included in the Index, and the value fluctuates with changes in the
market values of those common stocks. In the case of the S&P 500, contracts are
to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one
contract would be worth $75,000 (500 units x $150). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150 and the S&P 500
is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of
$4). If a Fund enters into a futures contract to sell 500 units of the stock
index at a specified future date at a contract price of $150 and the S&P 500 is
at $152 on that future date, the Fund will lose $1,000 (500 units x loss of $2).
There are several risks in connection with the use by a Fund of index
futures as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the index futures and movements
in the prices of securities which are the subject of the hedge. The Adviser
will, however, attempt to reduce this risk by buying or selling, to the extent
possible, futures on indices the movements of which will, in its judgment, have
a significant correlation with movements in the prices of the securities sought
to be hedged.
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The successful use of index futures by a Fund for hedging purposes is also
subject to the Adviser's ability to predict movements in the direction of the
market. It is possible that, where a Fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the Fund's portfolio may
decline. If this occurred, the Fund would lose money on the futures and also
experience a decline in value in its portfolio securities. It is also possible
that, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part of all of the benefit of the increased
value of those securities it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements at a time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the index futures and the portion
of the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures markets
are less onerous than margin requirements in the securities market, and as a
result the futures market may attract more speculators than the securities
market does. Increased participation by speculators in the futures market may
also cause temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the imperfect correlation
between movements in the index and movements in the prices of index futures,
even a correct forecast of general market trends by the Adviser may still not
result in a successful hedging transaction over a short time period.
Options on Index Futures. Options on index futures are similar to options
on securities except that options on index futures give the purchaser the right,
in return for the premium paid, to assume a position in an index futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. The delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account which represents the amount by
which the market price of the index futures contract, at exercise, exceeds (in
the case of a call) or is less than (in the case of a put) the exercise price of
the option on the index futures. If an option is exercised on the last trading
day prior to its expiration date, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
level of the index of options. Those who fail to exercise their options prior
to the exercise date suffer a loss of the premium paid.
Options on Indices. As an alternative to purchasing call and put options
on index futures, a Fund may purchase and sell call and put options on the
underlying indices themselves. Such options would be used in a manner identical
to the use of options on index futures.
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INDEX WARRANTS - STRATEGIC INCOME FUND. The Strategic Income Fund may
purchase put warrants and call warrants whose values vary depending on the
change in the value of one or more specified securities indices ("index
warrants"). Index warrants are generally issued by banks or other financial
institutions and give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment from the issuer
based on the value of the underlying index at the time of exercise. In general,
if the value of the underlying index rises above the exercise price of the index
warrant, the holder of a call warrant will be entitled to receive a cash payment
from the issuer upon exercise based on the difference between the value of the
index and the exercise price of the warrant; if the value of the underlying
index falls, the holder of a put warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The holder of a
warrant would not be entitled to any payments from the issuer at any time when,
in the case of a call warrant, the exercise price is greater than the value of
the underlying index, or, in the case of a put warrant, the exercise price is
less than the value of the underlying index. If the Strategic Income Fund were
not to exercise an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant. The Strategic
Income Fund will normally use index warrants in a manner similar to its use of
options on securities indices. The risks of the Fund's use of index warrants
are generally similar to those relating to its use of index options. Unlike
most index options, however, index warrants are issued in limited amounts and
are not obligations of a regulated clearing agency, but are backed only by the
credit of the bank or other institution which 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. A repurchase agreement is an agreement under which
a Fund acquires a money market instrument (generally a security, issued by the
U.S. Government or an agency thereof, a banker's acceptance or a certificate of
deposit) from a commercial bank, broker or dealer, subject to resale to the
seller at an agreed upon price and date (normally the next business day). The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by the Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the instruments acquired by a
Fund (including accrued interest) must have a total value in excess of the value
of the repurchase agreement and will be held by the Fund's custodian bank until
repurchased. The Adviser 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.
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Pursuant to an Exemptive Order under Section 17(d) and Rule 17d-1 obtained
by the Funds, excluding the Strategic Income Fund and the Northstar Advantage
Trust, on March 5, 1991, the Funds, excluding the Strategic Income Fund and the
Northstar Advantage Trust, may deposit uninvested cash balances into a single
joint account to be used to enter into repurchase agreements.
The use of repurchase agreements by a Fund involves certain risks. For
example, if the seller under a repurchase agreement defaults on its obligation
to repurchase the underlying instrument at a time when the value of the
instrument has declined, the Fund may incur a loss upon its disposition. If the
seller becomes insolvent and subject to liquidation or reorganization under
bankruptcy or other laws, a bankruptcy court may determine that the underlying
instrument is collateral for a loan by the Fund and therefore is subject to sale
by the trustee in bankruptcy. Finally, a Fund's right to liquidate its
collateral in the event of a default could involve certain costs, losses or
delays and, to the extent that proceeds from any sale upon default of the
obligation to repurchase are less than the repurchase price, the Fund could
suffer a loss.
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 limitation described herein.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. Each Fund may
enter into reverse repurchase agreements and dollar roll agreements. A dollar
roll agreement is identical to a reverse repurchase agreement except for the
fact that substantially similar securities may be repurchased. 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. Reverse
repurchase agreements and dollar roll agreements are considered a form of
borrowing, and a Fund is required to have asset coverage of 300% immediately
after entering into any such transaction. At the time the Fund enters into a
reverse repurchase agreement or a 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). A Fund's
ability to enter into reverse repurchase agreements and dollar roll agreements
is limited by restrictions on borrowings, by the requirement to maintain assets
in segregated accounts, and by requirements relating to the Fund's status as a
regulated investment company under the Internal Revenue Code.
Reverse repurchase agreements and dollar roll transactions involve the use
of "leverage", when cash made available to the Fund through the investment
technique is used to make additional portfolio investments. Leverage exists
when a Fund achieves the right to a return on a capital base that exceeds the
investment the Fund has invested. Because leveraging involves special risks,
the Funds use these investment techniques only when the Adviser believes that
the leveraging and the returns available to the Fund from investing the cash
will provide shareholders a potentially higher return. The risks of leverage
include a higher volatility of the net asset value of the Fund's shares and the
relatively greater effect on the net asset value of the
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shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. The
use of leverage may be considered speculative.
While the use of reverse repurchase agreements and dollar roll agreements
creates opportunities for increased income, the use of these agreements may also
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 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, 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
loaning securities will continue to receive any income on the loaned securities,
and at the same time will earn 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. A loan may be
terminated at any time by either the Fund loaning the securities or the
borrower. Upon termination of a loan, the borrower will be required to return
the securities to the Fund, and any gain or loss in the market price during the
period of the loan would accrue to the Fund. If the borrower fails to maintain
the requisite amount of collateral, the loan will automatically terminate, and
the Fund may use the collateral to replace the loaned securities while holding
the borrower liable for any excess of the replacement cost over the amount of
the collateral.
When voting or consent rights which accompany loaned securities pass to the
borrower, a Fund will follow the policy of calling the loan, in whole or in part
as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan. The Funds may pay reasonable finders,
administrative and custody fees in connection with loans of their portfolio
securities.
As with any extension of credit, there are 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. However, loans of portfolio
securities will only be made to firms considered by the Adviser to be
creditworthy under guidelines adopted by the Trustees.
FORWARD COMMITMENTS. Each Fund may enter into forward commitments to
purchase securities. An amount of cash or short-term U.S. Government Securities
equal to the Fund's commitment will be deposited in a segregated account at the
Fund's custodian bank to secure the Fund's obligation. Although a Fund will
generally enter into forward commitments to purchase
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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 the Adviser 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.
The Strategic Income 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. The Strategic Income 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 gains 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 of
the commitment was entered into.
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, which 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.). The revised rates are usually set at the issuer's
discretion, in which case the investor normally enjoys the right to "put" the
security back to the issuer or the stockholder's agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion. To
the extent that such letters of credit or other arrangements constitute an
unconditional guarantee of the issuer's obligations, the banks may be treated as
the issuer of a security for the purposes of complying with the diversification
requirements set forth in Section 5(b) of the 1940 Act and Rule 5b-2 thereunder.
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. Since this right is
assignable with the security which is readily marketable and valued in the
customary manner, a Fund will not assign any separate value to such right.
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ZERO COUPON TREASURY SECURITIES. 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. A zero coupon security pays no interest to its holder during its life.
An investor acquires a zero coupon security at a price which is generally an
amount based upon its present value, and which, depending upon the time
remaining until maturity, may be significantly less than its face value
(sometimes referred to as "deep discount" price). Upon maturity of the zero
coupon security, the investor receives the face value of the security.
Zero coupon Treasury bonds or notes consist of stripped interest or
principal components held in STRIPS form issued through the U.S. Treasury's
STRIPS program which permits the beneficial ownership of the component to be
recorded directly in the Treasury book-entry system. The Funds may also
purchase custodial receipts evidencing beneficial ownership of direct interests
in component parts of U.S. Treasury bonds or notes held by a bank in a custodian
or trust account.
Stripped interests in U.S. Treasury securities that are not issued through
the U.S. Treasury's STRIPS program are not considered to be U.S. Government
Securities.
Zero coupon securities do not entitle the holder to any periodic payments
of interest prior to maturity. Accordingly, such securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make periodic distributions of
interest. On the other hand, because there are no periodic interest payments to
be reinvested prior to maturity, zero coupon securities eliminate the
reinvestment risk and lock in a rate of return to maturity. Current Federal tax
law requires that a holder (such as a Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though during the year no interest payment on the security is received in
cash.
ADDITIONAL INFORMATION ON GNMAS. 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). Other Funds may also invest in GNMAs from time to time.
The following is additional information concerning GNMAs which supplements the
information presented in the Prospectus.
GNMAs are mortgage backed securities representing part ownership of a pool
of mortgage loans. GNMA Certificates differ from bonds in that principal is
scheduled to be paid back by the borrower over the length of the loan rather
than returned in a lump sum at maturity. 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 which may be used with GNMA's
guarantee.
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GNMA Certificates are created by an "issuer," which is a Federal Housing
Administration ("FHA") approved lender, such as mortgage bankers, commercial
bankers and savings and loan associations, who also meet criteria imposed by
GNMA. The issuer assembles a specific pool of mortgages insured by either the
FHA or the Farmers Home Administration or guaranteed by the Veterans
Administration. Upon application by the issuer, and after approval by GNMA of
the pool, GNMA provides its commitment for the guarantee of principal and
interest on the GNMA Certificates secured by the mortgages included in the pool.
The GNMA Certificates, endorsed by GNMA, are then sold by the issuer through
securities dealers.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagors or as a result of foreclosure, 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. Because of such variation in
prepayment rights, it is not possible to accurately predict the life of a
particular GNMA Certificate, but FHA statistics indicate that 25 to 30 year
single-family dwelling mortgages have an average life of approximately 12 years.
To the extent mortgage rates on the mortgages which underlie GNMA Certificates
are greater than or less than prevailing market mortgage rates, the average life
of a GNMA Certificate may be less than or more than 12 years. Generally, GNMA
Certificates bear a "coupon rate" which represents the effect of FHA-Veterans
Administration mortgage rates for the underlying pool of mortgages, less 0.5%
which constitutes the GNMA and issuer's fees. For providing its guarantee, GNMA
currently receives an annual fee of 0.06% of the outstanding principal on
Certificates backed by single-family dwelling mortgages, and the issuer
currently receives an annual fee of 0.44% for assembling the pool and for
passing through monthly payments of interest and principal.
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 which 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 which 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.
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The GNMA guarantee of principal and interest on GNMA Certificates is backed
by the full faith and credit of the United States Government. GNMA may borrow
U.S. Treasury funds to the extent needed to make payments under the guarantee.
Although the securities in the Government Securities Fund's portfolio are
guaranteed as to principal and interest by the U.S. Government or its
instrumentalities, the market value of these securities, upon which daily net
asset value is based, may fluctuate based upon such factors as changing interest
rates. 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.
FOREIGN SECURITIES. Each Fund, except Government Securities Fund, may
invest up to 20% of its net assets in foreign securities, of which 10% of its
net assets may be invested in foreign securities which are not listed on a U.S.
securities exchange. Strategic Income Fund, in particular, may invest up to the
limit of its total assets specified in the Prospectus in securities principally
traded in markets outside the United States. Eurodollar certificates of deposit
are excluded for purposes of this limitation. Foreign investments can be
effected favorably or unfavorably by changes in currency exchange rates and in
exchange control regulations. There may be less publicly available information
about a foreign company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than securities of U.S.
companies, and foreign brokerage commissions and custodian fees are generally
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local,
political or economic developments, expropriation or nationalization of assets
and imposition of withholding tax or variations in foreign exchange rates. A
Fund may purchase and sell forward foreign currency contracts. These represent
agreements to purchase or sell specified currencies at specified dates and
prices. A Fund will only purchase and sell forward foreign currency contracts
in amounts the Adviser deems appropriate to hedge existing or anticipated
portfolio positions and will not use such forward contracts for speculative
purposes. Foreign securities, like other assets of a Fund, will be held by the
Fund's custodian or by a subcustodian.
CURRENCY TRANSACTIONS - STRATEGIC INCOME FUND. The Strategic Income Fund
may engage in currency transactions to protect against uncertainty in the level
of future currency exchange rates. In addition, the Strategic Income Fund may
write covered call and put options on foreign currencies for the purpose of
increasing its current return.
Hedging Transactions. Generally, the Strategic Income Fund may engage in
both "transaction hedging" and "position hedging". When it engages in
transaction hedging, the Fund enters into foreign currency transactions with
respect to specific receivables or payables, generally arising in connection
with the purchase or sale of portfolio securities. The Fund will engage in
transaction hedging when it desires to "lock in" the U.S. dollar price of a
security it has agreed to purchase or sell, or the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. By transaction hedging, the
Fund will attempt to protect itself against a
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possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is earned, and the date on which such payments are made or
received.
The Strategic Income Fund may purchase or sell a foreign currency on a spot
(or cash) basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency. The
Fund may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes, the Strategic Income Fund may also
purchase exchanged listed and over-the-counter call and put options on foreign
currency futures contracts and on foreign currencies. A put option on a futures
contract gives the Fund the right to assume a short position in the futures
contract until the expiration of the option. A put option on a currency gives
the Fund the right to sell the currency at an exercise price until the
expiration of the option. A call option on a futures contract gives the Fund
the right to assume a long position in the futures contract until the expiration
of the option. A call option on a currency gives the Fund the right to purchase
the currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Strategic Income Fund enters into
foreign currency exchange transactions to protect against a decline in the
values of the foreign currencies in which its Portfolio securities are
denominated (or an increase in the value of currency for securities which the
Fund expects to purchase, when the Fund holds cash or short-term investments).
In connection with position hedging, the Fund may purchase put or call options
on foreign currency and on foreign currency futures contracts and buy or sell
forward contracts and foreign currency futures contracts. The Fund may also
purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved is not generally
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast precisely the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the Strategic Income Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency the Fund is obligated to deliver and a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the amount
of foreign currency the Fund is obligated to deliver.
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Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Strategic Income Fund owns or
intends to purchase or sell. Such techniques simply establish a rate of
exchange which one can achieve at some future time. The success of a hedging
transaction depends upon the Adviser's ability to forecast future currency
exchange rate changes. A hedging transaction may not be fully effective, either
because a currency rate forecast is incorrect or because of other factors
affecting the markets for hedging instruments, some of which factors are
described below. In addition, although these techniques tend to minimize the
risk of loss due to a decline in the value of the hedged currency, they tend to
limit any potential gain which might result from the increase in value of such
currency. As more fully explained below, currency hedging transactions also
involve risks and costs in addition to the risks and costs involved in the
Fund's investments in the securities that are the subject of the hedge.
The Strategic Income Fund may seek to increase its current return or to
offset some of the costs of hedging against fluctuations in current exchange
rates by writing covered call options and covered put options on foreign
currencies. The Fund receives a premium from writing a call or put option,
which increases the Fund's current return if the option expires unexercised or
closed out at a net profit. The Fund may terminate an option that it has
written prior to its expiration by entering into a closing purchase transaction
in which it purchases an option having the same terms as the option written.
The Strategic Income Fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign currency and
may at times not involve currencies in which its Portfolio securities are then
denominated. The Adviser will engage in such "cross hedging" activities when it
believes that such transactions provide significant hedging opportunities for
the Fund. Cross hedging transactions by the Fund involve the risk of imperfect
correlation between changes in the values of the currencies to which such
transactions relate and changes in the value of the currency or other asset or
liability which is the subject of the hedge.
Currency Forward and Futures Contracts. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contracts as agreed
by the parties, at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right to cancel the
contract at maturity by paying a specified fee. The contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement and no commissions are charged at any stage for trades. A
currency futures contract is a standardized contract for the future delivery of
a specified amount of a foreign currency at a future date at a price set at the
time of the contract. Currency futures contracts traded in the United States
are designed by and traded on exchanges regulated by the CFTC, such as the New
York Mercantile Exchange.
Currency exchange contracts differ from currency futures contracts in
certain respects. For example, futures contracts are traded on exchanges
between parties whose identity is not disclosed to each other. The terms of
futures contracts are not negotiated between the two
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parties, but instead are standardized as to maturity date and contract amount.
Transactions in futures contracts generally involve the payment of commissions
to brokers who act as intermediaries in the transactions. By contract, forward
currency exchange contracts are traded directly between currency traders so that
no intermediary is required. In purchasing a futures contract, the Strategic
Income Fund is generally required to deposit an amount of "initial margin" to
the account of the broker involved in the transaction, and to make daily
payments of variation margin if adverse changes in the market value of the
contract occur before the maturity date of the contract. A forward contract, by
contrast, generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the terms of the contract
will require the Strategic Income Fund either to accept or to make delivery of
the currency specified in the contract. At or prior to maturity, however, the
Fund may seek to enter into a closing transaction involving the purchase or sale
of an offsetting contract. Such a closing transaction will extinguish the
parties' obligations to make and accept delivery of currencies at the scheduled
maturity. Closing transactions with respect to forward contracts are usually
effected directly with the currency trader who is a party to the original
forward contract. The Fund's ability to effect a closing transaction with
respect to a noncancelable forward currency contract is limited by the
willingness and ability of the other party to the contract to effect such a
transaction. Forward currency contracts also involve the risk, at all times,
that the other party to the contract will default on its obligations. Such a
default could deprive the Fund of any of the expected benefits of the hedging
transaction and could result in expenses and delays if the Fund seeks to pursue
remedies against the defaulting party.
Closing transactions with respect to futures contracts are effected through
a broker on a commodities exchange and involve the payment of a brokers'
commission. A clearing corporation associated with the exchange generally
assumes responsibility for closing out such contracts. Positions in currency
futures contracts may be closed out only on an exchange or board of trade which
provides a secondary market in such contracts. Although the Strategic Income
Fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may
not be possible to close a futures position and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. In some circumstances, the Fund might have to sell other
assets to meet its variation margin payment obligations.
Futures transactions also involve a number of other risks. These include
the risk that movements in the value of futures contracts may not precisely
match changes in the value of the underlying currencies. Such disparities may
limit the effectiveness of the hedging transaction. The Strategic Income Fund
will maintain in a segregated account with its custodian cash or high quality
debt obligations in an amount at least equal to the difference between (1) the
amount of currency that the Fund is obligated to deliver under outstanding
forward and futures contracts and (2) the current value (determined daily) of
the Fund's liquid securities holdings that trade in that currency (plus any
variation margin already paid on such futures contracts).
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Currency Options. The Strategic Income Fund may purchase put or call
options on currencies. A put option gives the Fund the right, on or before a
specified date, to sell to the other party to the contract a specified amount of
a currency for a specified price measured in another currency. A call option
gives the Fund a similar right to buy a specified amount of a currency from the
other party. The Fund pays a purchase price (called a "premium" when it
initially acquires the option. Currency options are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Options are traded not only on the currencies
of individual countries, but also on the European Currency Unit ("ECU"). The
ECU is composed of amounts of a number of currencies, and is the official medium
of exchange of the European Union's European Monetary System.
Currency options involve a number of risks. These include the risk, in the
case of over-the-counter options, that the other party will default on its
obligations. Such a default could deprive the Strategic Income Fund of the
expected benefits of the hedging transaction and could result in expenses and
delays if the Fund seeks to pursue remedies against the defaulting party.
Another risk associated with options is that, if anticipated currency price
movements do not occur, the Strategic Income Fund may never exercise its rights
under the option, in which case the option will expire worthless and the Fund
will not recover the value of the premium it paid to acquire the option.
Options on currencies are affected by many of the same factors that
influence exchange rates and investments generally. The value of any currency,
including U.S. dollars and foreign currencies, may be affected by political and
economic factors applicable to the issuing country. The exchange rates of
foreign currencies (and therefore the values of foreign currency options) may be
affected significantly, fixed, or supported directly or indirectly by U.S. and
foreign government actions. Government intervention may increase the risk
involved in purchasing or selling foreign currency options, since exchange rates
may not be free to fluctuate in response to other market forces.
The value of a foreign currency option reflects the value of an exchange
rate, which in turn reflects the relative values of two currencies, the U.S.
dollar and the particular foreign currency involved. Because foreign currency
transactions occurring in the interbank market involve substantially larger
amounts than those that may be involved in the exercise of foreign currency
options, investors may be disadvantaged by having to deal in an odd lot market
for the underlying foreign currencies in connection with options at prices that
are less favorable than for round lots. Foreign government restrictions or
taxes could result in adverse changes in the cost of acquiring or disposing of
foreign currencies.
There is no systematic reporting or last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the interbank market and thus may not reflect exchange
rates for smaller odd-lot transactions (less than $1 million) where rates may be
less favorable. The interbank market in foreign currencies is a 24-hour a day,
global market. To the extent the
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options markets are closed while the markets for the underlying currencies are
open, significant price and rate movements may take place in the underlying
markets that cannot be reflected in the options markets.
Settlement Procedures. Settlement procedures relating to the Strategic
Income Fund's investments in foreign securities and to the Fund's foreign
currency exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S issuers, and may involve
certain risks not present in the Fund's domestic investments. For example,
settlement of transactions involving foreign securities or foreign currency may
occur within a foreign country, and the Fund may be required to accept or make
delivery of the underlying securities or currency in conformity with any
applicable U.S. or foreign restrictions or regulations, and may be required to
pay any fees, taxes or charges associated with such delivery. Such investments
may also involve the risk that an entity involved in the settlement may not meet
its obligations.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Accordingly, a dealer may offer to sell a foreign currency
to the Strategic Income Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
SHORT-TERM TRADING - STRATEGIC INCOME FUND. In seeking the Strategic
Income Fund's objective, the Adviser will buy or sell Portfolio securities
whenever the Adviser believes it appropriate to do so. In deciding whether to
sell a Portfolio security, the Adviser will not consider how long the Fund has
owned the security. From time to time the Fund will buy securities intending to
seek short-term trading profits. A change in the securities held by the Fund is
known as "portfolio turnover" and generally involves some expense to the Fund.
These expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the
Strategic Income Fund to realize net short-term capital gains, such gains will
be taxable as ordinary income. As a result of the Fund's investment policies,
under certain market conditions the Fund's portfolio turnover rate may be higher
than that of other mutual funds. Portfolio turnover rate for a fiscal year is
the ratio of the lesser of purchases or sales of portfolio securities to the
monthly average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The Fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the Fund's
portfolio.
HIGH YIELD SECURITIES. Strategic Income Fund, High Yield Fund, High Total
Return Fund, Income Fund and Growth 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 in general economic
conditions, 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
35
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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 Standard & Poor's Corporation (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 Appendix A to the Prospectus for a description of security
ratings.
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 the Adviser 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.
SPECIAL SITUATIONS. The High Total Return Fund may invest up to 5% of its
assets in "special situations." A special situation arises when, in the opinion
of the Fund's Adviser, the securities of a particular company will, within a
reasonably estimable period of time, be accorded market recognition at an
appreciated value solely by reason of a development applicable to that company,
and regardless of general business conditions or movements of the market as a
whole. Developments creating a special situation might include, among others:
liquidations, reorganizations, recapitalizations, mergers, material litigation,
technical break-throughs and new management or management policies. Although
large and well known companies may be involved, special situations more often
involve comparatively small or unseasoned companies. The High Total Return Fund
may from time to time participate on committees formed by creditors to negotiate
with the management of financially troubled issuers of securities held by the
Funds. Such participation may subject the Funds to expenses such as legal fees
and may make the Funds an "insider" of the issuer for purposes of the federal
securities laws, and therefore may restrict the Funds ability to purchase or
sell a particular security when it might otherwise desire to do so.
Participation by the Funds on such committees also may expose the Funds to
potential liabilities under the federal bankruptcy laws or other laws governing
the right of creditors and debtors. The Funds will participate on such
committees only when the Adviser believes that such participation is necessary
or desirable to enforce the Fund's rights as a creditor
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or to protect the value of securities held by the Funds. Investments in
unseasoned companies and special situations often involve much greater risk than
is inherent in ordinary investment securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. A Fund's investment in Loan
Participations (as defined in the Prospectus) 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. Certain
Participations may be structured in a manner designed to avoid purchasers of
Participation being subject to the credit risk of the Lender with respect to the
Participation, but even under such a structure, in the event of the Lender's
insolvency, the Lender's servicing of the Participations may be delayed and the
assignability of the Participation impaired.
When a Fund purchases Loan Assignments (as defined in the Prospectus) 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 Participation when
necessary to meet redemptions of Fund shares, the Fund's liquidity needs or 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 Participation also may make it more difficult for a Fund to
value these securities for purposes of calculating its net asset value.
WHEN-ISSUED SECURITIES. A Fund may 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. At the time a Fund makes
the commitment to purchase a security on a when-issued or delayed delivery
basis, it will record the transaction and reflect the value of the security less
the liability to pay the purchase price in determining the Fund's net asset
value. 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. No interest accrues on the security between the time a Fund enters into
the commitment and the time
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the security is delivered. 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser places orders for the purchase and sale of securities,
supervises their execution and negotiates brokerage commissions on behalf of
each Fund. It is the practice of the Adviser to seek the best prices and best
execution of orders and to negotiate brokerage commissions which 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 the Adviser, the rate is deemed by
the Adviser 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 the Adviser
after the transaction has been consummated. If the Adviser 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. The Adviser
believes that each Fund benefits with a securities industry comprised of many
and diverse firms and that the long-term interest of shareholders of the Funds
is best served by its brokerage policies which include paying a fair commission
rather than seeking to exploit its leverage to force the lowest possible
commission rate. The primary factors considered in determining the firms to
which brokerage orders are given are the Adviser's appraisal of the firm's
ability to execute the order in the desired manner, the value of research
services provided by the firm, and the firm's attitude toward and interest in
mutual funds in general, including the sale of mutual funds managed and
sponsored by the Adviser. The Adviser does not offer or promise to any broker
an amount or percentage of brokerage commissions as an inducement or reward for
the sale of shares of the Funds. Over-the-counter purchases and sales are
transacted directly with principal market-makers, except in those circumstances
where in the opinion of the Adviser 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
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universe of securities and other matters than the Adviser's staff can follow.
In addition, it provides the Adviser with a diverse perspective on financial
markets. Research and investment information is provided by these and other
brokers at no cost to the Adviser and is available for the benefit of other
accounts advised by the Adviser 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 the Adviser, it
does not reduce the Adviser's expenses in a determinable amount. The extent to
which the Adviser makes use of statistical, research and other services
furnished by brokers is considered by the Adviser in the allocation of brokerage
business, but there is no formula by which such business is allocated. The
Adviser does so in accordance with its judgment of the best interest 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 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 the Adviser generally seeks reasonably competitive spreads or commissions,
the Funds will not necessarily pay the lowest spread or commission available.
Each Fund may, in circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to the Funds. By allocating
transactions in this manner, the Adviser is able to supplement its research and
analysis with the views and information of other securities firms. During the
respective fiscal years ended October 31, 1994 and December 31, 1994,
respectively, each of the Funds listed below paid total brokerage commissions
indicated below, including in the case of the Government, High Yield, Income,
Growth, Special and Strategic Income Funds, commissions to Advest, Inc.
("Advest"), an affiliate of the Funds' former investment adviser.
Brokerage Commissions Paid During
Fiscal Year Ended October 31, 1994
----------------------------------
Income and Growth Fund $ 136,000
High Total Return Fund $ 3,021
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BROKERAGE COMMISSIONS
PAID DURING FISCAL YEAR ENDED
DECEMBER 31, 1994
Percent of Percent of
Aggregate Dollar
Fund Total Advest Commissions Amount
- --------------------- ----- ------ ----------- ---------
Government Fund $ 0 $ 0 0% 0%
High Yield Fund $ 13,184 $ 0 0% 0%
Income Fund $ 97,750 $ 0 0% 0%
Growth Fund $151,132 $24,340 16.11% 16.56%
Special Fund $ 47,281 $ 5,288 11.18% 11.30%
Strategic Income Fund $ 0 $ 0 0% 0%
SERVICES OF THE ADVISER AND 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, the Adviser, subject to the authority of the Trustees of the
Funds, is responsible for furnishing continuous investment supervision to the
Funds and is responsible for the management of each Fund's portfolio.
The Adviser is an indirect, majority-owned subsidiary of ReliaStar
Financial Corp. ("ReliaStar"). Combined minority interests held by members of
senior management currently equal 20%. ReliaStar is a publicly traded holding
company whose subsidiaries specialize in the life insurance business. Through
Northwestern National Life Insurance Company ("Northwestern") 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 the Adviser is
Two Pickwick Plaza, Greenwich, Connecticut 06830. The address of ReliaStar is
20 Washington Avenue South, Minneapolis, Minnesota 55401.
The Adviser charges a fee under each advisory agreement to Government
Securities Fund, High Yield Fund, Income Fund, Growth Fund, Special Fund and
Strategic Income Fund at an annual rate, after voluntary waivers or expense
reimbursements, of 0.45%, 0.45%, 0.65%, 0.75%, 0.75% and 0.65% of such Fund's
average daily net assets, respectively. This fee is accrued daily and payable
monthly.
The Adviser charges a fee to the High Total Return Fund and Income and
Growth Funds 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.
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The Adviser has agreed that if, in any fiscal year, the aggregate expenses of a
Fund, exclusive of taxes, distribution fees, brokerage, interest and (with the
prior consent of any necessary state securities commissions) extraordinary
expenses, but including the management fee, exceed the most restrictive expense
limitations applicable to the Fund under state securities laws or published
regulations thereunder, the Adviser will refund on a proportionate basis to the
Fund whose expenses exceeded such limitation the excess over such amount up to
the total fee received by the Adviser. Currently, the most restrictive of such
limitations would require the Adviser to reimburse such a Fund to the extent
that in any fiscal year such aggregate expenses exceed 2.5% of the first
$30,000,000 of the average net assets, 2.0% of the next $70,000,000 of the
average net assets and 1.5% of any amount of the average net assets in excess of
$100,000,000.
The Investment Advisory Agreement for the Income and Growth Fund and High
Total Return Fund was approved by the Trustees of the Northstar Advantage Trust
on October 23, 1993, and by the sole Shareholder of the Northstar Income and
Growth Fund, and High Total Return Fund on November 8, 1993. The Investment
Advisory Agreement will continue in effect until November 17, 1995, and
thereafter, will continue in effect from year to year if specifically approved
annually (a) by the Trustees, acting separately on behalf of each Fund,
including a majority of the Disinterested Trustees, or by (b) a majority of the
outstanding voting securities of each class of each 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 will
continue in effect until June 2, 1997, and thereafter, will continue in effect
from year to year if specifically approved annually (a) by the Trustees, acting
separately on behalf of the particular Fund, including a majority of the
Disinterested Trustees, or by (b) a majority of the outstanding voting
securities of each class of such Fund as defined in the 1940 Act.
A Fund's Investment Advisory Agreement may be terminated as to any class
without penalty at any time by a similar vote upon not more than 60 days' nor
less than 30 days' written notice by the Adviser, the Trustees, or a majority of
the outstanding voting securities of such class of such Fund as defined in the
1940 Act. It will automatically terminate in the event of its assignment as
defined in Section 2(a)(4) of the 1940 Act.
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 the Adviser 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 the Adviser for compliance with requirements
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under applicable law and with the investment policies and restrictions of the
Funds. The Administrator is an affiliate of the Adviser. 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 and High Total Return Fund on
October 23, 1993. The Agreement will continue in effect until November 17,
1995, and from year to year thereafter, provided such continuance is approved
annually by a majority of the Trustees of the Trust. 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 .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.
Each Administrative Services Agreement for the remaining Funds was approved
by the Trustees of the particular Fund on March 1, 1995. The Agreements provide
that until June 2, 1997, the Administrator will not receive any compensation
under such agreements and thereafter shall receive such compensation as the
Board of Trustees of the Funds may determine. The Agreements will continue in
effect until June 2, 1997, and from year to year thereafter, provided such
continuance is approved annually by a majority of the Disinterested Trustees of
the affected Fund.
During the fiscal year ended October 31, 1994, the Funds listed below paid the
Adviser and Administrator the following investment advisory and administrative
fees, respectively:
Fiscal Year Ended October 31, 1994
----------------------------------
Advisory Fees Administrative Fees
------------- -------------------
Income and Growth Fund (1) $ 509,440 $ 64,452
High Total Return Fund (2) $ 382,777 $ 49,816
(1) Does not reflect expense reimbursement of $57,594.
(2) Does not reflect expense reimbursement of $72,201.
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Prior to June 5, 1995, the Government Securities, Strategic Income, High
Yield, Income, Growth and Special Funds were managed by Boston Security
Counsellors, Inc. ("BSC") and did not utilize the services of an administrator.
During the fiscal years ended December 31, 1994, 1993 and 1992, the Funds listed
below paid BSC the following investment advisory fees:
Total Advisory Fees Paid
Fund During Year Ended December 31,
- -------------------- -----------------------------------------
1994 1993 1992
Government Fund (1) $747,846 $767,370 $598,226
High Yield Fund 622,761 432,063 204,277(2)
Income Fund 519,729 447,631 338,308
Growth Fund 604,576 517,203 354,835
Special Fund 268,139 145,178 56,668
Strategic Income Fund 57,726(3) -- --
(1) Net of waiver of investment advisory fees of $332,370, $341,054 and
$265,879 for the years ended December 31, 1994, 1993, and 1992, respectively.
BSC elected to waive 0.20% of its investment advisory fee, effective January 1,
1989 for the Government Securities Fund.
(2) As described hereafter, BSC reimbursed High Yield Fund for certain
expenses. The figures presented in the table do not reflect such reimbursement.
During the year ended December 31, 1992, BSC reimbursed the High Yield Fund for
$23,576 of operating expenses. This expense reimbursement was in excess of the
reimbursement required of BSC under its investment advisory agreement with that
Fund.
(3) For the period July 1, 1994 (commencement of the Strategic Income Fund's
operations) through December 31, 1994, Advest, an affiliate of BSC, voluntarily
reimbursed the Strategic Income Fund for $57,336 in expenses. Accordingly,
expenses borne by Strategic Income Fund for the six-month period ended
December 31, 1994, amounted to $170,198, representing 1.90% of the Strategic
Income Fund's average net assets.
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NET ASSET VALUE
The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m. EST), on each business day that the Exchange
is open. Net asset value per share is computed by determining the value of a
Fund's assets (securities held plus cash and other assets, including dividend
and interest accrued but not received) less all liabilities of the Fund
(including accrued expenses other than class specific expenses), and dividing
the result by the total number of shares outstanding at such time. The specific
expenses borne by each class of shares will be deducted from that class and will
result in different net asset values and dividends. The net asset value per
share of the Class B, Class C and Class T shares of each Fund will generally be
lower than that of the Class A shares because of the higher class-specific
expenses borne by each of the Class B, Class C and Class T shares. See "How Net
Asset Value is Determined" in the Prospectus.
HOW TO BUY SHARES
The minimum initial purchase is $2,500. In the case of employee payroll
deductions plans, organized group plans and other benefit programs or
arrangements offered by certain dealers, the minimum initial investment may be
fixed from time to time at such lesser amounts as the Adviser in its sole
discretion may determine, and may in certain cases be waived from time to time
by the Adviser in its sole discretion. See the Funds' current Prospectus.
ALTERNATIVE PURCHASE ARRANGEMENTS
The High Total Return and the Income and Growth Funds each offer three
classes of shares. Each of other Funds offers four classes of shares, three of
which may be purchased from investment dealers. The alternative purchase
arrangements are outlined below and described more fully in the Funds'
Prospectus.
Class A Shares. An investor who elects the initial sales charge
alternative acquires Class A shares. Class A shares incur a sales charge when
they are purchased. Class A shares are subject to ongoing distribution and
service fees at an annual rate of up to 0.30% of each Fund's aggregate average
daily net assets attributable to the Class A shares. Certain purchases of
Class A shares qualify for reduced initial sales charges or a waiver thereof.
Class B Shares and Class C Shares. An investor who elects the contingent
deferred sales charge alternative acquires Class B shares. Class B shares do
not incur a sales charge when they are purchased, but they are subject to a
contingent deferred sales charge if they are redeemed within five years of
purchase. An investor who elects the limited contingent deferred sales charge
alternative acquires Class C shares. Class C shares do not incur a sales charge
when purchased, and are subject to a low level contingent deferred sales charge
only if redeemed within one year of purchase. The contingent deferred sales
charge on Class B and Class C shares may be waived in connection with certain
qualifying redemptions or exchanges.
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Class B and Class C shares are subject to ongoing distribution and service
fees at an annual rate of up to 1.00% of a Fund's aggregate average daily net
assets attributable to the respective class. Class B and Class C shares enjoy
the benefit of permitting all of the investor's dollars to work from the time
the investment is made, subject to the higher ongoing distribution fee paid by
Class B and Class C shares which will cause such shares to have a higher expense
ratio and to pay lower dividends to the extent any dividends are paid (and thus
have a less competitive return) than those related to Class A shares. Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month in which the shareholder's order to purchase was accepted, in
the circumstances and subject to the qualifications described in the Funds'
Prospectus. The purpose of the conversion feature is to relieve the holders of
the Class B shares that have been outstanding for a period of time sufficient
for the Underwriter to have been compensated for distribution expenses related
to the Class B shares from most of the burden of such distribution related
expenses. See "Conversion Feature," below. There is no conversion feature
offered on Class C shares.
Class T Shares. Prior to June 5, 1995, the Government Securities,
Strategic Income, High Yield, Income, Growth and Special Funds offered only one
class of shares (currently designated as, the "Class T shares"). Class T shares
are no longer offered for sale by these Funds, except in connection with
reinvestment of dividends and other distributions, upon exchange of Class T
shares of another Fund or upon exchange from the Class T Account of the Money
Market Portfolio (see "Exchange Privileges"). Until November 30, 1995, Class T
shares may also be purchased with funds withdrawn from an Advantage Insured
Account; provided that such funds were in the account on June 2, 1995. A
contingent deferred sales charge is imposed upon redemptions of Class T shares
made within four years of purchase. Class T shares of each Fund pay ongoing
distribution and service fees to the Underwriter at a combined annual rate of up
to 0.95% (in the case of Growth Fund, Special Fund and Strategic Income Fund),
0.75% (in the case of Income Fund) and 0.65% (in the case of Government
Securities Fund and High Yield Fund) of the annual average daily net assets
attributable to such Fund's Class T shares.
General Considerations Associated with the Multiple Class Distribution
Structure. The alternative purchase arrangements permit an investor to choose
the method of purchasing shares that the investor prefers given the amount of
the purchase, the length of time the investor expects to hold the shares,
whether the investor wishes to receive distributions in cash or to reinvest them
in additional shares of the Fund and other circumstances. Investors should
consider whether, during the anticipated life of their investment in a Fund, the
accumulated continuing distribution fees and the contingent deferred sales
charges on Class B shares prior to conversion or on Class C shares, if any,
would be economically more advantageous than the initial sales charge and
accumulated service and distribution fees on Class A shares purchased at the
same time, and the effect of the lower expenses attributable to Class A shares.
Class A shares are subject to a lower distribution fee and, accordingly,
pay correspondingly higher dividends per share, to the extent any dividends are
paid. However, because initial sales charges are deducted at the time of
purchase, such investors would not have all their funds invested initially and,
therefore, would initially own fewer shares. Investors whether or not
qualifying for reduced initial sales charges who expect to maintain their
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investment for an extended period of time might consider purchasing Class A
shares, because the accumulated continuing distribution charges on Class B or
Class C shares may exceed the initial sales charge on Class A shares during the
life of the investment. Again, however, such investors must weigh this
consideration against the fact that, because of such initial sales charges, not
all their funds will be invested initially. However, other investors might
determine that it would be more advantageous to purchase Class B shares or
Class C shares to have all their funds invested initially, although remaining
subject to higher distribution fees until conversion (and redemption fees for
five years from the date of purchase) in the case of Class B shares; and to
higher distribution fees for the life of the investment (and redemption fees for
one year) in the case of Class C shares. Sales personnel of broker-dealers
distributing each Fund's shares may receive differing compensation for selling
the different classes of shares.
Dividends paid by each Fund, if any, with respect to each class of shares
will be calculated in the same manner, at the same time and on the same day,
except that the higher distribution fee and any incremental transfer agency
costs relating to Class B, Class C, and Class T shares will be borne exclusively
by that class. See "Dividends, Distributions and Taxes."
Class B Share and Class T Share Conversion Feature. Class B shares include
all shares purchased pursuant to the contingent deferred sales charge
alternative which have been outstanding for less than the period ending eight
years after the end of the month in which the shares were issued. At the end of
this period, Class B shares will automatically convert to Class A shares and
will no longer be subject to the higher distribution fee. Class T shares
convert to Class A shares at the end of the month which is the later of
(i) eight years after the Class T shares were purchased or (ii) May 31, 1998.
Such conversion will be on the basis of the relative net asset value of the two
classes without the imposition of any sales load, fee or other charge. The
purpose of the conversion feature is to relieve the holders of Class B and
Class T shares that have been outstanding for a period of time sufficient for
the Underwriter or former underwriter to have been compensated for distribution
expenses related to the Class B and Class T shares from most of the burden of
such distribution-related expenses.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid in respect of Class B or
Class T shares in a shareholder's Fund account will be considered to be held in
a separate sub-account. Each time any Class B shares in the shareholder's Fund
account (other than those in the sub-account) convert to Class A, an equal pro
rata portion of the Class B or Class T shares in the sub-account will also
convert to Class A.
EXCHANGE PRIVILEGES
Shareholders may exchange shares of a Fund for the same class of shares of
another Fund and, except in the case of Class T shares, certain other investment
companies in which the Adviser acts as investment adviser. Shareholders may
also exchange their shares for shares of the same class of The Cash Management
Fund, a series of Salomon Brothers Investment Series (an open-end management
investment company comprised of various portfolios, herein referred to as "Money
Market Portfolio," that is not one of the Funds, but is available by purchase or
exchange through the Underwriter). Except for Class T shares, telephone
exchange privileges
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are available. For Federal income tax purposes, an exchange will be treated as
a sale and purchase of shares. Special rules may apply in computing the amount
of gain or loss in these situations. (See "Dividends, Distributions and Taxes"
for information on the Federal income tax treatment of a disposition of shares.)
See the Funds' current Prospectus for more information regarding exchanges.
REDEMPTION OF SHARES
Payment for shares redeemed must ordinarily be mailed within three days
after tender in the proper form as described in the Funds' Prospectus. The
right to redeem shares may be suspended and payment therefor 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 which 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.
Except for Class T shares, the Funds have procedures in place to accept
telephone redemptions. See the current Prospectus for more information.
Each shareholder account in any Fund which has been in existence for at
least one year and has a value of less than $500 may be redeemed upon the giving
of not less than 60 days written notice to the shareholder mailed to the address
of record. During the 60 day period the shareholder has the right to add to the
account to bring its value to $500 or more. In addition, each Fund reserves
the right to close a shareholder account if the shareholder has failed to
provide a social security number or other taxpayer identification number and
certification (if required) that such number is correct. See the Funds' current
Prospectus for more information.
Shareholders who may have overlooked features of their investment at the
time they redeemed have a one-time privilege of reinstating their investment
subject to the terms of exchange at the net asset value next determined after
the request for reinstatement is made. See the Funds' Prospectus for more
information and conditions attached to the privilege.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order to so qualify, the Fund must, among
other things, (i) derive 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 from gains from the sale or other disposition of
securities held for less than three
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months; (iii) distribute at least 90% of its dividend, interest and certain
other taxable income each year; and (iv) at the end of each fiscal quarter
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 which 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 which the Fund
controls and which are engaged in the same, similar or related trades and
businesses. To the extent it qualifies for treatment as a regulated investment
company, a Fund will not be subject to federal income tax on income paid to its
shareholders in the form of dividends or capital gains distributions.
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. For a distribution to qualify as such with respect to a
calendar year under the foregoing rules, it must be declared by the Fund during
October, November or December and paid by the Fund before the following
February 1. 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.
Under current federal tax law, each Fund will receive net investment income
in the form of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize interest attributable to it from holding zero coupon Treasury
securities. Current Federal tax law requires that a holder of a zero coupon
security accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payment in cash on
the security during the year. As an investment company, each Fund must pay out
substantially all of its net investment income each year. Accordingly, each
Fund may be required to pay out as an income distribution each year an amount
which is greater than the total amount of cash interest the Fund actually
received. Such distributions will be made from the cash assets of a Fund or by
liquidation of portfolio securities, if necessary. If a distribution of cash
necessitates the liquidation of portfolio securities, the Adviser will select
which securities to sell. A Fund may realize a gain or loss from such sales.
In the event a Fund realizes net capital gains from such transactions,
shareholders may receive a larger capital gain distribution, if any, than they
would in the absence of such transactions.
Certain options, futures contracts, and options on futures contracts are
"section 1256 contracts." Any 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"). Also, section 1256 contracts held by a Fund at the
end of each taxable year are treated for federal income tax purposes as being
sold on such date for their fair market value. The resultant gains or losses
are treated as 60/40 gains or losses. When the section 1256 contract is
subsequently disposed of, the actual gain or loss will be adjusted by the amount
of the year-end gain or loss. The use of section
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1256 contracts may increase the amount of short-term capital gain realized by a
Fund and taxed as ordinary income when distributed to shareholders.
Hedging transactions in options, futures contracts and straddles or other
similar transactions will subject a Fund to special tax rules (including
mark-to-market, straddle, wash sale and short sale rules). The effect of these
rules may be to accelerate income to a Fund, defer losses to a Fund, cause
adjustments in the holding periods of a Fund's securities or convert short-term
capital losses into long-term capital losses. Hedging transactions may increase
the amount of short-term capital gain realized by a Fund which 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. A Fund will
use its best efforts to make any available elections pertaining to the foregoing
transactions in a manner believed to be in the best interests of the Fund. The
30% limit on gains from the sale of securities held for less than three months
and the diversification requirements applicable to a Fund's assets may limit the
extent to which a Fund will be able to engage in transactions in options,
futures contracts, or options on futures contracts.
Shareholders of a Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by a Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. Distributions of
long-term capital gains, if any, will be taxable to the shareholders as
long-term capital gains, without regard to how long a shareholder has held
shares of the Fund. A loss on the sale of shares held for 6 months or less will
be treated as a long-term capital loss to the extent of any long-term capital
gain dividend paid to the shareholder with respect to such shares. Corporate
shareholders should not anticipate that dividends and distributions by a Fund
will necessarily qualify for the dividends received deduction, since dividends
paid by a Fund may often not be derived from dividend income.
There may be differences between federal income tax rules and the
accounting principles adopted by a Fund. To the extent that current net
realized capital gains are distributed during the course of a fiscal year, the
subsequent realization of capital losses at or before the end of the fiscal year
could offset such gains for federal income tax purposes. If the amount of
distributions paid by a Fund for any fiscal year exceeds its investment company
taxable income plus net realized capital gains for the year, the excess is
treated as a return of capital. Each distribution paid for that year could be
treated, in the same proportion, in part as a distribution of taxable income and
in part as a return of capital. Shareholders are not subject to current federal
income tax on the part which is treated as a return of capital, but their basis
in shares of the Fund would be reduced by that amount. This reduction of basis
would operate to increase capital gain (or decrease capital loss) upon
subsequent sale of shares.
A Fund's investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a discount may)
require the Fund to accrue and distribute income not yet received. In order to
generate sufficient cash to make the requisite
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distributions, the Fund may be required to sell securities in its portfolio that
it otherwise would have continued to hold.
A Fund's transactions in foreign currency-denominated debt securities,
certain foreign currency options, futures contracts, and forward contracts may
give rise to ordinary income or loss to the extent such income or loss results
from fluctuations in the value of the foreign currency concerned.
Each Fund may be subject to non-U.S. tax on income and gains received from
securities of non-U.S. issuers which generally is withheld by a foreign country
at the source. The United States has entered into tax treaties with many
foreign countries which may entitle each Fund to a reduced rate of tax or
exemption from tax on income. It is impossible to determine the effective rate
of foreign tax in advance since the amount of any Fund's assets to be invested
within various countries is not known. Each Fund intends to operate so as to
qualify for tax treaty benefits where applicable. To the extent that a Fund is
liable for foreign income and similar taxes withheld at the source, a Fund may
operate so as to meet the requirements of the Code to "pass through" to its
shareholders tax benefits attributable to foreign income taxes paid by a Fund.
If more than 50% of the value of a Fund's total assets at the close of its
taxable year is comprised of securities issued by foreign corporations, a Fund
may elect to "pass through" to its shareholders the amount of foreign income
taxes paid by a Fund. Pursuant to this election, shareholders will be required
to (i) include in gross income, even though not actually received, their
respective pro rata share of foreign taxes paid by a Fund; (ii) treat their pro
rata share of foreign taxes as paid by them; and (iii) subject to certain
limitations, either deduct (as an itemized deduction) their pro rata share of
foreign taxes in computing their taxable income, or use such share as foreign
tax credit against U.S. income tax (but not both). No deduction for foreign
taxes may be claimed by a non-corporate shareholder who does not itemize
deductions. Each Fund may meet the requirement to "pass through" to its
shareholders foreign income taxes paid, but there can be no assurance that each
Fund will be able to do so. Each shareholder will be notified within 60 days
after the close of each taxable year of each Fund if the foreign taxes paid by a
Fund will "pass through" for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid and (ii)
each Fund's gross income form foreign sources.
Generally, a credit for foreign taxes paid or accrued is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, the source of a
Fund's income flows through to its shareholder. Gains from the sale of
securities by a Fund will be treated as derived from U.S. sources and section
988 gains will be treated as derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source passive income,
including foreign source passive income received from a Fund. Shareholders may
be unable to claim a credit for the full amount of their proportionate share of
the foreign taxes paid by a Fund. The foreign tax credit can be applied to
offset no more than 90% of the alternative minimum tax imposed on corporations
and individuals. The foregoing is only a general description of the foreign tax
credit. Because application of a credit depends on the particular circumstances
of each shareholder, shareholders are advised to consult their own tax adviser.
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Investment by a Fund in certain "passive foreign investment companies"
could subject the Fund to a U.S. Federal income tax or other charge on the
proceeds from the sale of its investment in such a company; however, this tax
can be avoided by the Fund's making an election to mark such investments to
market annually or to treat the passive foreign investment company as a
"qualified electing fund."
Each Fund will notify shareholders each year of the amount of dividends and
distributions representing long-term capital gains or return of capital.
Redemptions and exchanges of Fund shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
If shares have been held for more than one year, gain or loss realized will be
long-term capital gain or loss unless the shareholder is a dealer in
securities. However, if a shareholder sells Fund shares at a loss within six
months after purchasing the shares, the loss will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions received
by the shareholder. Furthermore, no loss will be allowed on the sale of Fund
shares to the extent the shareholder acquired other shares of that Fund within
30 days prior to the sale of the shares or 30 days after such sale.
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 gain, 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
Internal Revenue Service that they are subject to backup withholding or (iii)
those who, to a Fund's knowledge,
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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.
As discussed above, there may be a difference between a Fund's book income
and its taxable income. This difference may cause a portion of the Fund's
income distributions to constitute return of capital for tax purposes or require
the Fund to make distributions exceeding book income to qualify as a regulated
investment company.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to state and local 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. A Fund will advise
shareholders of the proportion of its dividends consisting of such governmental
interest. Shareholders should consult their tax advisers regarding the possible
exclusion of this portion of their dividends for state and local tax purposes.
The foregoing discussion relates solely to U.S. Federal income tax law.
Non-U.S. investors 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% United States withholding tax (or a
reduced rate of withholding provided by treaty).
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING SPECIFIC
QUESTIONS AS FEDERAL, FOREIGN, STATE OR LOCAL TAXES.
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.
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
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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 Income Fund) and 0.65% (in the case of Government
Securities Fund and High Yield Fund) of annual average daily net assets of such
Fund's Class T shares. However, each of the Class T Plans provide 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 which have entered into agreements with the
Underwriter in the form of a Dealer Agreement for Northstar Advantage 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 Statement of Additional Information for distribution to
potential investors; and (vii) other activities that are reasonably calculated
to result in the sale of shares of the Funds. With respect to each Class T
Plan, it is anticipated that all of the payments received by the Underwriter
under the Plan will be paid to Advest as compensation for its prior distribution
related and current shareholder servicing related activities in connection with
the Class T Shares.
A portion of the fees paid to the Underwriter pursuant to the 12b-1 plans
not exceeding 0.25% annually of the average daily net assets of each Fund's
shares may be paid as compensation for providing services to each Fund's
shareholders, including assistance in connection with inquiries related to
shareholder accounts (the "Service Fee"). In order to receive Service Fees
under the Plans, participants must meet such qualifications as are established
in the sole discretion of the Underwriter, such as services to each Fund's
shareholders; or services providing each Fund with more efficient methods of
offering shares to coherent groups of clients, members or prospects of a
participant; or services permitting purchases or sales of shares, or
transmission of such purchases or sales by computerized tape or other electronic
equipment; or other processing.
Fees received by the Underwriter under the early years of the Plans for new
classes of shares are not likely to pay the Underwriter for the total
distribution expenses it will actually incur as a result of each class having
fewer assets and the Underwriter incurring greater promotional expenses during
the start-up phase. During later years of a Plan, the Underwriter may realize a
profit.
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.
53
<PAGE>
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) which employ a registered representative who sells a
minimum dollar amount of the shares of a Fund during a specific period of time.
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
without 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 retains 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. The Underwriter has also agreed to pay Advest, which through June 2,
1995 acted as principal underwriter to the Funds, certain additional contingent
compensation until June 2, 1998 based upon a formula which takes into account
both the sale by Advest of shares of the Funds and other Northstar affiliated
investment companies, the length of times of investment and the annual
redemption rates of the Funds' shares sold by Advest. Such incentive
compensation is in addition to the dealers' reallowance to which Advest would
otherwise be entitled.
The Trustees have concluded that there is a reasonable likelihood that the
Plans will benefit each Fund and its shareholders. 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
which 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.
54
<PAGE>
During their fiscal year-ended October 31, 1994, 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:
12 b-1 Fees
----------------------------
Class A Class B Class C
------- -------- -------
Income and Growth Fund $159,311 $129,231 $ 18,985
High Total Return Fund $118,182 $107,477 $ 8,953
For the year ended October 31, 1994, expenses incurred by the Distributor for
distribution related activities with respect to each class of shares of each
Fund listed below were as follows:
INCOME AND GROWTH
--------------------------------
CLASS A CLASS B CLASS C
------- ------- -------
Salaries/Overides $430,565 $ 84,401 $ 9,551
Regional Marketing Manager
Expenses/Convention Expense 175,721 48,181 12,072
Commissions Paid
Marketing Expense 146,648 1,522,273 48,425
TOTAL $752,934 $1,654,855 $70,048
HIGH TOTAL RETURN FUND
--------------------------------
CLASS A CLASS B CLASS C
-------- ------- -------
Salaries/Overides $398,346 $ 63,897 $ 6,675
Regional Marketing Manager
Expenses/Convention Expense 138,547 40,527 5,820
Commissions Paid
Marketing Expense 122,185 1,135,681 24,044
TOTAL $659,078 $1,240,105 $36,539
For the following Funds' fiscal year ended October 31, 1994, the Distributor
received the following amounts in sales charges, after reallowance to Dealers.
Underwriting Fees
-----------------------------
Class A Class B Class C
------- ------- -------
Income and Growth Fund $149,872 $ 34,911 $ 422
High Total Return Fund $277,353 $ 32,709 $ 91
55
<PAGE>
During their fiscal year ended December 31, 1994, expenses incurred by
Advest for certain distribution related activities with respect to each of the
Funds listed below were as follows:
<TABLE>
<CAPTION>
Government High Strategic Income
Securities Yield Income Growth Special Income
Expense Fund Fund Fund Fund Fund Fund
- ------------------------- ---------- ------ -------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Printing $ 22,906 $ 23,075 $ 5,061 $ 5,756 $ 9,909 $ 71,736
Marketing expenses 51,579 106,833 26,180 27,960 37,033 101,379
Selling commissions
to sales personnel(1) 387,683 788,598 198,493 208,268 271,408 437,631
Trail commissions
to sales personnel(2) 392,180 232,346 195,520 210,688 62,663 735
Interest(3) 370,144 284,445 57,389 49,113 61,606 24,247
Retail Branch Costs(4) 179,054 363,234 43,522 95,681 124,831 212,414
Allocated Overhead Costs(5) 192,362 328,920 104,582 93,739 103,729 80,941
</TABLE>
(1) Represents 50% payout of gross commissions to Advest account
executives. Net payout to account executives varies as a portion of gross
commissions, but approximates 50%.
(2) Advest paid account executives continuing fees on a gross basis of up
to 0.95% annually of the average net asset value of shares of each of the Funds.
The amount stated represents net payout to account executives on those gross
commissions.
(3) Interest is an assumed cost of money computed at the brokers' call
rate on the deficit amount of distribution expenses incurred by Advest over
amounts received by Advest under the Funds' respective distribution and service
plans.
(4) Retail branch costs: includes branch office and regional operational
center selling and transaction costs. The 1994 rate represents 24.6% of gross
commissions.
(5) Allocated Overhead Costs: includes costs for corporate centers
communication, operations, clearing and data processing. Allocation based on
the number of trade tickets sold for a Fund to total trades for Advest.
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.
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 of each Fund is c/o the
particular Fund, Two Pickwick Plaza, Greenwich, CT 06830. The current Trustees
were elected by shareholders of the Fund effective June 2, 1995.
56
<PAGE>
ROBERT B. GOODE, JR., TRUSTEE. 27 Rushleigh Road, West Hartford, CT 06117
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. One Monarch Place, Springfield, MA 01144. 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. 33 Midwood Road , Deer Park, Greenwich, CT 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.
MARJORY WILLIAMS, TRUSTEE. 19875 Cottagewood Ave., Excelsior, MN 55331 Founder
and Chief Executive Officer of Marjory Williams Ltd., a marketing company. From
1979 to 1992, Founder, President, and Chief Executive Officer of SHE, Inc. and
Laura Caspari Ltd. (fashion retailers). Since October 1993, Trustee of the
Northstar affiliated investment companies.
ALAN L. GOSULE, TRUSTEE. 200 Park Avenue, New York, NY 10166. Partner, Rogers &
Wells
DAVID W.C. PUTNAM, TRUSTEE. 10 Langeley Place, Newton Center, MA 02159
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. 67 Winsor Street, Sudbury, MA 01776 Financial Vice
President of Boston College (1970-1991); President (since 1991) of New England
Fiduciary Company (financial planning); Chairman (since 1987) of Massachusetts
Educational Financing Authority; Vice Chairman of Massachusetts Health and
Education Authority.
MARK L. LIPSON, PRESIDENT AND TRUSTEE. Director, Chairman and Chief Executive
Officer of Northstar and NWNL Northstar Inc. Director and President of
Northstar Administrators Corporation and Director and Chairman of NWNL 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.
57
<PAGE>
JOHN G. TURNER, CHAIRMAN AND TRUSTEE. 20 Washington Avenue, Minneapolis, MN
5544056. Since May 1991, Chairman and CEO of ReliaStar. Since October 1993,
Director of Northstar and affiliates and Chairman and Trustee of the Northstar
affiliated investment companies. Prior to May 1991, President and CEO of the
NWNL Companies, Inc.
ERNEST N. MYSOGLAND, VICE PRESIDENT. (Income and Growth Fund, Growth Fund,
Income Fund, Special Fund). Executive Vice President and Chief Investment
Officer-Equities of Northstar. From 1992 to August 1993, Senior Vice President
and Chief Investment Officer-Equities of National Securities & Research
Corporation and Vice President of National Affiliated Investment Companies.
Prior to joining National in 1992, Mr. Mysogland was the President & Chief
Investment Officer of Reinoso Asset Management. From 1988 to 1991, Mr.
Mysogland was Executive Vice President and Chief Investment Officer of Gintel
Equity Management.
THOMAS OLE DIAL, VICE PRESIDENT. (High Total Return Fund, Income Fund,
Strategic Income Fund, High Yield Fund, Government Securities Fund). 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 &
Research Corporation, Vice President of National Affiliated Investment
Companies, and Vice President of NSR Asset Management Corp. From 1988 to 1989,
President, Dial Capital Management.
ROBERT L. THOMAS, VICE PRESIDENT. President of Northstar. Former President of
BSC (1989 to May 1995) and former Vice President of Advest, Director of Advest
Group, Inc. and Advest; Former President and Trustee of each of The Advantage
Funds, The Scottish Widows International Fund and the Advantage Municipal Bond
Fund.
MARGARET D. PATEL, VICE PRESIDENT. (Government Securities Fund, Income Fund,
Strategic Income Fund). Vice President and Managing Director of Northstar.
Former Senior Vice President of BSC (1988 to May 1995); Former President and
Portfolio Manager at Fixed Income Asset Management, Inc. (1986 to 1988); Former
Portfolio Manager at American Capital and Dreyfus Corporation (prior to 1988).
PRESCOTT B. CROCKER, C.F.A., VICE PRESIDENT. (Strategic Income Fund, High Yield
Fund). Vice President and Managing Director of Northstar. Former Senior Vice
President and Director, Fixed Income Investments of BSC (November 1993 to May
1995); Former Senior Portfolio Manager at Colonial Management Associates, Inc.
(1975-1993); prior to 1993, Mr. Crocker served in various senior investment
management positions at Colonial Management Associates, Inc.
GEOFFREY WADSWORTH, VICE PRESIDENT. (Income and Growth Fund, Growth Fund,
Special Fund). Vice President of Northstar. Co-Manager of Northstar Advantage
Income and Growth Fund and other Northstar affiliated equity funds. Former Vice
President and Portfolio Manager with National Securities & Research Corporation.
58
<PAGE>
AGNES MULLADY, VICE PRESIDENT AND TREASURER. Senior Vice President and Chief
Financial Officer of Northstar, Senior Vice President and Treasurer of Northstar
Administrators Corporation, and Vice President and Treasurer of NWNL Northstar
Distributors, Inc. From 1987 to 1993 Treasurer and Vice President of National
Securities & Research Corporation.
LISA M. HURLEY, VICE PRESIDENT AND SECRETARY. Senior Vice President, General
Counsel of Northstar. Executive Vice President and Secretary of Northstar
Administrators Corporation, and Vice President and Secretary of NWNL Northstar
Distributors, Inc. Former Vice President and General Counsel of National
Securities & Research Corporation.
* MESSRS. TURNER AND LIPSON ARE EACH DEEMED TO BE AN "INTERESTED PERSON" WITHIN
THE MEANING OF THE 1940 ACT.
Mone Anathan, III, Dr. Loring E. Hart, Reverend Bartley MacPhaidin and Edwart T.
Sullivan, 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 advise
as the Board of Trustees may request from time to time.
The Advisory Board will have no authority or control over the Funds. It is
expected that Advisory Board members will receive the same fees they received as
Trustees (see table below). Northstar has agreed to reimburse the Funds for the
expenses associated with the Advisory Board for three years.
Northstar and Northstar Administrators Corporation makes 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.
On December 31, 1994, no Officer or Trustee of the Funds, owned
beneficially or of record 5% or more of any class of the outstanding securities
of any Fund.
On the same date, Merrill Lynch Pierce Fenner & Smith owned of record 5% or
more of the securities of the High Total Return and Income and Growth Fund's
outstanding shares, and Northwestern National Life Insurance Company owned in
excess of 5% of the Class A shares of the Income and Growth Fund.
59
<PAGE>
TRUSTEE COMPENSATION
FISCAL YEAR ENDED OCTOBER 31, 1994
(NORTHSTAR ADVANTAGE TRUST)
Each Trustee of the Northstar Advantage Trust received aggregate
compensation from the Trust of $6,000 for the year for attendance at quarterly
meetings, and Messrs. Wallace and Goode received an additional $1,000 for their
service on the Audit Committee of the Board.
TRUSTEE COMPENSATION
FISCAL YEAR ENDED DECEMBER 31, 1994
GOVERNMENT SECURITIES, STRATEGIC INCOME, HIGH YIELD,
INCOME GROWTH AND SPECIAL FUNDS
<TABLE>
<CAPTION>
Aggregate
Compensation
from all Funds
currently
Pension or Estimated in the
Aggregate Retirement Annual Northstar
Compensation Accrued Benefits Advantage
From Each Benefits From Upon Fund
Director Fund(a) the Funds Retirement Complex (b)
- -------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Mone Anathan, III $ 1,900 $0 $0 $10,100
Alan L. Gosule, Esq. $ 1,900 $0 $0 $10,100
Dr. Loring E. Hart $ 1,900 $0 $0 $10,100
Rev. Bartley $ 1,250 $0 $0 $ 6,750
MacPhaidin C.S.C.
John R. Smith, Ph.D. $ 2,100 $0 $0 $11,100
Edward T. Sullivan $ 1,500 $0 $0 $ 8,000
David W.C. Putnam $30,002(c) $0 $0 $30,002
Allen Weintraub $ 0 $0 $0 $ 0
Robert L. Thomas $ 0 $0 $0 $ 0
</TABLE>
(a) Trustees and officers who are affiliated with the Adviser or Underwriter or
their affiliates ("interested persons" as defined under the Investment Company
Act of 1940) do not receive any compensation for services rendered to the Funds
in addition to their compensation for services rendered to the Adviser or
affiliated companies. Prior to June 2, 1995 the Trustees who were not
interested persons were paid a per fund fee of $500 for each full calendar year
during which services were rendered to the Funds. In addition, they were paid a
per fund fee of $250 for attending each of the Trustees' meetings, $100 per fund
for attending each audit committee meeting, $100 audit committee retainer per
fund and were reimbursed for out-of-pocket expenses.
(b) Compensation paid by six Advantage Fund trusts formerly advised by BSC.
(c) As Chairman, David Putnam received the amount listed above from the six
former BSC advised funds, which included compensation as a Trustee (see (a)
above) , and for additional services. Each Fund is allocated a proportionate
share of the amount paid for additional services based on net assets. Mr.
Putnam resigned as Chairman effective June 2, 1995.
60
<PAGE>
OTHER INFORMATION
Independent Accountants. Coopers & Lybrand L.L.P. has been selected as the
independent accountants of the Northstar Advantage Trust. Coopers & Lybrand
L.L.P. audits the Trust's annual financial statements and expresses an opinion
thereon. Price Waterhouse LLP has been selected as the independent accountants
of the Government, Strategic Income, Income, High Yield, Growth and Special
Funds. Price Waterhouse LLP audits each of these Fund's annual financial
statements and expresses an opinion thereon.
Custodian. Custodial Trust Company, Princeton, New Jersey acts as
custodian for the High Total Return and Income and Growth Funds and The
Shareholder Services Group, Inc. serves as Fund Accounting Agent for these
Funds; State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, acts as custodian for the remaining Fund's.
Transfer Agent. The Shareholder Services Group, Inc., Boston,
Massachusetts, acts as the Transfer Agent for the Funds (the "Transfer Agent").
Advest Transfer Services Inc. ("ATS") serves as the sub-transfer agent for the
Funds offering Class T shares and, prior to June 5, 1995, ATS acted as transfer
agent to these Funds. For calendar year 1994, fees and out-of-pocket costs
payable to ATS under such transfer agency agreements by each of those Funds were
as follows:
Fund Fees Costs
---- ---- -----
Government Fund $95,636 $2,526
High Yield Fund 87,663 2,762
Income Fund 55,748 1,866
Growth Fund 68,258 1,001
Special Fund 36,611 310
Strategic Income Fund 6,508 225
Reports to Shareholders. The fiscal year of the Northstar Advantage 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
semi-annually. An annual report containing financial statements audited by the
independent accountants will be sent to shareholders each year.
PERFORMANCE INFORMATION
TOTAL RETURN. Each Fund may, from time to time, include its total return
in advertisements, sales literature or reports to shareholders or prospective
investors. Standardized quotations of average annual total 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)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
61
<PAGE>
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 on are reinvested when paid.
Performance information for the Funds may be compared in reports and
promotional literature to (1) the Standard & Poor's 500 Stock Index ("S&P 500"),
Dow Jones Industrial Average ("DIJA"), or other unmanaged indices so that
investors may compare each Fund's results to those of a group of unmanaged
securities 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 which 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; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in a Fund; (iv) well known monitoring sources of CD performance rates
such as Solomon Brothers, Federal Reserve Bulletin, American Bankers, 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.
Each Fund may also compute aggregate total return for specified periods
based on a hypothetical investment in the respective class with an assumed
initial investment of $10,000. The aggregate total return is determined by
dividing the net asset value for this account at the end of the specified period
by the value of the initial investment and is expressed as a percentage.
Calculation of aggregate total return reflects payment of the maximum sales
charge of each class and assumes reinvestment of all income dividends and
capital gain distributions during the period. The Funds also may quote annual,
average annual and annualized total return and aggregate total return
performance data, for each class of each Fund, both as a percentage and as a
dollar amount based on a hypothetical $10,000 investment for various periods
other than those noted below. Such data will be computed as described above,
except that (l) the rates of return calculated will not be average annual rates,
but rather, actual annual, annualized or aggregate rates of return and (2) the
maximum applicable sales charge will not be included with respect to annual,
annualized or aggregate rates of return calculations.
Total return of a hypothetical $10,000 investment in each class of shares of
each Fund in the Northstar Advantage Trust is set forth below. This performance
information for the Funds is stated for the period from commencement of each
Fund's operations (November 8, 1993) to the fiscal year end October 31, 1994,
reflects payment of the maximum sales charge for each class, and assumes
reinvestment of all income dividends and capital gain distributions.
Class A Class B Class C
------- ------- -------
Income and Growth Fund (2.47%) (8.90%) (2.71%)
High Total Return Fund (7.7%) (9.21%) (7.6%)
62
<PAGE>
Total return of a hypothetical $10,000 investment in the Class T shares of
each of the other Funds is set forth below. This performance information for
those Funds is stated for the one and five year periods ended December 31, 1994
and for the period from commencement of each Fund's operations to the fiscal
year end December 31, 1994, reflects payment of the maximum sales charge for the
class and assumes reinvestment of all income dividends and capital gain
distributions. No Class A, Class B or Class C shares were outstanding during
such periods.
Life of
Fund One Year Five Year Fund(A)
- ---------------------- -------- --------- -------
Government Fund -13.21% 7.88% 6.39%
High Yield Fund -5.74 13.17 9.89
Income Fund -8.89 7.34 8.05
Growth Fund -11.30 7.58 9.67
Special Fund -8.64 13.43 9.20
Strategic Income Fund -- -- -1.76
(A) February 1, 1986 for Government Securities, Income, Growth and Special
Funds; June 5, 1989 for High Yield Fund and July 1, 1994 for Strategic Income
Fund.
YIELD. The yield for Class A, B, C and T shares of the Government
Securities Fund, the High Yield Fund, the Strategic Income Fund, and the Income
Fund, and the yield for Class A, B and C of the High Total Return Fund for the
month ended September 30, 1995 was as follows:
Fund Yield
- --------------------- --------------------------------------------
Class A Class B Class C Class T
--------------------------------------------
Government Fund 5.92 5.52 5.48 5.95
High Yield Fund 8.76 8.51 8.50 8.92
Strategic Income Fund 7.70 7.40 7.64 7.56
Income Fund 3.95 3.46 3.45 3.75
High Total Return Fund 10.31 10.11 10.06 N/A
Yield is computed by dividing the net investment income per share earned
during the month by the maximum offering price per share on the last day of the
month, according to the following formula:
Yield = 2[(a-b + 1)6 -1]
cd
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were
63
<PAGE>
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, each of the listed Funds computes the yield to maturity of each
obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of the last business day of the
month or, with respect to obligations purchased during the month, the purchase
price (plus actual accrued interest). The yield to maturity is then divided by
360 and the quotient is multiplied by the market value of the obligation
(including actual accrued interest) to determine the interest income on the
obligation for each day of the subsequent month that the obligation is in the
portfolio.
Solely for the purpose of computing yield, the Funds recognize dividend
income by accruing 1/360 of the stated dividend rate of a security each day that
a security is in the portfolio.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price.
Undeclared earned income is the net investment income which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected to
be declared as a dividend shortly thereafter. The maximum offering price
includes a maximum contingent deferred sales load of 4% in the case of Class T
shares, 5% for Class B shares and 1% for Class C shares.
All accrued expenses are taken to 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.
NON-STANDARDIZED TOTAL RETURN. In addition to the performance information
described above, the Funds may provide total return information for designated
periods, such as for the most recent rolling six months or most recent rolling
twelve months. A Fund may quote unaveraged or cumulative total returns
reflecting the simple change in value of an investment over a stated period.
Average annual and cumulative total returns may be quoted as a percentage or as
a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions over any time period. Total returns
may be broken down into their components of income and capital (including
capital gains and changes in share price) in order to illustrate the
relationship of these factors and their contributions to total return. Total
returns may be quoted with or without taking a Fund's contingent deferred sales
load into account. Excluding a Fund's contingent deferred sales load from a
total return calculation produces a higher total return figure. Total returns
and other performance information may be quoted numerically or in a table, graph
or similar illustration.
Total returns for the High Total Return and Income and Growth Funds for the
fiscal year ended October 31, 1994 and from inception of each class of each Fund
to October 31, 1994, without giving effect to the contingent deferred sales load
is as follows:
64
<PAGE>
Class A Class B Class C
------- ------- -------
High Total Return Fund N/A -9.25% -7.63
Income and Growth Fund N/A -4.20 -1.75
Total returns for the remaining Funds for the fiscal year ended December 31,
1994, for the five years ended December 31, 1994 and for the period from the
commencement of the Fund's operations to December 31, 1994, without giving
effect to the contingent deferred sales load, are as follows:
Year 5 Years Inception
Ended Ended to
Fund 12/31/94 12/31/94 12/31/94
- --------------------- -------- -------- ---------
Government Fund -9.82% 7.88% 6.39%
High Yield Fund -2.18 13.17 9.89
Income Fund -5.33 7.34 8.05
Growth Fund -7.66 7.58 9.67
Special Fund -4.86 13.43 9.20
Strategic Income Fund 2.14
OTHER INFORMATION CONCERNING FUND PERFORMANCE
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.
A Fund may quote a distribution rate calculated by annualizing the latest
dividend paid and dividing by the net asset value per share as of the applicable
date. A distribution rate reflects only dividends paid out of net investment
income -- except as indicated, it does not reflect realized long or short term
capital gains or losses, or unrealized gains or losses.
The Funds may compare their performance over various periods to various
indices or benchmarks, including the performance record of the Standard & Poor's
500 Composite Stock Price Index (S&P), the Dow Jones Industrial Average (DJIA),
the NASDAQ Industrial Index, the Ten Year Treasury Benchmark and the cost of
living (measured by the Consumer Price Index, or CPI) over the same period.
Comparisons may also be made to yields on certificates of deposit, treasury
instruments or money market instruments. The comparisons to the S&P and DJIA
show how such Fund's total return compared to the record of a broad average of
common stock prices (S&P) and a narrower set of stocks of major industrial
companies (DJIA). Each Fund has the ability to invest in securities not
included in either index, and its investment portfolio may or
65
<PAGE>
may not be similar in composition to the indices. Figures for the S&P and DJIA
are based on the prices of unmanaged groups of stocks, and unlike the Funds'
returns, their returns do not include the effect of paying brokerage commissions
and other costs of investing.
Comparisons may be made on the basis of a hypothetical initial investment
in one of the Funds (such as $10,000), and reflect the aggregate cost of
reinvested dividends and capital gain distributions for the period covered (that
is, their cash value at the time they were reinvested). Such comparisons may
also reflect the change in value of such an investment assuming distributions
are not reinvested. Tax consequences of different investments may not be
factored into the figures presented.
A Fund's performance may be compared in advertising to the performance of
other mutual funds in general or to the performance of particular types of
mutual funds, especially those with similar objectives. Other groupings of
funds prepared by Lipper and other organizations may also be used for comparison
to the Funds. Although Lipper Analytical Services, Inc. ("Lipper") and other
organizations such as Investment Company Data, Inc. ("ICD"), CDA Investment
Technologies, Inc. ("CDA") and Morningstar Investors, Inc. ("Morningstar"),
include funds within various classifications based upon similarities in their
investment objectives and policies, investors should be aware that these may
differ significantly among funds within a grouping.
From time to time each Fund may publish the ranking of the performance of
its shares by Morningstar, an independent mutual fund monitoring service that
ranks mutual funds, in broad investment categories (equity, taxable bond,
tax-exempt and other) monthly, based upon each fund's three, five and ten-year
average annual total returns (when available) and a risk adjustment factor that
reflects Fund performance relative to three-month U.S. Treasury bill monthly
returns. Such returns are adjusted for fees and sales loads. There are five
ranking categories with a corresponding number of stars: highest (5), above
average (4), neutral (3), below average (2) and lowest (1). Ten percent of the
funds, series or classes in an investment category receive 5 stars, 22.5%
receive 4 stars, 35% receive 3 stars, 22.5% receive 2 stars, and the bottom 10%
receive one star. Morningstar ranks the shares of a Fund in relation to other
funds in its category.
From time to time, in reports and promotional literature, a Fund's yield
and total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper - Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on approximately 1,700 fixed income mutual funds in the United
States. Ibbotson and Associates, CDA Weisenberger and F.C. Towers are also used
for comparison purposes as well as the Russell and Wilshire Indices.
Comparisons may also be made to Bank Certificates of Deposit, which differ from
mutual funds in several ways. The interest rate established by the sponsoring
bank is fixed for the term of a CD, there are penalties for early withdrawal
from CDs, and the principal on a CD is insured. Comparisons may also be made to
the 10 year Treasury Benchmark.
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<PAGE>
Performance rankings and ratings reported periodically in national
financial publications such as Money Magazine, Forbes, Business Week, The Wall
Street Journal, Micropal, Inc., Morningstar, Barron's. etc. will also be
utilized.
Ibbotson Associates of Chicago (Ibbotson), IL and others provide historical
returns of the capital markets in the United States. The Funds may compare its
performance to major indicies in order to demonstrate general long-term risk
versus reward investment scenarios. Performance comparisons could also include
the value of a hypothetical investment in common stocks, long-term bonds or
treasuries. The Funds may discuss the performance of financial markets and
indices over various time periods.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks the S&P is used. For small capitalized stocks,
return is based on the return achieved by Dimensional Fund Advisors (DFA) Small
Company Fund. This fund is a market-value-weighted index of the ninth and tenth
decimals of the New York Stock Exchange (NYSE), plus stocks listed on the
American Stock Exchange (AMEX) and over-the-counter (OTC) with the same or less
capitalization as the upper bound of the NYSE ninth decile. As of year-end
1991, DFA contained approximately 2,003 stocks, with an average capitalization
of about $81.1 million. Unlike an investment in a common stock mutual fund, an
investment in bonds that are held to maturity provides a fixed and stated rate
of return. Bonds have a senior priority in liquidation or bankruptcy to common
stocks and interest on bonds is generally paid from assets of the corporation
before any distributions to common shareholders. Bonds rated in the two highest
rating categories are considered high quality and present minimal risks of
default. An additional advantage of investing in government bonds is that they
are securities backed by the credit and taxing power of the U.S. Government and,
therefore, present virtually no risk of default. Although government securities
fluctuate in price, they are highly liquid and may be purchased and sold with
relatively small transaction costs (direct purchase of Treasury securities can
be made with no transaction costs). Long-term corporate bond returns are based
on the performance of the Salomon Brothers Long-Term-High-Grade Corporate Bond
Index which includes nearly all Aaa- and Aa-rated bonds. Returns on
intermediate-term government bonds are based on a one-bond portfolio constructed
each year, containing a bond which is the shortest noncallable bond available
with a maturity not less than 5 years. This bond is held for the calendar year
and returns are recorded. Returns on long-term government bonds are based on a
one-bond portfolio constructed each year, containing a bond that meets several
criteria, including having a term of approximately 20 years. The bond is held
for the calendar year and returns are recorded. Returns on U.S. Treasury Bills
are based on a one-bill portfolio constructed each month, containing the
shortest-term bill having not less than one month to maturity. The total return
on the bill is the month-end price divided by the previous month-end price,
minus one. Data up to 1976 is from the U.S. Government Bond file at the
University of Chicago's Center for Research in Security Prices; the Wall Street
Journal is the source thereafter. Inflation rates are based on the CPI.
Ibbotson calculates total returns in the same method as the Funds.
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<PAGE>
Other widely used indices that the Funds may use for comparison purposes
include the Lehman Bond Index, the Lehman Aggregate Bond Index, The Lehman GNMA
Single Family Index, the Lehman Government/Corporate Bond Index, the Salomon
Brothers Long-Term High Yield Index, the Salomon Brothers Non-Government Bond
Index, the Salomon Brothers Non-U.S. Government Bond Index, The Salomon Brothers
Non-U.S. Government Bond Index, the Salomon Brothers World Government Bond Index
and the J.P. Morgan Government Bond Index. The Salomon Brothers World
Government Bond Index generally represents the performance of government debt
securities of various markets throughout the world, including the United States.
Lehman Government/Corporate Bond Index generally represents the performance of
intermediate and long-term government and investment grade corporate debt
securities. The Lehman Aggregate Bond Index measures the performance of U.S.
corporate bond issues, U.S. Government Securities and mortgage-backed
securities. The J.P. Morgan Government Bond Index generally represents the
performance of government bonds issued by various countries including the United
States. The foregoing bond indices are unmanaged indices of securities that do
not reflect reinvestment of capital gains or take investment costs into
consideration, as these items are not applicable to indices.
The Funds may also discuss in advertising the relative performance of
various types of investment instruments, such as stocks, treasury securities and
bonds, over various time periods and covering various holding periods. Such
comparisons may compare these investment categories to each other or to changes
in the CPI.
This Funds may also discuss in advertising the highest, lowest and median
or average returns of various types of investments over various holding periods.
These comparisons tend to show that while certain types of investments may
exhibit a wide range of returns over short periods of time and subject the
short-term investor to the risk of substantial loss, the range of returns over
longer holding periods narrows and returns tend to be more stable and positive.
The Funds may advertise the benefits of the flexibility and diversification
of the Fund's three Sector investment strategy. For example, the Fund may
advertise that each Sector reacts differently to major economic events. The
Fund may also advertise that its three Sector strategy helps reduce volatility.
For example, the Fund may advertise single market performance compared to a
hypothetical investment containing equal portions of unmanaged indices of U.S.
Government Securities, Foreign Government Securities and High Yield, High Risk
U.S. and Foreign Corporate Securities over certain periods of time. The Funds
may advertise examples of the effects of periodic investment plans, including
the principle of dollar cost averaging. In such a program, the investor invests
a fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such a
strategy does not assure a profit or guard against loss in a declining market,
the investor's average cost per share can be lower than if fixed numbers of
shares had been purchased at those intervals. In evaluating such a plan,
investors should consider their ability to continue purchasing shares through
periods of low price levels.
The Funds may be available for purchase through retirement plans or other
programs offering deferral of or exemption from income taxes, which may produce
superior after-tax
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<PAGE>
returns over time. For example, a $1,000 investment earning a taxable return of
10% annually, compounded monthly, would have an after-tax value of $2,009 after
ten years, assuming tax was deducted from the return each year at a 31% rate.
An equivalent tax-deferred investment would have an after-tax value of 52,178
after ten years, assuming tax was deducted at a 31% rate from the deferred
earnings at the end of the ten year period.
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, an on-line source of national averages for leading money market
and bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
BARRON'S, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
BUSINESS WEEK, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA INVESTMENT TECHNOLOGIES, INC., an organization which provides
performance and ranking information through examining the dollar results of
hypothetical mutual fund investments and comparing these results against
appropriate market indices.
CHANGING TIMES. THE KIPLINGER MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
CONSUMER DIGEST, a monthly business/financial magazine that includes a
"Money Watch" section featuring financial news.
FINANCIAL WORLD, a general business/financial magazine that include a
"Market Watch" department reporting on activities in the mutual fund industry.
FORBES, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
FORTUNE, a national business publication that periodically rates the
performance of a variety of mutual funds.
IBC/DONOGHUES'S MONEY FUND REPORT, a weekly publication of the Donoghue
Organization, Inc. of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity, and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."
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<PAGE>
IBBOTSON ASSOCIATES, INC., a company specializing in investment research
and data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
INVESTOR'S DAILY, a daily newspaper that features financial, economic, and
business news.
LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, a
weekly publication of industry-wide mutual fund averages by type of fund.
MONEY, a monthly magazine that from time to time features both specific
funds and the mutual fund industry as a whole.
MUTUAL FUND VALUES, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
THE NEW YORK TIMES, a nationally distributed newspaper which regularly
covers financial news.
PERSONAL INVESTING NEWS, a monthly news publication that often reports on
investment opportunities and market conditions.
PERSONAL INVESTOR, a monthly investment advisory publication that includes
a "Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
SUCCESS, a monthly magazine targeted to the world of entrepreneurs and
growing business, often featuring mutual fund performance data.
USA TODAY, a large daily newspaper.
U.S. NEWS AND WORLD REPORT, a national business weekly that periodically
reports mutual fund performance data.
WALL STREET JOURNAL, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.
WIESENBERGER INVESTMENT COMPANIES SERVICES, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' background, management policies, salient features,
management results, income and dividend records, and price ranges.
WORKING WOMAN, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
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<PAGE>
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 Advantage Trust's audited financial statements dated October
31, 1994 and the report of the independent accountants, Coopers & Lybrand,
L.L.P. with respect to such financial statements, are hereby incorporated by
reference to the Annual Report to Shareholders of the Northstar Advantage Trust
for the fiscal year ended October 31, 1994.
The audited financial statements of Government Securities Fund, High Yield
Fund, Income Fund, Growth Fund, Special Fund and Strategic Income Fund as of and
for the fiscal period ended December 31, 1994 and the report of the independent
accountants, Price Waterhouse LLP, with respect to such financial statements are
hereby incorporated by reference to the Annual Report to Shareholders of The
Advantage Family of Funds for the fiscal year ended December 31, 1994.
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<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: Included in Part A:
NORTHSTAR ADVANTAGE TRUST - Financial Highlights for a share outstanding
throughout the period November 8, 1993 (Class A) February 9, 1994 (Class B) and
March 21, 1994 (Class C) (commencement of offering of each Class) through
October 31, 1994.
GOVERNMENT SECURITIES, INCOME, GROWTH AND SPECIAL FUNDS:
Financial Highlights for a share outstanding throughout the period February 3,
1986 (commencement of operations) to December 31, 1994.
HIGH YIELD FUND: Financial Highlights for a share outstanding throughout
the period June 5, 1989 (commencement of operations) through December 31, 1994.
STRATEGIC INCOME FUND: Financial Highlights for a share outstanding
throughout the period July 1, 1994 (commencement of operations) to December 31,
1994.
Included in Part B: The audited financial statements of the Funds as of
and for the fiscal year ended October 31, 1994 for the Northstar Advantage Trust
and the year ended December 31, 1994 for the Government Securities, Strategic
Income, High Yield, Income, Growth and Special Funds, and the report of the
independent accountants with respect to such financial statements are
incorporated in the Statement of Additional Information for each Fund by
reference to the Annual Report to Shareholders for each Fund for the relevant
fiscal year then ended; provided that the material appearing on the inside front
and back covers and pages 1 and 36 of the December 31, 1994 Annual Report is not
incorporated herein by reference. The incorporated financial information for
the years ended October 31, 1994 and December 31, 1994 includes the following:
Statement of Investments, Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets, Financial Highlights, Notes to
Financial Statements, and report of independent accountants.
Included in Part C: None.
(b) Exhibits - Northstar Advantage Trust
(1) (a) Declaration of Trust (1)
(b) Amendment of Declaration of Trust (3)
(c) Amendment to Declaration of Trust (5)
(2) By-Laws (1)
(4) Specimen Share Certificates (5)
(5) Investment Advisory Agreement (2)
(6) Underwriting Agreements (4)
(8) Custody Agreements (3)
(9) (a) Transfer Agency Agreement (3)
(b) Administrative Services Agreement (3)
(c) Accounting Services Agreement (3)
<PAGE>
(10) Opinion of Counsel (3)
(11) Consent of Independent Public Accountants
(12) Annual Report (8)
(13) Subscription Agreement (3)
(15) Plans of Distribution pursuant to Rule 12b-1 (7)
(a) Class A Shares
(b) Class B Shares
(c) Class C Shares
(16) Performance Information (6)
(17) Powers of Attorney
- ------------------------------------------------
1. Included in Registrant's Registration Statement filed August 24, 1993 and
incorporated herein by reference.
2. Included in Registrant's Pre-effective Amendment No. 1 filed October 7,
1993 and incorporated herein by reference
3. Included in Pre-Effective Amendment No. 2 filed November 3, 1993 and
incorporated herein by reference.
4. Included in Post-Effective Amendment No. 1 filed January 19, 1994 and
incorporated herein by reference.
5. Included in Post-Effective Amendment No. 2 filed March 19, 1994 and
incorporated herein by reference.
6. Not Applicable.
7. Included in Post-Effective Amendment No. 3 filed August 1, 1994 and
incorporated herein by reference
8. Included in Post-Effective Amendment No. 5 filed January 17, 1995 and
incorporated herein by reference.
<PAGE>
EXHIBITS - GOVERNMENT SECURITIES, INCOME, GROWTH AND SPECIAL FUNDS.
(1) Form of Amended and Restated Declaration of Trust [L]
(2) By-Laws [A]
(3) Inapplicable
(4) Specimen Share Certificate [B]
(5) Investment Advisory Agreement [L]
(6) Distribution Agreement [B]
(7) Inapplicable
(8) (a) Custodian Agreement
(b) Amendment dated March 9, 1993[H]
(9) Transfer Agency and Shareholder Service Agreement [C]
(10) Opinion and Consent of counsel [B]
(11) (a) Consent of Independent Public Accountants*
(11) (b) Letters from Arthur Andersen & Co.
concerning replacement of auditors [D]
(12) Inapplicable
(13) Initial Capital Agreement [B]
(14)(a) Prototype Individual Retirement Account [B]
(14)(b) Defined Contribution Prototype Plan and Trust [B]
(15) Plan of Distribution [B]
(16) Schedule Showing Calculation of
Performance Quotations [D]
(17) Powers of Attorney*
EXHIBITS - HIGH YIELD FUND
(1) Form of Amended and Restated Declaration of Trust [L]
(2) By-Laws [F]
(3) Inapplicable
(4) Specimen Share Certificate [F]
(5) Investment Advisory Agreement [L]
(6) Distribution Agreement [F]
(7) Inapplicable
(8) (a) Custodian Agreement [F]
(b) Amendment dated March 9, 1993[H]
(9) (a) Transfer Agency and Shareholder Service Agreement [F]
(9) (b) Consent to Use of Name [F]
(9) (c) Form of Joint Insured Bond Agreement [F]
(10) Opinion and Consent of counsel [F]
(11) (a) Consent of Independent Public Accountants*
(11) (b) Letters from Arthur Andersen & Co.
concerning replacement of auditors [D]
(12) Inapplicable
(13) Initial Capital Agreement [F]
(14) (a) Prototype Individual Retirement Account [G]
(14) (b) Defined Contribution Prototype Plan and Trust [G]
<PAGE>
(15) Plan of Distribution[F]
(16) Schedule Showing Calculation of
Performance Quotations [D]
(17) Powers of Attorney*
EXHIBITS - STRATEGIC INCOME FUND
(1) Form of Amended and Restated Declaration of Trust [L]
(2) By-Laws [I]
(3) Inapplicable
(4) Form of Certificate representing shares
of beneficial interest in Registrant [J]
(5) Form of Investment Advisory Agreement [L]
(6) (a) Distribution Agreement [J]
(6) (b) Form of Continuous Offering Dealer Agreement [I]
(7) Inapplicable
(8) Custodian Agreement and fee schedule from State Street [K]
(9) (a) Transfer Agency and Shareholder Service Agreement [K]
(9) (b) Consent to Use of Name [J]
(10) Opinion and Consent of counsel [K]
(11) (a) Consent of Independent Public Accountants*
(12) Inapplicable
(13) Subscription Agreement [K]
(14) Inapplicable
(15) Form of Distribution and Service Plan [I]
(16) Inapplicable
(17) Powers of Attorney*
NOTES TO EXHIBIT LISTING for Government Securities, Income, Growth, Special,
High Yield and Strategic Income Funds
* Filled herewith
[A] Previously filed as exhibit to Registrant's Registration Statement on Form
N-1A and incorporated herein by reference.
[B] Previously filed as exhibit to Registrant's Pre-Effective Amendment no. 1
and incorporated herein by reference.
[C] Incorporated by reference to form of document filed as exhibit to
Pre-Effective Amendment No. 3 of the High Yield Bond Fund
[D] Previously filed as exhibit to Registrant's Post-Effective Amendment filed
3/23/92 and incorporated herein by reference
[E] Previously filed as exhibit to the Registrant's registration statement on
Form N-1A and incorporated herein by reference
[F] Previously filed as exhibit to Registrant's Pre-Efffective Amendment No. 3
and incorporated herein by reference
[G] Previously filed as exhibit to Registrant's Pre-Effective Amendment No.1
and Statement of the Government Securities Fund (File No. 33-848) and
incorporated herein by reference
<PAGE>
[H] Previously filed as exhibit to Post-Effective Amendment No. 6 of the High
Yield Bond Fund and incorporated herein by reference.
[I] Incorporated herein by reference to the Registrant's Registration Statement
on Form N-1A as originally filed with the Securities and Exchange
Commission on 3/17/94.
[J] Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A as previously filed with
the Securities and Exchange Commission on May 19, 1994.
[K] Incorporated herein by reference to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A as previously filed with
the Securities and Exchange Commission on July 1, 1994.
[L] Previously filed as an Exhibit to PEA 13 for the Income, Growth and Special
Funds, PEA 14 for Government Securities Fund, PEA 9 for High Yield Fund and
PEA 5 for Strategic Income Fund.
ITEM 25. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons controlled by or under common control with Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of September 30, 1995, the Registrant had the following number of security
holders:
<TABLE>
<CAPTION>
TITLE OF CLASS FUND NUMBER OF SHAREHOLDERS
<S> <C> <C> <C> <C> <C>
Shares of Beneficial Income & Growth Fund (A) 1600 (B) 2197 (C)1545 (T) N/A
Interest High Total Return Fund (A) 2865 (B) 2947 (C) 343 (T) N/A
Government Securities (A) 81 (B) 182 (C) 3 (T) 7922
High Yield Bond (A) 308 (B) 866 (C) 51 (T) 9262
Income (A) 55 (B) 163 (C) 17 (T) 5926
Growth (A) 142 (B) 354 (C) 24 (T) 7715
Special (A) 167 (B) 349 (C) 13 (T) 4549
Strategic Income (A) 54 (B) 252 (C) 14 (T) 2102
</TABLE>
ITEM 27. INDEMNIFICATION
Section 4.3 of the Registrant's Declaration of Trust provides the following:
(a) Subject to the exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the Trust
shall be indemnified by the Trust to the fullest extent permitted by law
against all liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having
been a Trustee or officer and against amounts paid or incurred by him in
the settlement thereof; and
(ii) the word "claim", "action", "suit" or "proceeding" shall apply to all
claims,
<PAGE>
actions or suits or proceedings (civil, criminal, administrative or other
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include without limitation, attorneys fees, costs,
judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust, a series thereof, or the
Shareholders by reason of a final adjudication by a court or other body before
which a proceeding was brought or that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in reasonable belief that his action
was in the best interest of the Trust; and
(iii) in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraph (b) (i) or (b) (ii) resulting in a
payment by a
<PAGE>
Trustee or officer, unless there has been a determination that such Trustee
or officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office:
(A) by the court or other body approving the settlement or other disposition;
or
(B) based upon the review of readily available facts (as opposed to full
trial-type inquiry) by (x) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter) or (y) written opinion of
independent legal counsel.
(C) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a person who has ceased to be such Trustee
or officer and shall inure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing contained herein
shall affect any rights to indemnification to which personnel of the Trust
other than Trustees and officers may be entitled by contract or otherwise
under law.
(D) Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not entitled to
indemnification under this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other appropriate
security provided by the recipient or the Trust shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is not (i) an
Interested Person of the Trust (including anyone who has been exempted from
being an Interested Person by any rule, regulation or order of the Commission),
or (ii) involved in the claim, action, suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification against
<PAGE>
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy, as expressed in the Act and be governed by final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Funds" in the Prospectus and Services of the Adviser and
Administrator" and "Trustees and Officers" in the Statement of Additional
Information, each of which is included in the Registration Statement.
Set forth is a list of each officer and director of the Adviser indicating each
business, profession, vocation or employment of a substantial nature in which
each such person has been engaged since September 30, 1993.
POSITION WITH OTHER SUBSTANTIAL
INVESTMENT BUSINESS, PROFESSION
NAME ADVISER VOCATION OR EMPLOYMENT
John Turner Director Chairman and CEO,
ReliaStar Financial Corp.
John Flittie Director President,
ReliaStar Financial Corp.
Mark L. Lipson Chairman/CEO Director and Officer of Northstar
Director Distributors, Inc., Northstar
Administrators Corp. and NWNL
Northstar, Inc.; President/Trustee
of Northstar Affiliated Investment
Companies. Former President & CEO
and Director - National Securities
& Research Corporation, and
Director and Officer of affiliates
of National and the National
Affiliated Investment Companies.
Robert Thomas President Former President of Boston
Security Counsellors, Inc.
("BSC"); former Executive Vice
President and Director of Advest,
Inc., former Director of the
Advest Group Inc. and former
President and Trustee of the
Advest Advantage Family of Funds.
<PAGE>
Thomas Ole Dial Executive Vice Vice President, Northstar
President - Chief Affiliated Investment
Investment Officer Companies, and Principal, TD
Fixed Income Ass. Inc. Former Executive Vice
President/Fixed CIO National
Securities & Research Corp. and
Vice President of the National
Affiliated Investment Companies
Prescott Crocker Vice President/ Vice President, Northstar
Managing Director Affiliated Investment Cos. Former
Vice President and Portfolio
Manager for BSC.
Margaret Patel Vice President/ Vice President, Northstar
Managing Director Affiliate Investment Cos. Former
Vice President and Portfolio
Manager for BSC.
Robert J. Adler Executive Vice President Northstar Distributors,
President, Sales & Inc. Formerly Senior Vice
Marketing President - National Securities &
Research Corp. and President and
Director of NSR Distributors, Inc.
Agnes Mullady Sr. Vice President Vice President & Treasurer of
and CFO Northstar Affiliated Investment
Companies. Former Vice President
and Treasurer of National
Securities & Research Corp.
Ernest Mysogland Exec. Vice President Vice President - Northstar
Chief Investment Affiliated Investment Companies.
Officer - Equities Former Sr. Vice President/CIO
National Securities Research Corp.
and Vice President of the National
Affiliated Investment Companies
Geoffrey Wadsworth Vice President/ Former Vice President and
Portfolio Manager Portfolio Mgr. at National
Securities & Research Corp.
Jeffrey Aurigemma Vice President - Former Analyst, National
Investments Securities & Corp.
Michael Graves Vice President Former Vice President, National
Investments Securities Corp.
Lisa M. Hurley Sr. Vice President Executive Vice President,
General Counsel & Northstar Administrators Corp.,
Secretary Vice President Northstar
Distributors and Northstar
Affiliated Investment Companies.
<PAGE>
Former Vice President and General
Counsel & Secretary of National
Securities & Research Corp.
Gertrude Purus Vice President Vice President Northstar
Operations Distributors and Northstar
Administrators Corp. Former Vice
President - Operations, National
Securities & Research Corp.,
Stephen Vondrak Vice President Former Regional Marketing
Sales & Marketing Manager with Roger Engemann and
Associates from 1991-1994.
Broker/trainer for Integrated
Resources and registered rep for
First Investors, from 1985 to
1991.
Mark Sfarra Vice President - Former Assistant Vice President
Marketing National Securities & Research
Corp.
ITEM 29 . PRINCIPAL UNDERWRITER
(a) See "Management of the Funds - The Underwriter" and "How to Purchase Shares"
in the Prospectus and "Underwriter and Distribution Services" in the Statement
of Additional Information, both of which are included in this Post-Effective
Amendment to the Registration Statement.
(b)
(1) (2) (3)
Name and Principal Position and Offices Position and Offices
Address with Underwriter with Registrant
- ------------------ ------------------- --------------------
John Turner Director Trustee, Chairman
20 Washington Ave., South
Minneapolis, MN
John Flittie Director Trustee
20 Washington Ave., South
Minneapolis, MN
Mark L. Lipson Chairman & Director Trustee
Two Pickwick Plaza
Greenwich, CT 06830
Robert J. Adler President None
Two Pickwick Plaza
Greenwich, CT 06830
<PAGE>
Mark Blinder Reg. Vice President None
Two Pickwick Plaza
Greenwich, CT 06830
29(b) continued.
Richard Frances Reg. Vice President None
Two Pickwick Plaza
Greenwich, CT 06830
Daniel Leonard Reg. Vice President None
Two Pickwick Plaza
Greenwich, CT 06830
Stephen O'Brien Reg. Vice President None
Two Pickwick Plaza
Greenwich, CT 06830
David Linton Reg. Vice President None
Two Pickwick Plaza
Greenwich, CT 06830
Charles Dolce Reg. Vice President None
Two Pickwick Plaza
Greenwich, CT 06830
Hy Glasman Reg. Vice President None
Two Pickwick Plaza
Greenwich, CT 06830
Stephen Vondrak Vice President None
Two Pickwick Plaza
Greenwich, CT 06830
Mark Sfarra Vice President None
Two Pickwick Plaza
Greenwich, CT 06830
Gertrude Purus Vice President None
Two Pickwick Plaza
Greenwich, CT 06830
Agnes Mullady Vice President Vice President & Treasurer
Two Pickwick Plaza & Treasurer
Greenwich, CT 06830
<PAGE>
Name and Principal Position and Office Position and Offices
Address with Underwriter with Registrant
- ------------------ ------------------- --------------------
- ------------------ ------------------- --------------------
Lisa Hurley Vice President Vice President & Secretary
Two Pickwick Plaza & Secretary
Greenwich, CT 06830
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Custodial Trust Company acts as Custodian and maintains the following records at
its principal office at 101 Carnegie Center, Princeton, New Jersey 08540-6231
for the Northstar Advantage Trust, and State Street Bank and Trust Co. maintains
such records as Custodian for the Government Securities, High Yield, Strategic
Income, Income, Growth, and Special Funds:
(1) Receipts and delivery of securities including certificate numbers;
(2) Receipts and disbursement of cash;
(3) Records of securities in transfer, securities in physical possession,
securities owned and securities loaned.
The Shareholder Services Group, ("TSSG") maintains the following records at One
Exchange Place, 11th Floor, Boston, Massachusetts, 02109, as Transfer Agent for
the Funds.
(1) Shareholder Records;
(2) Share accumulation accounts: Details as to dates and number of shares
of each accumulation, price of each accumulation.
All other records required by item 30(a) are maintained at the office of the
Administrator, Two Pickwick Plaza, Greenwich, CT 06830 or the offices of TSSG,
as the Fund Accounting Services Agent for the Northstar Advantage Trust, or at
State Street Bank as the Fund Accounting Services Agent for the Government
Securities, High Yield, Strategic, Income, Growth and Special Funds.
ITEM 31. Management Services
Not Applicable
ITEM 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees when
requested in writing to do so by the holders of at least 10% of the Trusts'
outstanding shares of beneficial interest and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
(b) Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and the Registrant has duly caused
this Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Greenwich
and the State of Connecticut on the 27th day of October 1995.
REGISTRANT
By: /s/ LISA HURLEY
----------------------------
Lisa Hurley, Vice President
SIGNATURES TITLE DATE
JOHN G. TURNER Chairman October 27, 1995
John G. Turner* and Trustee
MARK L. LIPSON President October 27, 1995
Mark L. Lipson* and Trustee
JOHN R. SMITH Trustee October 27, 1995
John R. Smith*
PAUL S. DOHERTY Trustee October 27, 1995
Paul S. Doherty*
DAVID W. WALLACE Trustee October 27, 1995
David W. Wallace*
ROBERT B. GOODE, JR. Trustee October 27, 1995
Robert B. Goode, Jr.*
<PAGE>
SIGNATURES TITLE DATE
ALAN L. GOSULE Trustee October 27, 1995
Alan L. Gosule*
DAVID W.S. PUTNAM Trustee October 27, 1995
David W.W. Putnam*
MARJORIE WILLIAMS Trustee October 27, 1995
Marjorie Williams*
*By: LISA HURLEY
Lisa Hurley
Attorney-in-fact
* Executed pursuant to powers of attorney filed with this Post-Effective
Amendment.
<PAGE>
INDEX TO EXHIBITS
Exhibit No.Under
Part C of Form N-1A Name of Exhibit Page Number Herein
------------------- --------------- ------------------
11 Consents of Independent
Public Accountants
17 Powers of Attorney
<PAGE>
EXHIBIT 11
Consents of Independent Public Accountants
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 6
to the Registration Statement of Northstar Advantage Trust (formerly NWNL
Northstar Series Trust) on Form N-1A of our report dated December 30, 1994, on
our audit of the financial statements and financial highlights of Northstar
Advantage Trust which report is included in its Annual Report to Shareholders
which is also incorporated by reference in this Post-Effective Amendment to the
Registration Statement. We also consent to the references to our Firm in the
Prospectus under the caption "Financial Highlights" and in the Statement of
Additional Information under the caption "Independent Accountants".
COOPERS & LYBRAND L.L.P.
New York, New York
October 30, 1995
<PAGE>
EXHIBIT 17
Powers of Attorney
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Mark L. Lipson, Agnes Mullady and Lisa Hurley, and each of them his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution of him in his name, place, and stead, to sign any and all
registration statements on Form N1-A applicable to the Northstar Advantage
Trust, the Northstar Advantage Special Fund, the Northstar Advantage Strategic
Income Fund, the Northstar Advantage Income Fund, the Northstar Advantage High
Yield Fund, the Northstar Advantage Government Securities Fund, and the
Northstar Advantage Growth Fund and any amendment or supplement thereto, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ David W.C. Putnam
----------------------------
David W.C. Putnam
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Mark L. Lipson, Agnes Mullady and Lisa Hurley, and each of them his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution of him in his name, place, and stead, to sign any and all
registration statements on Form N1-A applicable to the Northstar Advantage
Trust, the Northstar Advantage Special Fund, the Northstar Advantage Strategic
Income Fund, the Northstar Advantage Income Fund, the Northstar Advantage High
Yield Fund, the Northstar Advantage Government Securities Fund, and the
Northstar Advantage Growth Fund and any amendment or supplement thereto, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ John G. Turner
----------------------------
John G. Turner
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Mark L. Lipson, Agnes Mullady and Lisa Hurley, and each of them his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution of him in his name, place, and stead, to sign any and all
registration statements on Form N1-A applicable to the Northstar Advantage
Trust, the Northstar Advantage Special Fund, the Northstar Advantage Strategic
Income Fund, the Northstar Advantage Income Fund, the Northstar Advantage High
Yield Fund, the Northstar Advantage Government Securities Fund, and the
Northstar Advantage Growth Fund and any amendment or supplement thereto, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Alan L. Gosule
----------------------------
Alan L. Gosule
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Mark L. Lipson, Agnes Mullady and Lisa Hurley, and each of them his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution of him in his name, place, and stead, to sign any and all
registration statements on Form N1-A applicable to the Northstar Advantage
Trust, the Northstar Advantage Special Fund, the Northstar Advantage Strategic
Income Fund, the Northstar Advantage Income Fund, the Northstar Advantage High
Yield Fund, the Northstar Advantage Government Securities Fund, and the
Northstar Advantage Growth Fund and any amendment or supplement thereto, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Mark L. Lipson
----------------------------
Mark L. Lipson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Mark L. Lipson, Agnes Mullady and Lisa Hurley, and each of them his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution of him in his name, place, and stead, to sign any and all
registration statements on Form N1-A applicable to the Northstar Advantage
Trust, the Northstar Advantage Special Fund, the Northstar Advantage Strategic
Income Fund, the Northstar Advantage Income Fund, the Northstar Advantage High
Yield Fund, the Northstar Advantage Government Securities Fund, and the
Northstar Advantage Growth Fund and any amendment or supplement thereto, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ John R. Smith
----------------------------
John R. Smith
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Mark L. Lipson, Agnes Mullady and Lisa Hurley, and each of them his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution of him in his name, place, and stead, to sign any and all
registration statements on Form N1-A applicable to the Northstar Advantage
Trust, the Northstar Advantage Special Fund, the Northstar Advantage Strategic
Income Fund, the Northstar Advantage Income Fund, the Northstar Advantage High
Yield Fund, the Northstar Advantage Government Securities Fund, and the
Northstar Advantage Growth Fund and any amendment or supplement thereto, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ David W. Wallace
----------------------------
David W. Wallace
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Mark L. Lipson, Agnes Mullady and Lisa Hurley, and each of them his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution of him in his name, place, and stead, to sign any and all
registration statements on Form N1-A applicable to the Northstar Advantage
Trust, the Northstar Advantage Special Fund, the Northstar Advantage Strategic
Income Fund, the Northstar Advantage Income Fund, the Northstar Advantage High
Yield Fund, the Northstar Advantage Government Securities Fund, and the
Northstar Advantage Growth Fund and any amendment or supplement thereto, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Robert B. Goode
----------------------------
Robert B. Goode
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Mark L. Lipson, Agnes Mullady and Lisa Hurley, and each of them his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution of him in his name, place, and stead, to sign any and all
registration statements on Form N1-A applicable to the Northstar Advantage
Trust, the Northstar Advantage Special Fund, the Northstar Advantage Strategic
Income Fund, the Northstar Advantage Income Fund, the Northstar Advantage High
Yield Fund, the Northstar Advantage Government Securities Fund, and the
Northstar Advantage Growth Fund and any amendment or supplement thereto, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Paul S. Doherty
----------------------------
Paul S. Doherty
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Mark L. Lipson, Agnes Mullady and Lisa Hurley, and each of them her true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution of her in her name, place, and stead, to sign any and all
registration statements on Form N1-A applicable to the Northstar Advantage
Trust, the Northstar Advantage Special Fund, the Northstar Advantage Strategic
Income Fund, the Northstar Advantage Income Fund, the Northstar Advantage High
Yield Fund, the Northstar Advantage Government Securities Fund, and the
Northstar Advantage Growth Fund and any amendment or supplement thereto, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as she might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or her substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Marjory Williams
----------------------------
Marjory Williams
