As filed with the Securities and Exchange Commission on December 28, 1998
Registration Nos. 33-67852; 811-7978
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. 37
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 39
NORTHSTAR TRUST
---------------------------------------------------------------
(Exact name of Registrant as specified in charter)
300 First Stamford Place, Stamford, CT 06902
-----------------------------------------------------
(Address of Principal Executive Offices)
(203)602-7881
--------------------------------------
(Registrant's telephone number)
Mark L. Lipson
c/o Northstar Investment Management Corporation
300 First Stamford Place, Stamford, CT 06902
-----------------------------------------------------
(Name and address for agent for service)
Copies of all correspondence to:
Jeff Steele, Esq.
Dechert, Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
<PAGE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
- - - 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)
- - -
X 75 days after filing pursuant to paragraph (a)(2)
- - -
on [date] pursuant to paragraph (a)(2) of Rule 485
- - -
If appropriate, check the following box:
this post-effective amendment designates a new effective
- - - date for a previously filed post-effective amendment.
- ---------------------------------------------------------------
<PAGE>
NORTHSTAR
RESEARCH ENHANCED INDEX
FUND
PROSPECTUS
January 5, 1999
[GRAPHIC OMITTED]
This prospectus contains important information about investing in the Northstar
Research Enhanced Index Fund. Please read the prospectus carefully before you
invest and keep it for future reference. Your investment: is not a bank deposit,
is not insured or guaranteed by the FDIC, the Federal Reserve Board or any other
government agency, is affected by market fluctuations -- there is no guarantee
that the fund will achieve its objective. Like all mutual funds, these
securities have not been approved or disapproved by the Securities and Exchange
Commission or any state securities commission nor has the Securities and
Exchange Commission or any state securities commission passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
WHAT'S
INSIDE
- --------------------------------------------------------------------------------
[CLIPART]
OBJECTIVE
[CLIPART]
INVESTMENT
STRATEGY
[CLIPART]
HOLDINGS
[CLIPART]
RISKS
[CLIPART]
WHAT
YOU PAY
TO INVEST
These pages contain a description
of the fund, including its objective,
investment strategy, types of
holdings, risks and portfolio managers.
You'll also find:
What you pay to invest. A list of the
fees and expenses you pay --
both directly and indirectly --
when you invest in the fund.
Northstar Research Enhanced Index Fund 1
Meet the portfolio managers 2
Your guide to buying, selling and
exchanging shares of Northstar Funds 4
Mutual fund earnings and your taxes 11
The business of mutual funds 13
The risks of investing in mutual funds 15
Where to go for more information
<PAGE>
NORTHSTAR Registrant
RESEARCH ENHANCED INDEX Northstar Trust
FUND
Portfolio managers
Timothy Devlin
James Wiess
- --------------------------------------------------------------------------------
OBJECTIVE [CLIPART]
The fund seeks
capital appreciation.
INVESTMENT [CLIPART]
STRATEGY
The fund invests primarily in companies contained in the S&P 500 Index. Based on
extensive research regarding projected company earnings, dividends and stock
valuation, a valuation model ranks companies in each industry group according to
their relative value. Using this valuation model, the portfolio managers select
stocks for the fund. Within each industry the fund modestly overweights stocks
that are ranked as undervalued or fairly valued while modestly underweighting or
not holding stocks that appear overvalued. Industry by industry, the fund's
assets are invested so that the fund's industry sector allocations and market
cap weightings closely parallel those of the S&P 500 Index.
By owning a large number of stocks within the S&P 500, with an emphasis on those
that appear undervalued or fairly valued, and by tracking the industry
weightings and other characteristics of that index, the fund seeks returns that
modestly exceed those of the S&P 500 over the long term with virtually the same
level of volatility.
HOLDINGS [CLIPART]
Under normal market conditions, the fund invests at least 80% of its total
assets in common stocks included in the S&P 500 Index. It may also invest in
other Common Stocks not included in the Index and engage in other investment
practices. These are described in the section beginning on page 15.
RISKS [CLIPART]
Because it invests in equities, the fund is affected by changes in the stock
market which could affect your investment in the fund. Please refer to the
section beginning on page 15, The risks of investing in mutual funds.
- --------------------------------------------------------------------------------
WHAT YOU PAY [CLIPART]
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund.
Fees you pay directly
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge on
your initial investment
(as a % of offering price) % 4.75 none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2)
- --------------------------------------------------------------------------------
- --------------------------------------
(1) Except for purchases of $1 million or more, when you sell any of the shares
within 18 months of when you bought them. Please see page 6 for details.
(2) This charge decreases over time. Please see page 6 for details.
Operating expenses paid each year by the Fund
(as a % of average net assets)
Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee % 0.70 0.70 0.70
- --------------------------------------------------------------------------------
12b-1 fee(3) % 0.30 1.00 1.00
- --------------------------------------------------------------------------------
Other expenses % 0.25 0.25 0.25
- --------------------------------------------------------------------------------
Total fund operating expenses % 1.25 1.95 1.95
- --------------------------------------------------------------------------------
- --------------------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
Example
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the estimated level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------
Class A
with redemption $ 60 85 113 191
..............................................................
Class B
with redemption $ 70 91 125 209
without redemption $ 20 61 105 209
..............................................................
Class C
with redemption $ 30 61 105 227
without redemption $ 20 61 105 227
..............................................................
[CLIPART] If you have any questions, please call 1-800-595-7827.
1
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
- --------------------------------------------------------------------------------
Timothy Devlin
Timothy Devlin has co-managed the Northstar Research Enhanced Index Fund since
inception. At J.P. Morgan Investment Management, he serves as a Portfolio
Manager and member of the Structured Equity Group.
Mr. Devlin has over 12 years of investment management experience. Before joining
J.P. Morgan Investment Management in 1996, Mr. Devlin was a Portfolio Manager
for nine years at Mitchell Hutchins Asset Management, Inc. where he managed
quantitatively-driven portfolios for institutional and retail investors. Mr.
Devlin earned his BA in Economics from Union College.
James Wiess
James Wiess has co-managed the Northstar Research Enhanced Index Fund since
inception. At J.P. Morgan Investment Management, he serves as a Portfolio
Manager and member of the Structured Equity Group with the responsibility of
portfolio rebalancing and research and development of structured equities
startegies.
Mr. Wiess has over 16 years of investment management experience. Before joining
J.P. Morgan Investment Management in 1992, Mr. Wiess was a stock index
arbitrager for seven years at Oppenheimer & Co. and a consultant for Data
Resources. Mr. Wiess earned his BS from the Wharton School at the University of
Pennsylvania. He is a Chartered Financial Analyst.
- --------------------------------------------------------------------------------
SUB-ADVISER
J.P. MORGAN INVESTMENT MANAGEMENT
A registered investment adviser, J.P. Morgan Investment Management serves as
sub-adviser to the Northstar Research Enhanced Index Fund. The company was
formed in 1984. The firm evolved from the Trust and Investment Division of
Morgan Guaranty Trust Company which acquired its first tax-exempt client in 1913
and its first pension account in 1940.
J.P. Morgan Investment Management currently manages over $278 billion for
institutions and pension funds. The company is a wholly-owned subsidiary of J.P.
Morgan & Co. Incorporated.
J.P. Morgan Investment Management receives a monthly fee for its services based
on the average daily net assets of the fund. The fee for the fund is paid by
Northstar, and not by the fund, at a rate of 0.20%.
2
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
- --------------------------------------------------------------------------------
PERFORMANCE
PROFILE:
J.P. Morgan Investment Management
These figures demonstrate the historical track record of J.P. Morgan Investment
Management. The figures have been provided by J.P. Morgan Investment Management
and have not been verified or audited by Northstar. They do not indicate how the
Northstar Research Enhanced Index Fund or J.P. Morgan Investment Management will
perform in the future.
The charts presented below show J.P. Morgan Investment Management's past
performance in managing accounts with investment objectives, policies,
techniques and restrictions substantially similar but not necessarily identical
to those of the Northstar Research Enhanced Index Fund.
The charts show average annual returns and the cumulative total return since
December 1988 for a composite of the actual performance of all accounts managed
by J.P. Morgan following its research enhanced equity strategy from December
1988 until the present.
The accounts were not subject to the same types of expenses as the fund or the
requirements of the Investment Company Act of 1940 or the Internal Revenue Code,
the limitations of which might have adversely affected performance results.
Included for comparison purposes are performance figures of the S&P 500 Index.
The results presented below may not equate with the return experienced by any
particular account as a result of timing of investments and the effect of taxes
on any client.
J.P. Morgan
Investment
Management S&P 500
Composite (%)(a) Index (%)
- --------------------------------------------------------------------------------
1989 30.43 31.59
- --------------------------------------------------------------------------------
1990 (2.28) (3.12)
- --------------------------------------------------------------------------------
1991 29.95 30.33
- --------------------------------------------------------------------------------
1992 10.10 7.61
- --------------------------------------------------------------------------------
1993 10.60 10.03
- --------------------------------------------------------------------------------
1994 2.42 1.36
- --------------------------------------------------------------------------------
1995 38.58 37.44
- --------------------------------------------------------------------------------
1996 23.90 22.90
- --------------------------------------------------------------------------------
1997 34.17 33.32
- --------------------------------------------------------------------------------
One year, ended
September 30, 1998 10.75 8.09
- --------------------------------------------------------------------------------
Three years, ended
September 30, 1998 24.23 22.56
- --------------------------------------------------------------------------------
Five years, ended
September 30, 1998 21.34 19.75
- --------------------------------------------------------------------------------
Cumulative total return
since December 31, 1988 413.93 375.97
- --------------------------------------------------------------------------------
- ---------------------------------
(a) Results are net of fees and include reinvestment of earnings.
J.P. Morgan has prepared the performance data in compliance with the Performance
Presentation Standards of the Association for Investment Management and Research
(AIMR-PPS). This total return method differs from the SEC method of calculating
total return. AIMR did not prepare or review this data. The Fund agrees to
conform the performance presentation to any changes in the SEC staff position
relating to prior performance presentations.
Unit value
[The following information was depicted as a line graph in the printed material]
J.P. Morgan Investment
Management Composite S & P 500 Index
---------------------- ---------------
1.00 1.00
1.07 1.07
1.16 1.17
1.28 1.29
1.30 1.32
1.28 1.28
1.36 1.36
1.17 1.17
1.27 1.28
1.48 1.46
1.48 1.48
1.55 1.53
1.66 1.66
1.66 1.62
1.69 1.65
1.73 1.70
1.82 1.79
1.90 1.87
1.91 1.87
1.95 1.92
2.02 1.97
1.95 1.89
1.97 1.90
2.06 1.99
2.07 1.99
2.27 2.19
2.49 2.40
2.68 2.59
2.86 2.74
3.04 2.89
3.16 3.02
3.26 3.11
3.55 3.37
3.64 3.46
4.30 4.06
4.64 4.37
4.76 4.49
5.46 5.12
5.70 5.28
5.14 4.76
[CLIPART] If you have any questions, please call 1-800-595-7827.
3
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
THERE ARE THREE STEPS TO TAKE WHEN
YOU WANT TO BUY, SELL OR EXCHANGE SHARES OF OUR FUNDS:
o first, choose a share class
o second, open a Northstar account and make your first investment
o third, choose one of several ways to buy, sell or exchange shares.
- --------------------------------------------------------------------------------
CHOOSING A
SHARE CLASS
The chart below summarizes the differences between the share classes -- your
choice of share class will depend on how much you are investing and for how
long. Large investments qualify for a reduced Class A sales charge and avoid the
higher distribution fees of Classes B and C. Investments in Class B and Class C
shares don't have a front-end sales charge but there is a restriction on the
amount you can invest at one time. Your financial consultant can help you, or
feel free to call us for more information.
In addition to Class A, Class B and Class C, the fund offers Class I shares.
Class I shares are only available to certain defined benefit plans, insurance
companies and foundations investing for their own account. Class I shares may
have different sales charges and other expenses, which may affect performance.
You can obtain additional information concerning Class I shares by calling us at
1-800-595-7827.
We've listed actual expenses charged to the fund beginning on page 1.
- --------------------------------------------------------------------------------
Maximum CLASS A no limit
amount you CLASS B $ 500,000
can buy CLASS C $ 750,000
- --------------------------------------------------------------------------------
Front-end CLASS A yes, varies by size of investment
sales charge CLASS B none
CLASS C none
- --------------------------------------------------------------------------------
Deferred CLASS A only on investments of $1 million or
sales charge more if you sell within 18 months
CLASS B yes, if you sell within 5 years
CLASS C yes, if you sell within 1 year
- --------------------------------------------------------------------------------
Service fee CLASS A 0.25% per year
CLASS B 0.25% per year
CLASS C 0.25% per year
- --------------------------------------------------------------------------------
Distribution CLASS A 0.05% per year
fee CLASS B 0.75% per year
CLASS C 0.75% per year
- --------------------------------------------------------------------------------
Conversion CLASS B Class B shares convert to Class A
shares after 8 years
4
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
FRONT-END SALES CHARGES
(Class A shares only)
Amount retained
Your investment Front-end sales charge by dealers
- --------------------------------------------------------------------------------
as a percentage as a percentage as a percentage
of your net of offering price of offering price
investment
- --------------------------------------------------------------------------------
up to $99,999 4.99 4.75 4.00
- --------------------------------------------------------------------------------
$100,000 to $249,000 3.90 3.75 3.10
- --------------------------------------------------------------------------------
$250,000 to $499,000 2.83 2.75 2.30
- --------------------------------------------------------------------------------
$500,000 to $999,000 2.04 2.00 1.70
- --------------------------------------------------------------------------------
$1,000,000 and over -- -- --
- --------------------------------------------------------------------------------
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
There are three ways you can reduce your front-end sales charges.
1. Take advantage of purchases you've already made
Rights of accumulation let you combine the value of all the Class A shares
you already own with your current investment to calculate your sales charge.
2. Take advantage of purchases you intend to make
By signing a non-binding letter of intent, you can combine investments you
plan to make over a 13 month period to calculate the sales charge you'll pay
on each investment.
3. Buy as part of a group of investors
You can combine your investments with others in a recognized group when
calculating your sales charge. The following is a general list of the groups
Northstar recognizes for this benefit:
o you, your spouse and your children under the age of 21
o a trustee or fiduciary for a single trust, estate or fiduciary account
(including qualifying pension, profit sharing and other employee
benefit trusts)
o any other organized group that has been in existence for at least six
months, and wasn't formed solely for the purpose of investing at a
discount.
You may not have to pay front-end sales charges or a CDSC if you are:
o an active or retired trustee, director, officer, partner or employee
(including immediate family) of
- Northstar or of any of its affiliated companies
- any Northstar affiliated investment company -- a dealer that has a
sales agreement with the distributor
- a trustee or custodian of any qualified retirement plan or IRA
established for the benefit of anyone in the point above
o a dealer, broker or registered investment adviser who has entered into an
agreement with the distributor providing for the use of shares of the
fund in particular investment products such as "wrap accounts" or other
similar managed accounts for the benefit of your clients
o asset allocation and other fee-based programs for the benefit of clients
o a service provider for Northstar, any Northstar affiliated company, or any
Northstar affiliated investment company
o a Brandes employee, officer or partner
o an owner, participant or beneficiary of life insurance and/or annuity
contracts with ReliaStar Life Insurance Company (ReliaStar) or any
ReliaStar affiliated life insurance company to the extent they invest
payments made to them under the contracts in one or more Northstar
Funds within sixty days of payment under the contracts.
Pension, profit sharing and other benefit plans created pursuant to a plan
qualified under Section 401 of the Code or plans under Section 456 of the Code
don't pay a front-end sales charge or a CDSC, as long as the shares are
purchased by an employer sponsored plan with at least 50 eligible employees.
Investment Advisors or Financial Planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisors or financial planners who place trades for their own accounts don't pay
a front-end sales charge or a CDSC if the accounts are linked to the master
account of such investment advisor or financial planner on the books and records
of the broker or agent.
If you think you might be eligible to reduce your sales charges using any of
these methods, please call us or consult the Statement of Additional Information
(SAI).
[CLIPART] If you have any questions, please call 1-800-595-7827.
5
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
DEFERRED SALES
CHARGES
(Classes A, B and C)
We deduct a contingent deferred sales charge (CDSC) from the proceeds when you
sell shares as indicated below. A CDSC is charged on the current market value of
the shares, or on the price you paid for them, whichever is less. You aren't
charged a CDSC on shares you acquired by reinvesting your dividends, or on
amounts representing appreciation.
When you ask us to sell shares, we will sell those that are exempt from the CDSC
first, and then sell the shares you have held the longest. This helps keep your
CDSC as low as possible.
CLASS A SHARES
There is generally no CDSC on Class A shares, except for purchases of $1 million
or more, when you sell them within 18 months of when you bought them.
Your Investment CDSC on shares being sold
- --------------------------------------------------------------------------------
First $1,000,000 to $2,499,999 1.00%
- --------------------------------------------------------------------------------
$2,500,000 to $4,999,999 0.50%
- --------------------------------------------------------------------------------
$5,000,000 and over 0.25%
- --------------------------------------------------------------------------------
CLASS B & C SHARES
Years after you
bought the shares Class B Class C
- --------------------------------------------------------------------------------
1st year 5.00% 1.00%
- --------------------------------------------------------------------------------
2nd year 4.00% --
- --------------------------------------------------------------------------------
3rd year 3.00% --
- --------------------------------------------------------------------------------
4th year 2.00% --
- --------------------------------------------------------------------------------
5th year 2.00% --
- --------------------------------------------------------------------------------
after 5 years -- --
- --------------------------------------------------------------------------------
WHEN THE CDSC MIGHT BE WAIVED
We may waive the CDSC for Class B and Class C shares if:
o the shareholder dies or becomes disabled
o you're selling your shares through our systematic withdrawal program
o you're selling shares of a retirement plan and you are over 70 1/2 years old
o you fall into any of the waiver categories listed on page 5.
If you think you might be eligible for a CDSC waiver, please call us or consult
the SAI.
6
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
OPENING A
NORTHSTAR
ACCOUNT
Once you've chosen the share class you prefer, you're ready to open an account.
First, determine how much money you want to invest. The minimum initial
investment for Northstar funds is:
o $2,500 for non-retirement accounts (we reserve the right to accept smaller
amounts)
o $250 for retirement accounts
o $25 if you are investing using our automatic investment plan (see page 9).
Next, open an account in one of two ways:
o give a check to your financial consultant, who will open an account for you,
or
o complete the application enclosed with this prospectus and mail it to us,
along with your check made payable to Northstar Funds.
TAX-SHELTERED RETIREMENTS PLANS
Call or write to us about opening your Northstar account as any one of the
following retirement plans:
o Roth IRAs
o IRAs
o SEP-IRAs
o Simple IRAs.
- --------------------------------------------------------------------------------
BUYING, SELLING
AND EXCHANGING
Once you've opened an account and made your first investment, you can choose
one of three ways to buy, sell or exchange shares of Northstar funds:
o through your financial consultant
o directly, by mail or over the telephone
o using one of our automatic plans.
We'll send you a confirmation statement every time you make a transaction that
affects your account balance, except when we pay distributions.
Some broker-dealers or agents might charge you a fee if you buy or sell shares
through them.
Instructions for each option appear in the chart on page 9, but here are a few
things you should know before you begin.
- --------------------------------------------------------------------------------
HOW SHARES ARE
PRICED
The price you pay or receive when you buy, sell or exchange shares is determined
by the fund's net asset value (NAV) per share and share class. NAV is calculated
each business day at the close of regular trading on the New York Stock Exchange
(usually 4:00 p.m. Eastern Time) by dividing the net assets of each fund class
by the number of shares outstanding. To calculate NAV, we determine the market
value of the fund's portfolio securities using the method described in the SAI.
When you're buying shares, you'll pay the NAV that is next calculated after we
receive your order in proper form, plus any sales charges that apply. When
you're selling shares, you'll receive the NAV that is next calculated after we
receive your order in proper form, less any deferred sales charges that apply.
- --------------------------------------------------------------------------------
SOME RULES FOR
BUYING
o The minimum amount of each investment after your first one is:
- $100 for non-retirement accounts
- $25 for retirement accounts
- $25 if you are investing using our automatic investment plan (see page 9).
o We record most shares on our books electronically. We will issue a
certificate if you ask us to in writing, however most of our shareholders
prefer not to have their shares in certificate form because certificated
shares can't be sold or exchanged by telephone or using the systematic
withdrawal program.
o We have the right to refuse a request to buy shares.
[CLIPART] If you have any questions, please call 1-800-595-7827.
7
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
SOME RULES FOR
SELLING
o Selling your shares may result in a deferred sales charge. Please refer to
the table on page 6.
o We'll pay you within three days from the time we receive your request to
sell, unless you're selling shares you recently paid for by check. In that
case, we'll pay you when your check has cleared, which may take up to 15
days.
o If you are a corporation, partnership, executor, administrator, trustee,
custodian, guardian or you are selling shares of a retirement plan, you'll
need to complete special documentation and give us your request in
writing. Please call us for information.
o You can reinvest part or all of the proceeds of any shares you sell without
paying a sales charge. You must let us know in writing 30 days from the
day you sold the shares, and buy the same class of shares you sold. We
will reimburse you for any CDSC you paid. Please see page 11 for
information about how this can affect your taxes.
o If selling shares results in the value of your account falling below $500, we
have the right to close your account, so long as your account has been
open for at least a year. We'll let you know 60 days in advance, and if
you don't bring the account balance above $500, we'll sell your shares,
mail the proceeds to you and close your account. We may also close your
account if you give us an incorrect social security number or taxpayer
identification number.
o In unusual circumstances, we may temporarily suspend the processing of
requests to sell.
- --------------------------------------------------------------------------------
SOME RULES FOR
EXCHANGING
o When you exchange shares, you are selling shares of one fund and using the
proceeds to buy shares of another fund. Please see page 11 for information
about how this can affect your taxes.
o Before you make an exchange, be sure to request and read the sections of the
prospectus of the fund you are exchanging to that discuss the shares
you're exchanging to.
o You can exchange shares of any fund for the same class of shares of any other
fund, or for shares of the Cash Management Fund of Salomon Brothers
Series (a money market fund that's available through Northstar,
but isn't one of the Northstar funds). You will not pay a sales charge on
the exchange. You will, however, pay a sales charge if you buy shares of
the Cash Management Fund, and then exchange them for Class A shares of any
of the funds.
o For the purposes of calculating CDSC, shares you exchange will continue to
age from the day you first purchased them, even if you're exchanging into
the Cash Management Fund.
o We'll let you know 60 days in advance if we want to make any changes to these
rules.
8
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
WAYS TO BUY, SELL OR EXCHANGE WHEN TO USE THIS OPTION
- ------------------------------------- -----------------------------
Through your financial consultant o buy
o sell
o exchange
- ------------------------------------- -----------------------------
By mail
Please call us if you have any questions -- o buy
we can't process your request until we have o sell
all of the documents we need. o exchange
- ------------------------------------- -----------------------------
By telephone
To sign up for this service, complete o sell
section 9 of the application or call us at o exchange
1-800-595-7827.
- ------------------------------------- -----------------------------
Automatic investment plan
To sign up for this service, complete o buy
section 7 of the application or call us at
1-800-595-7827.
- ------------------------------------- -----------------------------
Systematic withdrawal program
To sign up for this service, complete o sell
section 8 of the application or call us at
1-800-595-7827.
[CLIPART] If you have any questions, please call 1-800-595-7827.
9
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
HOW TO USE IT
- --------------------------------------------------------------------------------
If you're buying shares, make your check payable to Northstar Funds and give it
to your financial consultant, who will forward it to us.
When you're selling, give your written request to your financial consultant,
who may charge you a fee for this service.
- --------------------------------------------------------------------------------
Send your request to buy, sell or exchange in writing to:
Northstar Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5131
Westborough MA 01581-5131
Your letter should tell us:
o your account number
o your social security number or taxpayer identification number
o the name the account is registered in
o the fund name and share class you're buying or selling, and, for exchanges,
the fund name and share class you're exchanging to
o the dollar value or number of shares you want to buy, sell or exchange.
If you're buying include a check payable to Northstar Funds with your request.
If you're selling or exchanging, your request must be signed by all registered
owners of the account.
We'll ask you to guarantee the signatures if:
o you are selling more than $50,000 worth of shares
o your address of record has changed in the past 30 days
o you want us to send the payment to someone other than the registered owner,
to an address other than the address of record, or in any form other than
by check.
Signatures can be guaranteed by a bank, a member of the national stock exchange
or another eligible institution.
- --------------------------------------------------------------------
You can sell or exchange up to $50,000 of your shares by telephone.
Call us at 1-800-595-7827 between 8:30 a.m. and 4:00 p.m. Eastern Time.
When you're calling with your request, we'll ask you for your name, social
security number, broker of record or other identification. If we don't ask for
these things and process an unauthorized telephone transaction, we are
responsible for any losses to your account.
Otherwise you are responsible for any unauthorized use of the telephone
transaction service.
We'll mail the proceeds of the sale to the address of record or wire $1,000 or
more to any commercial bank in the U.S. that is a member of the Federal Reserve
System. Northstar does not charge a fee for this service, but your bank may
charge you a fee for receiving a wire transfer.
- --------------------------------------------------------------------
You can authorize us to automatically withdraw a minimum of $25 each month from
your bank account and use it to buy shares in Northstar funds.
There's no charge for this service, but your bank may charge you a small set-up
or transaction fee. You can cancel the program at any time.
- --------------------------------------------------------------------
You can ask us to automatically transfer money from your Northstar account into
your bank account.
We will sell shares or share fractions on your behalf monthly, quarterly or
annually and automatically deposit the proceeds into your bank account. There
may be a sales charge on shares we sell on your behalf.
You must have at least $5,000 worth of shares in your account to participate in
this program. The minimum transfer amount is $25.
It isn't to your advantage to buy and sell shares of the same fund at the same
time, so you can't set up a systematic withdrawal program for an account you've
already signed up on an automatic investment plan.
10
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW THE FUND
PAYS DISTRIBUTIONS
The fund distributes virtually all of its net investment income and net capital
gains to shareholders once a year in the form of dividends.
As a shareholder, you are entitled to a share of the income and capital gains
the fund distributes. The amount you receive is based on the number of shares
you own.
DISTRIBUTION OPTIONS
You can take your distributions as cash or reinvest them in the same class of
shares of any of our funds. You specify your preference when you open your
account.
You can choose to reinvest your distributions in one of three ways:
o reinvest both income dividends and capital gain distributions to buy
additional Class A, B or C shares of any fund you choose
o receive income dividends in cash and reinvest capital gain distributions to
buy additional Class A, B or C shares of any fund you choose
o receive both income dividends and capital gain distributions in cash.
You can change your distribution instructions at any time by notifying us by
phone (if going to the address of record), or in writing.
If you don't specify how you would like to receive your distributions, we'll
automatically reinvest both income dividends and capital gain distributions in
additional shares of the same fund.
[CLIPART] If you have any questions, please call 1-800-595-7827.
11
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW YOUR
DISTRIBUTIONS
ARE TAXED
The fund intends to meet the requirements for being a tax-qualified regulated
investment company, which means it generally does not pay federal income tax on
the earnings it distributes to shareholders.
As a result, distributions that you receive will generally be considered to be
taxable in your hands. Income distributions, whether you take them as cash or
reinvest them, are taxable as ordinary income. Capital gain distributions are
taxable as long-term capital gains, regardless of how long you've held the
shares.
Distributions may also be subject to state, local or foreign taxes.
If income distributed to you includes dividends paid by U.S. corporations, part
of the dividends the fund pays may be eligible for the corporate
dividends-received deduction.
TIMING YOUR PURCHASE
If you buy shares of a fund just before it makes a distribution, you will pay
the full price but part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax- deferred account, such as an
IRA, this is not to your advantage because you'll pay tax on the dividend but
will not have shared in the increase in the net asset value of the fund.
WHEN DISTRIBUTIONS ARE DECLARED
For tax purposes, distributions declared by the fund in October, November or
December and paid to you in January are taxable in the calendar year in which
they were declared.
BACKUP WITHHOLDING TAX
We'll notify you each year of the tax status of dividends and distributions. If
we don't have your tax identification number, or if you have been told by the
IRS that you are subject to backup withholding tax, we may be required to
withhold U.S. federal income tax on any distributions at the rate of 31%.
WHEN YOU SELL YOUR SHARES
When you sell or exchange shares you will realize a capital gain or loss,
depending on the difference between what your shares cost you and what you
receive for them. A capital gain or loss will be long-term or short-term,
depending on the length of time you held the shares.
In your federal income tax return you report a capital gain as income and a
capital loss as a deduction.
CONSULT YOUR TAX ADVISER
The information above is general in nature. You should consult your tax adviser
to discuss how investing in Northstar funds affects your personal tax
situation.
12
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
- --------------------------------------------------------------------------------
HOW THE FUND
IS ORGANIZED
AND MANAGED
The Northstar Research Enhanced Index Fund is a diversified mutual fund. The
fund is a series of the Northstar Trust, which is registered as an investment
company with the SEC.
The trustees of the trust oversee the business affairs of the fund and are
responsible for major decisions about the fund's investment objective and
policies.
The fund does not hold regular shareholder meetings, but may hold special
meetings. A special meeting is called if investors holding at least 10% of the
outstanding shares of the fund request it. Certain objectives and policies of
the fund may only be changed by shareholder vote. A shareholder vote is
required to change the investment objective of the fund.
The day-to-day management of the fund is handled by the following companies and
advisers appointed by the trustees:
INVESTMENT ADVISER
Oversees the investment management of the fund and provides advice and
recommendations about investments made by the fund. The investment adviser is
paid out of the fund's management fee, which is 0.70% of average daily net
assets.
Northstar Investment Management Corporation 300 First Stamford Place
Stamford, CT 06902
ADMINISTRATOR
Provides administrative, compliance and accounting services to the fund. The
administrator receives an annual administrative services fee from the fund of
0.10% of the fund's average daily net assets, plus $5 per account per year.
Northstar Administrators Corporation
300 First Stamford Place
Stamford, CT 06902
DISTRIBUTOR
Markets the fund and distributes shares through financial consultants and other
financial representatives.
Northstar Distributors, Inc.
300 First Stamford Place
Stamford, CT 06902
CUSTODIAN
Holds all the fund's assets.
Custodian and fund accounting agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
TRANSFER AGENT
Handles shareholder record-keeping and statements, distribution of dividends
and processing of orders to buy and sell shares.
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581-5120
PORTFOLIO MANAGERS AND SUB-ADVISER
You'll find profiles of the fund's portfolio managers and sub-adviser on page 2.
[CLIPART] If you have any questions, please call 1-800-595-7827.
13
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
- --------------------------------------------------------------------------------
HOW DEALERS ARE
COMPENSATED
Dealers receive payment for selling shares of the Northstar Research Enhanced
Index Fund in three ways:
THEY RECEIVE A COMMISSION WHEN YOU BUY SHARES
The amount of the commission depends on the amount you invest and the share
class you buy. Sales commissions are detailed in the chart below.
o Class A investments
(% of offering price)
Commission
received by dealers Amount
out of sales charges paid by the
you pay distributor
- --------------------------------------------------------------------------------
up to $99,999 4.00 --
- --------------------------------------------------------------------------------
$100,000 to $249,999 3.10 --
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.30 --
- --------------------------------------------------------------------------------
$500,000 to $999,999 1.70 --
- --------------------------------------------------------------------------------
$1,000,000 to $2,499,999 -- 1.00
- --------------------------------------------------------------------------------
$2,500,000 to $4,999,999 -- 0.50
- --------------------------------------------------------------------------------
$5,000,000 and over -- 0.25
- --------------------------------------------------------------------------------
o Class B investments
- --------------------------------------------------------------------------------
Receives 4% of the sale price from the distributor.
- --------------------------------------------------------------------------------
o Class C investments
- --------------------------------------------------------------------------------
Receives 1% of the sales price from the distributor.
- --------------------------------------------------------------------------------
THEY ARE PAID A FEE BY THE DISTRIBUTOR FOR SERVICING YOUR ACCOUNT
They receive a service fee depending on the average net asset value of the
class of shares their clients hold in the fund. These fees are paid from the
12b-1 fee deducted from each fund class. In addition to covering the cost of
commissions and service fees, the 12b-1 fee is used to pay for other expenses
such as sales literature, prospectus printing and distribution and compensation
to the distributor and its wholesalers. You'll find the 12b-1 fees listed in
the fund information beginning on page 1. Service and distribution fee
percentages appear on page 4.
THEY MAY RECEIVE ADDITIONAL BENEFITS AND REWARDS
Selling shares of the fund may make dealers eligible for awards or to
participate in sales programs sponsored by Northstar. The costs of these
benefits and rewards are not deducted from the assets of the fund -- they are
paid from the distributor's own resources.
The distributor may also pay additional compensation to dealers including out
of its own resources for marketing and other services to shareholders.
14
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
Risk is the potential that your investment will lose money or not earn as much
as you hope. Mutual funds have varying degrees of risk, depending on the
securities they invest in. There is no guarantee that the fund will achieve its
investment objective.
This section provides information about the risks associated with different
kinds of securities. It also lists additional investment practices that may
involve elements of risk.
- --------------------------------------------------------------------------------
EQUITIES
o Give the buyer ownership rights in the issuer. Common and preferred stocks,
convertible securities and stock purchase rights are types of equities.
o The market value of an equity security may go up or down rapidly depending on
market conditions. This affects the value of the shares of a fund, and the
value of your investment.
- --------------------------------------------------------------------------------
FOREIGN
INVESTMENTS
o Securities issued by companies or governments of foreign countries. May
include equities and debt securities including sovereign debt obligations,
and also including securities issued to refinance foreign government bank
loans and other debt also known as Brady Bonds.
o Subject to all of the risks associated with equity and debt securities. There
are also other risks that can affect the value of a foreign investment.
- foreign markets may be less regulated, may have less volume and be less
liquid
- foreign securities may be less liquid and more volatile
- the value of foreign securities may be affected by adverse political
and economic developments, seizure or nationalization of foreign
deposits, and government restrictions
- there is often less information available about foreign companies and
many countries do not have the accounting, auditing and financial
reporting that we have in the United States.
DEPOSITARY RECEIPTS
o American Depositary Receipts (ADRs) are typically issued by U.S. banks or
trust companies. They are based on ownership of securities issued by
foreign companies, and are traded on U.S. exchanges. European Depositary
Receipts (EDRs) and Global Depositary Receipts (GDRs) are typically issued
by foreign banks or trust companies, although they also may be issued by
U.S. banks or trust companies. They are based on ownership of securities
issued by foreign or U.S. companies, and are traded on stock exchanges
around the world.
[CLIPART] If you have any questions, please call 1-800-595-7827.
15
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
OTHER, HIGHER
RISK SECURITIES
ILLIQUID SECURITIES -- FUND IS LIMITED TO 15% OF NET ASSET VALUE
o Securities that can't be sold quickly at a reasonable price, or that can't be
sold on the open market. Includes restricted securities and private
placements.
o Used to realize higher profits.
o There may be fewer market players which can result in lower prices, and sales
can take longer to complete.
o Following guidelines established by the trustees of the fund, Northstar may
consider a security than can't be sold on the open market to be liquid if
it can be sold to institutional investors (Rule 144A) or on foreign
markets.
DERIVATIVE SECURITIES
o Securities that derive their value from the performance of an underlying
asset. Usually take the form of a contract to buy or sell an asset or
commodity either now or in the future, but mortgage and other asset-backed
securities are also generally considered derivatives. Types of derivative
securities include options, futures contracts, options on futures and
forward contracts.
o Used often to "hedge" or offset market fluctuations or changes in currency
exchange or interest rates. May also be used for speculative purposes to
increase returns.
o In addition to the risks associated with equities and debt securities, there
are several special risks associated with the use of derivatives:
- changes in the value of the derivative may not match changes in the
value of its underlying asset
- hedging may not be successful, and may prevent the fund from making
other gains
- derivatives used for speculative purposes can result in gains or losses
that are substantially greater than the derivative's original cost.
16
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT
PRACTICES
REPURCHASE AGREEMENTS
o Buying a security from a bank or dealer who must buy it back at a fixed price
on a specified day. Repurchase agreements that mature after more than
seven days are considered to be illiquid investments. Investments in this
type of repurchase agreement can only be 15% of the fund's net asset
value.
o Used for temporary defensive purposes or to generate income from cash
balances.
o The bank or dealer may not be able to buy back the security.
SHORT-TERM TRADING -- NO LIMIT
o Selling a security soon after you buy it.
o Used when the fund needs to be more liquid, in response to changes in
interest rates and economic or other developments, or when a security has
reached its price or yield objective.
o May result in higher costs for brokerage commissions, dealer mark-ups and
other transactions costs, as well as taxable capital gains.
TEMPORARY INVESTMENTS -- NO LIMIT
o Temporarily maintaining part or all of a fund's assets in cash or in U.S.
Government Securities, commercial paper, banker's acceptances, repurchase
agreements and certificates of deposit.
o Used for temporary defensive purposes in periods of unusual market
conditions.
o Provides lower returns.
WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS -- NO LIMIT
o A commitment to buy a security on a specific day in the future at a specified
price.
o Used to realize short-term profits.
o If made through a dealer, there is a risk that the dealer won't complete the
sale, and that the fund will lose out on a good yield or price.
o There is also risk that the value of the security will change before the
transaction is settled, resulting in short-term losses instead of gains.
[CLIPART] If you have any questions, please call 1-800-595-7827.
17
<PAGE>
WHERE TO GO
FOR MORE
INFORMATION
- --------------------------------------------------------------------------------
You'll find more information about the Northstar Research Enhanced Index Fund
in our:
ANNUAL REPORT
The annual report contains information about fund performance, the financial
statements and the auditor's reports. Because this is a new fund, its annual
report won't be available until December 1999.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains complete information about the Northstar Research Enhanced
Index Fund. The SAI is legally part of this prospectus (it is incorporated by
reference). A copy has been filed with the Securities and Exchange Commission.
Please write or call for a free copy of the annual report or the current SAI:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
1-800-595-7827
<PAGE>
NORTHSTAR
RESEARCH ENHANCED INDEX
FUND
INSTITUTIONAL CLASS SHARES
PROSPECTUS
January 5, 1999
[GRAPHIC OMITTED]
This prospectus contains important information about investing in the Northstar
Research Enhanced Index Fund. Please read the prospectus carefully before you
invest and keep it for future reference. Your investment: is not a bank
deposit, is not insured or guaranteed by the FDIC, the Federal Reserve Board or
any other government agency, is affected by market fluctuations -- there is no
guarantee that the fund will achieve its objective. Like all mutual funds,
these securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
<PAGE>
WHAT'S
INSIDE
- --------------------------------------------------------------------------------
[CLIPART]
OBJECTIVE
[CLIPART]
INVESTMENT
STRATEGY
[CLIPART]
HOLDINGS
[CLIPART]
RISKS
[CLIPART]
WHAT
YOU PAY
TO INVEST
These pages contain a description of the fund, including its objective,
investment strategy, types of holdings, risks and portfolio managers.
You'll also find:
What you pay to invest. A list of the fees and expenses you pay -- both directly
and indirectly -- when you invest in the fund.
Northstar Research Enhanced Index Fund 1
Meet the portfolio managers 2
Your guide to buying, selling and exchanging
Class I shares of Northstar Research Enhanced Index
Fund 4
Mutual fund earnings and your taxes 7
The business of mutual funds 9
The risks of investing in mutual funds 10
Where to go for more information 13
<PAGE>
NORTHSTAR Registrant
RESEARCH ENHANCED INDEX Northstar Trust
FUND
Portfolio Managers
Timothy Devlin
James Wiess
- --------------------------------------------------------------------------------
[CLIPART]
OBJECTIVE
The fund seeks capital appreciation by investing in a broadly diversified
portfolio of equity securities.
[CLIPART]
INVESTMENT
STRATEGY
The fund invests primarily in companies contained in the S&P 500 Index. Based on
extensive research regarding projected company earnings, dividends and stock
valuation, a valuation model ranks companies in each industry group according to
their relative value. Using this valuation model, the portfolio managers select
stocks for the fund. Within each industry the fund modestly overweights stocks
that are ranked as undervalued or fairly valued while modestly underweighting or
not holding stocks that appear overvalued. Industry by industry, the fund's
assets are invested so that the fund's industry sector allocations and market
cap weightings closely parallel those of the S&P 500 Index.
By owning a large number of stocks within the S&P 500, with an emphasis on those
that appear undervalued or fairly valued, and by tracking the industry
weightings and other characteristics of that index, the fund seeks returns that
modestly exceed those of the S&P 500 over the long term with virtually the same
level of volatility.
[CLIPART]
HOLDINGS
Under normal market conditions, the fund invests at least 65% of its total
assets in common stocks and other equity securities. It may also invest in
other, higher-risk securities and engage in other investment practices. These
are described in the section beginning on page 10.
[CLIPART]
RISKS
Because it invests in equities, the fund is affected by changes in the stock
market which could affect your investment in the fund. Please refer to the
section beginning on page 10, The risks of investing in mutual funds.
- --------------------------------------------------------------------------------
[CLIPART]
WHAT YOU PAY
TO INVEST
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year Operating expenses paid each year by the fund
by the fund.
Fees you pay directly
Class I
- --------------------------------------------------------------------------------
Maximum sales charge on your initial
investment (as a % of offering price) % none
- --------------------------------------------------------------------------------
Maximum deferred sales charge % none
- --------------------------------------------------------------------------------
Operating expenses paid each year by the fund
(as a % of average net assets)
Class I
- --------------------------------------------------------------------------------
Management fee % 0.70
- --------------------------------------------------------------------------------
12b-1 fee % none
- --------------------------------------------------------------------------------
Other expenses % 0.25
- --------------------------------------------------------------------------------
Total fund operating expenses % 0.95
- --------------------------------------------------------------------------------
Example
Here's an example of what you would pay in expenses if you invested $1,000,
reinvested all your dividends, the fund earned an average annual return of 5%,
and annual operating expenses remained at the estimated level. Keep in mind that
this is only an example -- actual expenses and performance may vary.
Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class I $ 10 30 53 117
- --------------------------------------------------------------------------------
[CLITART] If you have any questions, please call 1-800-595-7827.
1
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
- --------------------------------------------------------------------------------
Timothy Devlin
Timothy Devlin has co-managed the Northstar Research Enhanced Index Fund since
inception. At J.P. Morgan Investment Management, he serves as a Portfolio
Manager and member of the Structured Equity Group.
Mr. Devlin has over 12 years of investment management experience. Before
joining J.P. Morgan Investment Management in 1996, Mr. Devlin was a Portfolio
Manager for nine years at Mitchell Hutchins Asset Management, Inc. where he
managed quantitatively-driven portfolios for institutional and retail
investors. Mr. Devlin earned his BA in Economics from Union College.
James Wiess
James Wiess has co-managed the Northstar Research Enhanced Index Fund since
inception. At J.P. Morgan Investment Management, he serves as a Portfolio
Manager and member of the Structured Equity Group with the responsibility of
portfolio rebalancing and research and development of structured equities
strategies.
Mr. Wiess has over 16 years of investment management experience. Before joining
J.P. Morgan Investment Management in 1992, Mr. Wiess was a stock index
arbitrager for seven years at Oppenheimer & Co. and a consultant for Data
Resources. Mr. Wiess earned his BS from the Wharton School at the University of
Pennsylvania. He is a Chartered Financial Analyst.
- --------------------------------------------------------------------------------
SUB-ADVISER
J.P. MORGAN INVESTMENT MANAGEMENT
A registered investment adviser, J.P. Morgan Investment Management serves as
sub-adviser to the Northstar Research Enhanced Index Fund. The company was
formed in 1984. The firm evolved from the Trust and Investment Division of
Morgan Guaranty Trust Company which acquired its first tax-exempt client in 1913
and its first pension account in 1940.
J.P. Morgan Investment Management currently manages over $278 billion for
institutions and pension funds. The company is a wholly-owned subsidiary of J.P.
Morgan & Co. Incorporated.
J.P. Morgan Investment Management receives a monthly fee for its services based
on the average daily net assets of the fund. The fee for the fund is paid by
Northstar, and not by the fund, at a rate of 0.20%.
2
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
- --------------------------------------------------------------------------------
PERFORMANCE
PROFILE:
J.P. Morgan Investment Management
These figures demonstrate the historical track record of J.P. Morgan Investment
Management. The figures have been provided by J.P. Morgan Investment Management
and have not been verified or audited by Northstar. They do not indicate how
the Northstar Research Enhanced Index Fund or J.P. Morgan Investment Management
will perform in the future.
The charts presented below show J.P. Morgan Investment Management's past
performance in managing accounts with investment objectives, policies,
techniques and restrictions substantially similar but not necessarily identical
to those of the Northstar Research Enhanced Index Fund.
The charts show average annual returns and the cumulative total return since
December 1988 for a composite of the actual performance of all accounts managed
by J.P. Morgan following its research enhanced equity strategy from December
1988 until the present.
The accounts were not subject to the same types of expenses as the fund or the
requirements of the Investment Company Act of 1940 or the Internal Revenue
Code, the limitations of which might have adversely affected performance
results. Included for comparison purposes are performance figures of the S&P
500 Index. The results presented below may not equate with the return
experienced by any particular account as a result of timing of investments and
the effect of taxes on any client.
J.P. Morgan
Investment
Management S&P 500
Composite (%)(a) Index (%)
- --------------------------------------------------------------------------------
1989 30.43 31.59
- --------------------------------------------------------------------------------
1990 (2.28) (3.12)
- --------------------------------------------------------------------------------
1991 29.95 30.33
- --------------------------------------------------------------------------------
1992 10.10 7.61
- --------------------------------------------------------------------------------
1993 10.60 10.03
- --------------------------------------------------------------------------------
1994 2.42 1.36
- --------------------------------------------------------------------------------
1995 38.58 37.44
- --------------------------------------------------------------------------------
1996 23.90 22.90
- --------------------------------------------------------------------------------
1997 34.17 33.32
- --------------------------------------------------------------------------------
One year, ended
September 30, 1998 10.75 8.09
- --------------------------------------------------------------------------------
Three years, ended
September 30, 1998 24.23 22.56
- --------------------------------------------------------------------------------
Five years, ended
September 30, 1998 21.34 19.75
- --------------------------------------------------------------------------------
Cumulative total return
since December 31, 1988 413.93 375.97
- --------------------------------------------------------------------------------
(a) Results are net of fees and include reinvestment of earnings.
J.P. Morgan has prepared the performance data in compliance with the
Performance Presentation Standards of the Association for Investment Management
and Research (AIMR-PPS). This total return method differs from the SEC method
of calculating total return. AIMR did not prepare or review this data. The Fund
agrees to conform the performance presentation to any changes in the SEC staff
position relating to prior performance presentations.
[The following information was depicted as a line graph in the printed material]
J.P. Morgan Investment
Management Composite S & P 500 Index
---------------------- ---------------
1.00 1.00
1.07 1.07
1.16 1.17
1.28 1.29
1.30 1.32
1.28 1.28
1.36 1.36
1.17 1.17
1.27 1.28
1.48 1.46
1.48 1.48
1.55 1.53
1.66 1.66
1.66 1.62
1.69 1.65
1.73 1.70
1.82 1.79
1.90 1.87
1.91 1.87
1.95 1.92
2.02 1.97
1.95 1.89
1.97 1.90
2.06 1.99
2.07 1.99
2.27 2.19
2.49 2.40
2.68 2.59
2.86 2.74
3.04 2.89
3.16 3.02
3.26 3.11
3.55 3.37
3.64 3.46
4.30 4.06
4.64 4.37
4.76 4.49
5.46 5.12
5.70 5.28
5.14 4.76
[CLIPART] If you have any questions, please call 1-800-595-7827.
3
<PAGE>
YOUR GUIDE TO BUYING, SELLING AND EXCHANGING
CLASS I SHARES OF
NORTHSTAR RESEARCH ENHANCED INDEX FUND
- --------------------------------------------------------------------------------
BUYING AND SELLING
Once you've opened an account and made your first investment, you can choose one
of two ways to buy or sell shares of the Northstar Research Enhanced Index Fund:
o through your financial consultant or
o directly, by mail or over the telephone.
We'll send you a confirmation statement every time you make a transaction that
affects your account balance, except when we pay distributions.
Some broker-dealers or agents might charge you a fee if you buy or sell shares
through them.
Instructions for each option appear in the chart beginning on page 5, but here
are a few things you should know before you begin.
- --------------------------------------------------------------------------------
HOW SHARES ARE
PRICED
The price you pay or receive when you buy, sell or exchange shares is
determined by the fund's net asset value (NAV) per share and share class. NAV
is calculated each business day at the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern Time) by dividing the net assets of
each fund class by the number of shares outstanding. To calculate NAV, we
determine the market value of the fund's portfolio securities using the method
described in the SAI.
When you're buying shares, you'll pay the NAV that is next calculated after we
receive your order in proper form. When you're selling shares, you'll receive
the NAV that is next calculated after we receive your order in proper form.
- --------------------------------------------------------------------------------
SOME RULES FOR
BUYING
o The minimum initial investment for Class I Shares is $1,000,000. Class I
Shares are only available to certain defined benefit plans, insurance
companies and foundations investing for their own account.
o The minimum amount of each Class I investment after your first one is
$100,000.
o We record most shares on our books electronically. We will issue a
certificate if you ask us to in writing, however most of our shareholders
prefer not to have their shares in certificate form because certificated
shares can't be sold or exchanged by telephone.
o We have the right to refuse a request to buy shares.
- --------------------------------------------------------------------------------
SOME RULES FOR
SELLING
o We'll pay you within three days from the time we receive your request to
sell, unless you're selling shares you recently paid for by check. In that
case, we'll pay you when your check has cleared, which may take up to 15
days.
o If you are a corporation, partnership, executor, administrator, trustee,
custodian, guardian or you are selling shares of a retirement plan, you'll
need to complete special documentation and give us your request in writing.
Please call us for information.
o You won't pay a service charge when you sell your shares, but your dealer may
charge you a fee.
o If selling shares results in the value of your account falling below $10,000,
we have the right to close your account, so long as your account has been
open for at least a year. We'll let you know 60 days in advance, and if you
don't bring the account balance above $10,000, we'll sell your shares, mail
the proceeds to you and close your account. We may also close your account if
you give us an incorrect social security number or taxpayer identification
number.
o In unusual circumstances, we may temporarily suspend the processing of
requests to sell.
- --------------------------------------------------------------------------------
SOME RULES FOR
EXCHANGING
o When you exchange shares, you are selling shares of one fund and using the
proceeds to buy shares of another fund. Please see page 7 for information
about how this can affect your taxes.
o Before you make an exchange, be sure to request and read the sections of the
prospectus of the fund you are exchanging to that discuss the shares you're
exchanging to.
o You can exchange shares of the fund for the same class of shares of the
Northstar Special Fund, the Northstar Mid-Cap Growth Fund or the Northstar
Growth Fund.
4
<PAGE>
YOUR GUIDE TO BUYING, SELLING AND EXCHANGING
CLASS I SHARES OF
NORTHSTAR RESEARCH ENHANCED INDEX FUND
- --------------------------------------------------------------------------------
WAYS TO BUY, SELL OR EXCHANGE WHEN TO USE THIS OPTION
- ------------------------------------------- ----------------------------
Through your financial consultant o buy
o sell
o exchange
- ------------------------------------------- ----------------------------
By mail
Please call us if you have any questions -- o buy
we can't process your request until we have o sell
all of the documents we need. o exchange
- ------------------------------------------- ----------------------------
By telephone o sell
To sign up for this service, complete o exchange
section 9 of the application or call us at
1-800-595-7827.
[CLIPART] If you have any questions, please call 1-800-595-7827.
5
<PAGE>
YOUR GUIDE TO BUYING, SELLING AND EXCHANGING
CLASS I SHARES OF
NORTHSTAR RESEARCH ENHANCED INDEX FUND
- --------------------------------------------------------------------------------
HOW TO USE IT
- --------------------------------------------------------------------------------
If you're buying shares, make your check payable to Northstar Funds and give it
to your financial consultant, who will forward it to us.
When you're selling, give your written request to your financial consultant,
who may charge you a fee for this service.
- --------------------------------------------------------------------------------
Send your request to buy, sell or exchange in writing to:
Northstar Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5131
Westborough, MA 01581-5131
Your letter should tell us:
o your account number
o your social security number or taxpayer identification number
o the name the account is registered in
o the fund name and share class you're buying or selling, and, for exchanges,
the fund name and share class you're exchanging to
o the dollar value or number of shares you want to buy, sell or exchange.
If you're buying include a check payable to Northstar Funds with your request.
If you're selling or exchanging, your request must be signed by all registered
owners of the account.
We'll ask you to guarantee the signatures if:
o you are selling more than $50,000 worth of shares
o your address of record has changed in the past 30 days
o you want us to send the payment to someone other than the registered owner,
to an address other than the address of record, or in any form other than by
check.
Signatures can be guaranteed by a bank, a member of the national stock exchange
or another eligible institution.
- --------------------------------------------------------------------------------
You can sell or exchange up to $50,000 of your shares by telephone.
Call us at 1-800-595-7827 between 8:30 a.m. and 4:00 p.m. Eastern Time.
When you're calling with your request, we'll ask you for your name, social
security number, broker of record or other identification. If we don't ask for
these things and process an unauthorized telephone transaction, we are
responsible for any losses to your account. Otherwise you are responsible for
any unauthorized use of the telephone transaction service.
We'll mail the proceeds of the sale to the address of record or wire $1,000 or
more to any commercial bank in the U.S. that is a member of the Federal Reserve
System. Northstar does not charge a fee for this service, but your bank may
charge you a fee for receiving a wire transfer.
6
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW THE FUND
PAYS DISTRIBUTIONS
The fund distributes virtually all of its net investment income and net capital
gains to shareholders once a year in the form of dividends.
As a shareholder, you are entitled to a share of the income and capital gains
the fund distributes. The amount you receive is based on the number of shares
you own.
DISTRIBUTION OPTIONS
You can take your distributions as cash or reinvest them in the same class of
shares of the Northstar Special Fund, the Northstar Mid-Cap Growth Fund or the
Northstar Growth Fund. You specify your preference when you open your account.
You can choose to reinvest your distributions in one of three ways:
o reinvest both income dividends and capital gain distributions to buy
additional Class I shares of the fund, the Northstar Special Fund, the
Northstar Mid-Cap Growth Fund or the Northstar Growth Fund
o receive income dividends in cash and reinvest capital gain distributions to
buy additional Class I shares of the fund, the Northstar Special Fund, the
Northstar Mid-Cap Growth Fund or the Northstar Growth Fund
o receive both income dividends and capital gain distributions in cash.
You can change your distribution instructions at any time by notifying us by
phone (if going to the address of record), or in writing.
If you don't specify how you would like to receive your distributions, we'll
automatically reinvest both income dividends and capital gain distributions in
additional Class I shares of the Northstar Research Enhanced Index Fund.
[CLIPART] If you have any questions, please call 1-800-595-7827.
7
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW YOUR
DISTRIBUTIONS
ARE TAXED
The fund intends to meet the requirements for being a tax-qualified regulated
investment company, which means it generally does not pay federal income tax on
the earnings it distributes to shareholders.
As a result, distributions that you receive will generally be considered to be
taxable in your hands. Income distributions, whether you take them as cash or
reinvest them, are taxable as ordinary income. Capital gain distributions are
taxable as long-term capital gains, regardless of how long you've held the
shares.
Distributions may also be subject to state, local or foreign taxes.
If income distributed to you includes dividends paid by U.S. corporations, part
of the dividends the fund pays may be eligible for the corporate
dividends-received deduction.
TIMING YOUR PURCHASE
If you buy shares of a fund just before it makes a distribution, you will pay
the full price but part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax- deferred account, such as an
IRA, this is not to your advantage because you'll pay tax on the dividend but
will not have shared in the increase in the net asset value of the fund.
WHEN DISTRIBUTIONS ARE DECLARED
For tax purposes, distributions declared by the fund in October, November or
December and paid to you in January are taxable in the calendar year in which
they were declared.
BACKUP WITHHOLDING TAX
We'll notify you each year of the tax status of dividends and distributions. If
we don't have your tax identification number, or if you have been told by the
IRS that you are subject to backup withholding tax, we may be required to
withhold U.S. federal income tax on any distributions at the rate of 31%.
WHEN YOU SELL YOUR SHARES
When you sell or exchange shares you will realize a capital gain or loss,
depending on the difference between what your shares cost you and what you
receive for them. A capital gain or loss will be long-term or short-term,
depending on the length of time you held the shares.
In your federal income tax return you report a capital gain as income and a
capital loss as a deduction.
CONSULT YOUR TAX ADVISER
The information above is general in nature. You should consult your tax adviser
to discuss how investing in the Northstar Research Enhanced Index Fund affects
your personal tax situation.
8
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
- --------------------------------------------------------------------------------
HOW THE FUND
IS ORGANIZED
AND MANAGED
The Northstar Research Enhanced Index Fund is a diversified mutual fund. The
fund is a series of the Northstar Trust, which is registered as an investment
company with the SEC.
The trustees of the trust oversee the business affairs of the fund and are
responsible for major decisions about the fund's investment objective and
policies.
The fund does not hold regular shareholder meetings, but may hold special
meetings. A special meeting is called if investors holding at least 10% of the
outstanding shares of the fund request it. Certain objectives and policies of
the fund may only be changed by shareholder vote. A shareholder vote is
required to change the investment objective of the fund.
The day-to-day management of the fund is handled by the following companies and
advisers appointed by the trustees:
INVESTMENT ADVISER
Oversees the investment management of the fund and provides advice and
recommendations about investments made by the fund. The investment adviser is
paid out of the fund's management fee, which is 0.70% of average daily net
assets.
Northstar Investment Management Corporation
300 First Stamford Place
Stamford, CT 06902
ADMINISTRATOR
Provides administrative, compliance and accounting services to the fund. The
administrator receives an annual administrative services fee from the fund of
0.10% of the fund's average daily net assets, plus $5 per account per year.
Northstar Administrators Corporation
300 First Stamford Place
Stamford, CT 06902
DISTRIBUTOR
Markets the fund and distributes shares through financial consultants and other
financial representatives.
Northstar Distributors, Inc.
300 First Stamford Place
Stamford, CT 06902
CUSTODIAN
Holds all the fund's assets.
Custodian and fund accounting agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
TRANSFER AGENT
Handles shareholder record-keeping and statements, distribution of dividends
and processing of orders to buy and sell shares.
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581-5120
PORTFOLIO MANAGERS AND SUB-ADVISER
You'll find profiles of the fund's portfolio managers and sub-adviser on page 2.
[CLIPART] If you have any questions, please call 1-800-595-7827.
9
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
Risk is the potential that your investment will lose money or not earn as much
as you hope. Mutual funds have varying degrees of risk, depending on the
securities they invest in. There is no guarantee that the fund will achieve its
investment objective.
This section provides information about the risks associated with different
kinds of securities. It also lists additional investment practices that may
involve elements of risk.
- --------------------------------------------------------------------------------
EQUITIES
o Give the buyer ownership rights in the issuer. Common and preferred stocks,
convertible securities, and stock purchase rights are types of equities.
o The market value of an equity security may go up or down rapidly depending on
market conditions. This affects the value of the shares of a fund, and the
value of your investment.
- --------------------------------------------------------------------------------
FOREIGN
INVESTMENTS
o Securities issued by companies or governments of foreign countries. May
include equities and debt securities including sovereign debt obligations,
and also including securities issued to refinance foreign government bank
loans and other debt also known as Brady Bonds.
o Subject to all of the risks associated with equity and debt securities. There
are also other risks that can affect the value of a foreign investment:
- foreign markets may be less regulated, may have less volume and be less
liquid
- foreign securities may be less liquid and more volatile
- the value of foreign securities may be affected by adverse political and
economic developments, seizure or nationalization of foreign deposits, and
government restrictions
- there is often less information available about foreign companies and many
countries do not have the accounting, auditing and financial reporting
that we have in the United States.
DEPOSITARY RECEIPTS
o American Depositary Receipts (ADRs) are typically issued by U.S. banks or
trust companies. They are based on ownership of securities issued by foreign
companies, and are traded on U.S. exchanges. European Depositary Receipts
(EDRs) and Global Depositary Receipts (GDRs) are typically issued by foreign
banks or trust companies, although they also may be issued by U.S. banks or
trust companies. They are based on ownership of securities issued by foreign
or U.S. companies, and are traded on stock exchanges around the world.
10
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
OTHER, HIGHER
RISK SECURITIES
ILLIQUID SECURITIES -- FUND IS LIMITED
TO 15% OF NET ASSET VALUE
o Securities that can't be sold quickly at a reasonable price, or that can't be
sold on the open market. Includes restricted securities and private
placements.
o Used to realize higher profits.
o There may be fewer market players which can result in lower prices, and sales
can take longer to complete.
o Following guidelines established by the trustees of the fund, Northstar may
consider a security than can't be sold on the open market to be liquid if it
can be sold to institutional investors (Rule 144A) or on foreign markets.
DERIVATIVE SECURITIES
o Securities that derive their value from the performance of an underlying
asset. Usually take the form of a contract to buy or sell an asset or
commodity either now or in the future, but mortgage and other asset-backed
securities are also generally considered derivatives. Types of derivative
securities include options, futures contracts, options on futures and forward
contracts.
o Used often to "hedge" or offset market fluctuations or changes in currency
exchange or interest rates. May also be used for speculative purposes to
increase returns.
o In addition to the risks associated with equities and debt securities, there
are several special risks associated with the use of derivatives:
- changes in the value of the derivative may not match changes in the value
of its underlying asset
- hedging may not be successful, and may prevent the fund from making other
gains
- derivatives used for speculative purposes can result in gains or losses
that are substantially greater than the derivative's original cost.
[CLIPART] If you have any questions, please call 1-800-595-7827.
11
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
INVESTMENT
PRACTICES
REPURCHASE AGREEMENTS
o Buying a security from a bank or dealer who must buy it back at a fixed price
on a specified day. Repurchase agreements that mature after more than seven
days are considered to be illiquid investments. Investments in this type of
repurchase agreement can only be 15% of the fund's net asset value.
o Used for temporary defensive purposes or to generate income from cash
balances.
o The bank or dealer may not be able to buy back the security.
SHORT-TERM TRADING -- NO LIMIT
o Selling a security soon after you buy it.
o Used when the fund needs to be more liquid, in response to changes in
interest rates and economic or other developments, or when a security has
reached its price or yield objective.
o May result in higher costs for brokerage commissions, dealer mark-ups and
other transactions costs, as well as taxable capital gains.
TEMPORARY INVESTMENTS -- NO LIMIT
o Temporarily maintaining part or all of a fund's assets in cash or in U.S.
Government Securities, commercial paper, banker's acceptances, repurchase
agreements and certificates of deposit.
o Used for temporary defensive purposes in periods of unusual market
conditions.
o Provides lower returns.
WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS -- NO LIMIT
o A commitment to buy a security on a specific day in the future at a specified
price.
o Used to realize short-term profits.
o If made through a dealer, there is a risk that the dealer won't complete the
sale, and that the fund will lose out on a good yield or price.
o There is also risk that the value of the security will change before the
transaction is settled, resulting in short-term losses instead of gains.
12
<PAGE>
WHERE TO GO
FOR MORE
INFORMATION
- --------------------------------------------------------------------------------
You'll find more information about the Northstar Research Enhanced Index Fund
in our:
ANNUAL REPORT
The annual report contains information about fund performance, the financial
statements and the auditor's reports. Because this is a new fund, its annual
report won't be available until December 1999.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains complete information about the Northstar Research Enhanced
Index Fund. The SAI is legally part of this prospectus (it is incorporated by
reference). A copy has been filed with the Securities and Exchange Commission.
Please write or call for a free copy of the annual report or the current SAI:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
1-800-595-7827
PROSPECTUS FOR CLASS A, B AND C
Class A, B and C shares of the Northstar Research Enhanced Index Fund are
discussed in a separate prospectus. Class A, B and C shares have sales charges
and other expenses that may affect performance. You may obtain a prospectus for
Class A, B and C shares of the fund by calling 1-800-595-7827 or writing:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
[CLIPART] If you have any questions, please call 1-800-595-7827.
13
<PAGE>
[LOGO]
NORTHSTAR
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 5, 1999
*NORTHSTAR RESEARCH ENHANCED INDEX FUND
300 First Stamford Place
Stamford, Connecticut 06902
(203) 602-7950
(800) 595-7827
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of the
Northstar Research Enhanced Index Fund (the "Fund") dated January 5, 1999, as
each may be revised from time to time. To obtain a copy of the Fund's
Prospectus, please contact Northstar Investment Management Corporation at the
address or phone number listed above.
Northstar Investment Management Corporation ("Northstar" or the "Adviser")
serves as the Fund's investment adviser. Northstar has engaged J.P. Morgan
Investment Management Inc. ("J.P. Morgan" or the "Sub-Adviser") to serve as
sub-adviser to the Northstar Research Enhanced Index Fund, subject to the
supervision of Northstar. Northstar Distributors, Inc. (the "Underwriter") is
the underwriter to the Fund. Northstar Administrators Corporation (the
"Administrator") is the Fund's administrator. The Underwriter and the
Administrator are affiliates of Northstar.
-----------------------
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS ................................................... 2
INVESTMENT TECHNIQUES ..................................................... 2
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION ........................... 6
SERVICES OF NORTHSTAR, THE SUB-ADVISER AND THE ADMINISTRATOR .............. 8
NET ASSET VALUE ........................................................... 9
PURCHASES AND REDEMPTIONS ................................................. 9
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................ 10
UNDERWRITER AND DISTRIBUTION SERVICES ..................................... 14
TRUSTEES AND OFFICERS ..................................................... 15
OTHER INFORMATION ......................................................... 17
PERFORMANCE INFORMATION ................................................... 18
APPENDIX .................................................................. A-1
<PAGE>
INVESTMENT RESTRICTIONS
Northstar Research Enhanced Index Fund. The Fund has adopted investment
restrictions numbered 1 through 9 as fundamental policies. These restrictions
cannot be changed without approval by the holders of a majority (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund's
outstanding voting shares. Investment restrictions numbered 12 through 15 are
not fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Fund may not:
1. Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks up to 331/3%
of its net assets for temporary purposes but only if, immediately after such
borrowing there is asset coverage of 300%, and (b) enter into transactions in
options, futures, and options on futures and other transactions not deemed to
involve the issuance of senior securities;
2. Underwrite the securities of others;
3. Purchase or sell real property, including real estate limited
partnerships (the Fund may purchase marketable securities of companies that deal
in real estate or interests therein, including real estate investment trusts);
4. Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
5. Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 331/3% of net assets at the time the loan is made, to brokers
or dealers or other financial institutions not affiliated with the Fund or
Northstar, subject to conditions established by Northstar) (See "Lending
Portfolio Securities" in this SAI), and may purchase or hold participations in
loans, in accordance with the investment objectives and policies of the Fund, as
described in the current Prospectus and SAI of the Fund;
6. Invest more than 25% of its assets in any one industry;
7. With respect to 75% of the Fund's assets, purchase a security (other
than U.S. Government obligations) if, as a result, more than 5% of the value of
total assets of the Fund would be invested in securities of a single issuer;
8. 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;
9. Borrow money in excess of 331/3% of its net assets for temporary
purposes;
10. 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);
11. Sell short, except that the Fund may enter into short sales against
the box;
12. 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 1940 Act, rules thereunder or any order
pursuant thereto or by any state in which shares of the Fund are registered;
13. Make an investment for the purpose of exercising control over
management;
14. Invest more than 15% of its net assets in illiquid securities; or
15. Borrow any amount in excess of 331/3% of the Fund's assets, other than
for temporary emergency or administrative purposes.
In addition to the restrictions described above, the Fund may, from time
to time, agree to additional investment restrictions for purposes of compliance
with the securities laws of foreign jurisdictions where the Fund intends to
offer or sell its shares.
INVESTMENT TECHNIQUES
The Fund's Sub-Adviser intends to monitor the sector and security
weightings of its portfolio relative to the composition of the S&P 500 Index. In
that regard, the Sub-Adviser intends to manage the Fund so that its sector
weightings and securities holdings closely approximate the sector and securities
weightings of the Index. As noted in the prospectus, the Sub-Adviser may vary
modestly the weightings of portfolio securities so that index securities that
appear to be overvalued may be underweighted and seurities that may appear to be
underweighted may be overvalued. Steps will be taken periodically to rebalance
positions consistent with maintaining reasonable transaction costs and
reasonable weightings relative to the Index. While the Fund seeks to modestly
outperform the S&P 500 Index, the Fund expects that its returns will have a
coefficient correlation of 0.90% or better to the S&P 500 Index.
2
<PAGE>
Derivative Instruments. The Fund may invest in Derivative Instruments (as
defined in the Fund's Prospectus) for a variety of reasons, including to enhance
return, hedge certain market risks, or provide a substitute for purchasing or
selling particular securities. Derivatives may provide a cheaper, quicker or
more specifically focused way for the Fund to invest than "traditional"
securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (i.e., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, Northstar will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it would
review the credit quality of a security to be purchased by a Fund. Over-the-
counter Derivatives are less liquid than exchange-traded Derivatives since the
other party to the transaction may be the only investor with sufficient
understanding of the Derivative to be interested in bidding for it.
Firm Commitments and When-Issued Securities. The Fund may enter into firm
commitment agreements to purchase securities at an agreed-upon price on a
specified future date. An amount of cash or short-term U.S. Government
Securities equal to the Fund's commitment will be deposited in a segregated
account at the Fund's custodian bank to secure the Fund's obligation. Although a
Fund will generally enter into firm commitments to purchase securities with the
intention of actually acquiring the securities for its portfolio (or for
delivery pursuant to options contracts it has entered into), the Fund may
dispose of a security prior to settlement if Northstar deems it advisable to do
so. A Fund entering into the forward commitment may realize short-term gains or
losses in connection with such sales.
The Fund may also purchase securities on a when-issued or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date, normally within one month. The value of the security on the
settlement date may be more or less than the price paid as a result of, among
other things, changes in the level of interest rates or other market factors.
Accordingly, there is a risk of loss, which is in addition to the risk of
decline in the value of the Fund's other assets. The Fund will establish a
segregated account with its custodian in which it will maintain cash and
marketable securities equal in value to commitments for when-issued or delayed
delivery securities. While when-issued or delayed delivery securities may be
sold prior to the settlement date, it is intended that a Fund will purchase such
securities with the purpose of actually acquiring them, unless a sale appears
desirable for investment reasons.
Floating or Variable Rate Instruments. The Fund may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Such bonds are
frequently secured by letters of credit or other credit support arrangements
provided by banks. Floating or variable rate instruments provide for adjustments
in the interest rate at specified intervals (weekly, monthly, semiannually,
etc.). A Fund would anticipate using these bonds as cash equivalents, pending
longer term investment of its funds.
Futures Transactions -- In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the United States, such as the London International
Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may
have greater risk potential than domestic markets. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. In
addition, any profits that the Fund might realize in trading could be eliminated
by adverse changes in the exchange rate, or the Fund could incur losses as a
result of those changes. Transactions on foreign exchanges may include both
commodities which are traded on domestic exchanges and those which are not.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures
3
<PAGE>
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
trading day. Futures contract prices could move to the limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and potentially subjecting the Fund to
substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant market,
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged and
the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission (the "SEC"), the Fund may be required to segregate cash or
liquid securities in connection with its commodities transactions in an amount
generally equal to the value of the underlying commodity.
Specific Futures Transactions. The Fund may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
The Fund may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
The Fund may purchase and sell currency futures. A foreign currency future
obligates the Fund to purchase or sell an amount of a specific currency at a
future date at a specific price.
Index Warrants. The Fund may purchase put warrants and call warrants whose
values vary depending on the change in the value of one or more specified
securities indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at any time
during the term of the warrant, to receive upon exercise of the warrant a cash
payment from the issuer, based on the value of the underlying index at the time
of exercise. In general, if the value of the underlying index rises above the
exercise price of the index warrant, the holder of a call warrant will be
entitled to receive a cash payment from the issuer upon exercise, based on the
difference between the value of the index and the exercise price of the warrant;
if the value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise, based on the
difference between the exercise price of the warrant and the value of the index.
The holder of a warrant would not be entitled to any payments from the issuer at
any time when, in the case of a call warrant, the exercise price is greater than
the value of the underlying index, or, in the case of a put warrant, the
exercise price is less than the value of the underlying index. If the Fund were
not to exercise an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant. The Fund will
normally use index warrants in a manner similar to its use of options on
securities indices. The risks of the Fund's use of index warrants are generally
similar to those relating to its use of index options. Unlike most index
options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution that issues the warrant. Also, index warrants
generally have longer terms than index options. Although the Strategic Income
Fund will normally invest only in exchange-listed warrants, index warrants are
not likely to be as liquid as certain index options backed by a recognized
clearing agency. In addition, the terms of index warrants may limit the Fund's
ability to exercise the warrants at such time, or in such quantities, as the
Fund would otherwise wish to do.
International Investing. The Fund may invest up to 20% of its total assets
in foreign securities. This 20% limit is designed to accommodate the increased
globalization of companies as well as the redomiciling of companies for tax
treatment purposes. It is not currently expected to be used to increase direct
non-US exposure. Investments in foreign securities involve special risks,
including currency fluctuations, political or economic instability in the
country of issue and the possible imposition of exchange controls or other laws
or restrictions. In addition, securities prices in foreign markets are generally
subject to different economic, financial, political and social factors than are
the prices of securities in U.S. markets. With respect to some foreign countries
there may be the possibility of expropriation or confiscatory taxation,
limitations on liquidity of securities or political or economic developments
which could affect the foreign investments of the Fund. Moreover, securities of
foreign issuers generally will not be registered with the SEC, and such issuers
will generally not be subject to the
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SEC's reporting requirements. Accordingly, there is likely to be less publicly
available information concerning certain of the foreign issuers of securities
held by the Fund than is available concerning U.S. companies. Foreign companies
are also generally not subject to uniform accounting, auditing and financial
reporting standards or to practices and requirements comparable to those
applicable to U.S. companies. There may also be less government supervision and
regulation of foreign broker-dealers, financial institutions and listed
companies than exists in the U.S. Commission rates in foreign countries, which
are generally fixed rather than subject to negotiation as in the U.S., are
likely to be higher. These factors could make foreign investments, especially
those in developing countries, more volatile. All of the above issues should be
considered before investing in the Fund.
Lending Portfolio Securities. The Fund may lend portfolio securities to
broker-dealers and other financial institutions in an amount up to one-third of
the value of its total assets, provided that such loans are callable at any time
by the Fund and are at all times secured by collateral held by the Fund at least
equal to the market value, determined daily, of the loaned securities. The Fund
will continue to receive any income on the loaned securities, while
simultaneously earning interest on cash collateral (which will be invested in
short-term debt obligations) or a securities lending fee (in the case of
collateral in the form of U.S. Government Securities).
There may be risks of delay in recovery of the loaned securities and, in
some cases, loss of rights in the collateral should the borrower of the
securities fail financially. Loans of portfolio securities will only be made to
firms considered by Northstar to be creditworthy under guidelines adopted by the
Trustees.
Options -- In General. The Fund may purchase and write (i.e., sell) call
or put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period.
A covered call option written by a Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by a Fund is
covered when, among other things, cash or liquid securities having a value equal
to or greater than the exercise price of the option are placed in a segregated
account with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Specific Options Transactions. The Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or traded
in the over-the-counter market. An option on a stock index is similar to an
option in respect of specific securities, except that settlement does not occur
by delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
The Fund may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a price
which is expected to be lower or higher than the spot price of the currency at
the time the option is exercised or expires.
The Fund may purchase cash-settlement options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps in
pursuit of its investment objective. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating-rate payments for fixed-rate
payments) denominated in U.S. dollars or foreign currency. Equity index swaps
involve the exchange
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by the Fund with another party of cash flows based upon the performance of an
index or a portion of an index of securities which usually includes dividends. A
cash-settled option on a swap gives the purchaser the right, but not the
obligation, in return for the premium paid, to receive an amount of cash equal
to the value of the underlying swap as of the exercise date. These options
typically are purchased in privately negotiated transactions from financial
institutions, including securities brokerage firms.
Successful use by the Fund of options will be subject to the ability of
Northstar to predict correctly movements in the prices of individual stocks, the
stock market generally, foreign currencies or interest rates. To the extent the
Manager's predictions are incorrect, the Fund may incur losses.
Repurchase Agreements. Repurchase agreements are agreements under which a
Fund buys a money market instrument and obtains a simultaneous commitment from
the seller to repurchase the instrument at a specified time and at an agreed
upon yield. Northstar will use standards set by the Fund's Trustees in reviewing
the creditworthiness of parties to repurchase agreements with such Fund. In
addition, no more than an aggregate of 15% of the Fund's net assets, at the time
of investment, will be invested in illiquid investments, including repurchase
agreements having maturities longer than seven days. In the event of failure of
the executing bank or broker-dealer, the Fund could experience some delay in
obtaining direct ownership of the underlying collateral and might incur a loss
if the value of the security should decline, as well as costs in disposing of
the security.
As an alternative to using repurchase agreements, the Fund may, from time
to time, invest up to 10% of its assets in money market investment companies
sponsored by a third party for short-term liquidity purposes. Such investments
are subject to the non-fundamental investment limitations described herein.
Reverse Repurchase Agreements and Dollar Roll Agreements. The Fund may
enter into reverse repurchase agreements and dollar roll agreements. Under a
reverse repurchase agreement or a dollar roll agreement, a Fund sells securities
and agrees to repurchase them, or substantially similar securities in the case
of a dollar roll agreement, at a mutually agreed upon date and price. At the
time the Fund enters into a reverse repurchase or dollar roll agreement, it will
establish and maintain a segregated account with its custodian, containing cash,
U.S. Government Securities, or other liquid assets from its portfolio, having a
value not less than the repurchase price (including accrued interest). The Fund
does not account for dollar rolls as a borrowing.
These agreements may involve the risk that the market value of the
securities to be repurchased by the Fund may decline below the price at which
the Fund is obligated to repurchase. Also, in the event the buyer of securities
under a reverse repurchase agreement or a dollar roll agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement or the dollar roll agreement may effectively be
restricted pending such a decision.
Short Sales. The Fund may make short sales "against the box." A short-sale
is a transaction in which a party sells a security it does not own in
anticipation of decline in the market value of that security. A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain securities identical to those sold short. When the Fund makes a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities, and is often obligated to pay
over any accrued interest on such borrowed securities.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Northstar places orders for the purchase and sale of the Fund's
securities, supervises their execution and negotiates brokerage commissions on
behalf of the Fund. It is the practice of Northstar to seek the best prices and
best execution of orders and to negotiate brokerage commissions that in the
Adviser's opinion, are reasonable in relation to the value of the brokerage and
research services provided by the executing broker. Northstar seeks to obtain
fair commission rates from brokers. If the execution is satisfactory and if the
requested rate charged by a broker approximates rates currently being quoted by
the other brokers selected by Northstar, the rate is generally deemed by
Northstar to be reasonable. Some brokers may be paid higher rates of commission
if all or a portion of the securities involved in the transaction are positioned
by the broker, if the broker believes it has brought the Fund an unusually
favorable trading opportunity, or if the broker's research services have special
value and payment of such commissions is authorized by Northstar after the
transaction has been consummated. If Northstar more than occasionally differs
with the broker's appraisal of opportunity or value, the broker would not be
selected to execute trades in the future. Northstar believes that the Fund
benefits with a securities industry comprised of many and diverse firms
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and that the long term interest of shareholders of the Fund is best served by
its brokerage policies that include paying a fair commission, rather than
seeking to exploit its leverage to force the lowest possible commission rate.
Over-the-counter purchases and sales are transacted directly with market-makers,
except in those circumstances where, in the opinion of Northstar, better prices
and execution are available elsewhere.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (1) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
Northstar has informal arrangements with various brokers whereby, in
consideration for providing research services and subject to Section 28(e),
Northstar allocates brokerage to those firms, provided that the value of any
research and brokerage services was reasonable in relationship to the amount of
commission paid and was subject to best execution. In no case will Northstar
make binding commitments as to the level of brokerage commissions it will
allocate to a broker, nor will it commit to pay cash if any informal targets are
not met.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry groups
and individual issues. Research services will vary from firm to firm, with
broadest coverage generally from the large full-line firms. Smaller firms, in
general, tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor federal,
state, local and foreign political developments; many of the brokers also
provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff, since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, the outside research provides Northstar with a
diverse perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to Northstar and is available for
the benefit of other accounts advised by Northstar and its affiliates; and not
all of this information will be used in connection with the Fund. While this
information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value, and, in the
opinion of Northstar, it does not reduce the Adviser's expenses by a
determinable amount. The extent to which Northstar makes use of statistical,
research and other services furnished by brokers is considered by Northstar in
the allocation of brokerage business, but there is no formula by which such
business is allocated. Northstar does so in accordance with its judgment of the
best interests of the Fund and its shareholders.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Fund will also
purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed income securities transactions consists primarily of dealer
spreads and underwriting commissions.
In purchasing and selling fixed income securities, it is the policy of the
Fund to obtain the best results, while taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors, such as the dealer's risk in positioning the securities involved. While
Northstar generally seeks reasonably competitive spreads or commissions, the
Fund will not necessarily pay the lowest spread or commission available.
The Fund may, under circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Fund. By allocating
transactions in this manner, Northstar is able to supplement its research and
analysis with the views and information of other securities firms.
A change in securities held in the portfolio of the Fund is known as
"Portfolio Turnover" and may involve the payment by the Fund of dealer mark-ups
or brokerage or underwriting commissions and other transaction costs on the sale
of securities, as well as on the reinvestment of the proceeds in other
securities. Portfolio turnover rate for a fiscal year is the percentage
determined by dividing the lesser of the cost of purchases or proceeds from
sales of portfolio securities by the average of the value of portfolio
securities during such year, all excluding securities whose maturities at
acquisition were one year or less. A 100% annual turnover rate would occur, for
example, if all the securities in the portfolio were replaced once in a period
of one
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year. The Fund cannot accurately predict its portfolio turnover rate, but
Northstar anticipates that the Fund's rate will exceed 150% under normal market
conditions. The Fund's portfolio turnover rate may be higher than that described
above if the Fund finds it necessary to significantly change its portfolio to
adopt a temporary defensive position or respond to economic or market events. A
high turnover rate would increase commission expenses and may involve
realization of gains that would be taxable to shareholders.
The placement of portfolio transactions with broker-dealers who sell
shares of the Fund is subject to rules adopted by the National Association of
Securities Dealers, Inc. ("NASD").
SERVICES OF NORTHSTAR, THE SUB-ADVISER AND THE ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with the Fund, Northstar
Investment Management Corporation acts as the Investment Adviser to the Fund. In
this capacity, Northstar, subject to the authority of the Trustees of the
Northstar Equity Trust (the "Trust") is responsible for furnishing continuous
investment supervision to the Fund and is responsible for the management of the
Fund's portfolio.
Northstar is an indirect, wholly-owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar"). ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the life insurance business. Through ReliaStar Life
Insurance Company ("ReliaStar Life") and other subsidiaries, ReliaStar issues
and distributes individual life insurance and annuities, group life and health
insurance and life and health reinsurance, and provides related investment
management services. The address of Northstar is 300 First Stamford Place,
Stamford, Connecticut 06902. The address of ReliaStar is 20 Washington Avenue
South, Minneapolis, Minnesota 55401.
Northstar charges a fee under the Investment Advisory Agreement to the
Fund at an annual rate of 0.70% of the Fund's average daily net assets. This fee
is accrued daily and payable monthly.
The Investment Advisory Agreement for the Fund was originally approved by
the Trustees of the Trust on behalf of the Fund on December 16, 1998, and by the
sole Shareholder of the Northstar Research Enhanced Index Fund on December 16,
1998. The Investment Advisory Agreement will continue in effect for a period of
two years and annually thereafter if specifically approved annually by (a) the
Trustees, acting separately on behalf of the Fund, including a majority of the
Disinterested Trustees, or (b) a majority of the outstanding voting securities
of the Fund as defined in the 1940 Act.
The Fund's Investment Advisory Agreement may be terminated, without
penalty and at any time, by a similar vote upon not more than 60 days nor less
than 30 days written notice by Northstar, the Trustees, or a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act. The
agreement will automatically terminate in the event of its assignment, as
defined in Section 2(a)(4) of the 1940 Act.
Pursuant to a Sub-Advisory Agreement between Northstar and J.P. Morgan
Investment Management Inc., dated December 16, 1998, J.P. Morgan acts as
sub-adviser to the Fund. In this capacity, J.P. Morgan, subject to the
supervision and control of Northstar and the Trustees of the Fund, will manage
the Fund's portfolio investments, consistently with the Fund's investment
objective, and will execute any of the Fund's investment policies that it deems
appropriate to utilize from time to time. Fees payable under the Sub-Advisory
Agreement will accrue daily and be paid monthly by Northstar. As compensation
for its services, Northstar will pay J.P. Morgan at the annual rate of 0.20% of
the average daily net assets of the Fund. J.P. Morgan's address is 522 Fifth
Avenue, New York, New York 10036. The Sub-Advisory Agreement for the Fund was
approved by the Trustees of Trust on behalf of the Fund on December 16, 1998.
The Sub-Advisory Agreement may be terminated without payment of any penalty by
Northstar. J.P. Morgan, the Trustees of the Trust on behalf of the Fund, or the
shareholders of the Fund on not more than 60 days and not less than 30 days
prior written notice. Otherwise, the Sub-Advisory Agreement will remain in
effect for two years and will, thereafter, continue in effect from year to year,
subject to the annual approval of the Trustees of the Trust on behalf of the
Fund, or the vote of a majority of the outstanding voting securities of the
Fund, and the vote, cast in person at a meeting duly called and held, of a
majority of the Trustees of the Fund who are not parties to the Sub-Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of any such
Party.
Northstar Administrators Corporation serves as administrator for the Fund,
pursuant to an Administrative Services Agreement with the Trust. Subject to the
supervision of the Board of Trustees, the Administrator provides the overall
business management and administrative services necessary to the proper conduct
of the Fund's business, except for those services performed by Northstar under
the Investment Advisory Agreement, the custodian for the Fund under the
Custodian Agreement, the transfer agent for the Fund under the Transfer Agency
Agreement, and such other service providers as may be retained by the Fund from
time to time. The Administrator acts as liaison among these service providers to
the Fund. The Administrator is also responsible for ensuring that the Fund
operates in compliance with applicable legal requirements and for
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monitoring Northstar for compliance with requirements under applicable law and
with the investment policies and restrictions of the Fund. The Administrator is
an affiliate of Northstar. The address of the Administrator is: 300 First
Stamford Place, Stamford, Connecticut 06902.
The Administrative Services Agreement was approved by the Trustees of the
Trust on behalf of the Fund on December 16, 1998, and will continue in effect
for a period of two years and annually thereafter if 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 the Fund's
net assets and is payable by the Fund monthly at an annual rate of 0.10% of the
Fund's average daily net assets. In addition, the Administrator charges an
annual account fee of $5.00 for each account of beneficial owners of shares of
the Fund for providing certain shareholder services and assisting broker-dealer
shareholder accounts.
NET ASSET VALUE
Equity securities are valued at the last sale price on the exchange or in
the principal OTC market in which such securities are being valued, or lacking
any sales, at the last available bid price. Prices of long-term debt securities
are valued on the basis of last reported sales price, or if no sales are
reported, the value is determined based upon the mean of representative quoted
bid or asked prices for such securities obtained from a quotation reporting
system or from established market makers, or at prices for securities of
comparable maturity, quality and type. Securities (including OTC options) for
which market quotations are not readily available and other assets are valued at
their fair value as determined by or under the direction of the Trustees. Such
fair value may be determined by various methods, including utilizing information
furnished by pricing services that determine calculations for such securities
using methods based, among other things, upon market transactions for comparable
securities and various relationships between securities that are generally
recognized as relevant.
The net asset value of the Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern Time), on each business day that the
Exchange is open. Net asset value per share is computed by determining the value
of the Fund's assets (securities held plus cash and other assets, including
dividend and interest accrued but not received) less all liabilities of the Fund
(including accrued expenses other than class specific expenses), and dividing
the result by the total number of shares outstanding at such time. The specific
expenses borne by each class of shares will be deducted from that class and will
result in different net asset values and dividends. The net asset value per
share of the Class B and Class C shares of the Fund will generally be lower than
that of the Class A shares because of the higher class specific expenses borne
by each of the Class B and Class C shares.
Under normal market conditions, daily prices for securities are obtained
from independent pricing services, determined by them in accordance with the
registration statement for the Fund. Securities are valued at market value or,
if a market quotation is not readily available, at their fair value, determined
in good faith under procedures established by and under the supervision of the
Trustees. Money market instruments maturing within 60 days are valued using the
amortized cost method of valuation. This involves valuing a security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Fund would receive if it sold the instrument. See "How Net Asset Value is
Determined" in the Prospectus.
PURCHASES AND REDEMPTIONS
Shares issued pursuant to the automatic reinvestment of income dividends
or capital gains distributions are not subject to a front-end or contingent
deferred sales load. There is no sales charge for qualified persons. "Qualified
Persons" are the following (a) active or retired Trustees, Directors, Officers,
Partners or Employees (including immediate family) of (i) Northstar or any of
its affiliated companies, (ii) the Fund 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 Fund in particular investment products
such as "wrap accounts" or other similar managed accounts for the benefit of the
clients of such brokers, dealers and registered investment advisers, and (d)
pension, profit sharing or other benefit plans created pursuant to a plan
qualified under Section 401 of the Code or plans under Section 457 of the Code,
provided that such shares are purchased by an employer sponsored plan with at
least 50 eligible employees and (e) service providers of (i) Northstar or any of
its affiliated companies or (ii) the Fund or any Northstar
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affiliated investment company and (f) Brandes employees, officers and partners.
Class A shares of the Fund may be purchased at net asset value, through a
dealer, where the amount invested represents redemption proceeds from another
open-end fund sold with a sales load and the same or similar investment
objective, and provided the following conditions are met: such redemption
occurred no more than 60 days prior to the purchase of shares of the Fund, the
redeemed shares were held for at least six months prior to redemption, and the
proceeds of the redemption are sent directly to Northstar or its agent, or
maintained in cash or a money market fund. No commissions will be paid to
dealers in connection with such purchases. There is also no initial sales charge
for "Purchasers" (defined below) if the initial amount invested in the Fund is
at least $1,000,000 or the Purchaser signs a $1,000,000 Letter of Intent, as
hereinafter defined.
Reduced Sales Charges on Class A Shares. Investors choosing the initial
sales alternative may under certain circumstances be entitled to pay reduced
sales charges. The sales charge varies with the size of the purchase and reduced
charges apply to the aggregate of purchases of the Fund made at one time by any
"Purchaser," which term includes (i) an individual and his/her spouse and their
children under the age of 21, (ii) a trustee or fiduciary purchasing for a
single trust, estate or single fiduciary account (including IRAs, pension,
profit-sharing or other employee benefit trusts created pursuant to a plan
qualified under Section 401 of the Code, a Simplified Employee Pension ("SEP"),
Salary Reduction and other Elective Simplified Employee Pension Accounts
("SARSEP")) and 403(b) and 457 plans, although more than one beneficiary or
participant is involved; and (iii) any other organized group of persons, whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase at a discount of
redeemable securities of a registered investment company. The circumstances
under which "Purchasers" may pay reduced sales charges are described in the
Prospectus.
Redemptions. The right to redeem shares may be suspended and payment
therefore postponed during periods when the New York Stock Exchange is closed,
other than customary weekend and holiday closings, or, if permitted by rules of
the SEC, during periods when trading on the Exchange is restricted, or during
any emergency that makes it impracticable for the Fund to dispose of its
securities or to determine fairly the value of its net assets or during any
other period permitted by order of the SEC for the protection of investors.
Furthermore, the Transfer Agent will not mail redemption proceeds until checks
received for shares purchased have cleared, but payment will be forwarded
immediately upon the funds becoming available. Class B and Class C shareholders
will be subject to the applicable deferred sales charge, if any, for their
shares at the time of redemption.
Exchanges. The following conditions must be met for all exchanges among
the Fund, other Northstar funds and the Cash Management Fund and the Money
Market Portfolio: (i) the shares that will be acquired in the exchange (the
"Acquired Shares") are available for sale in the shareholder's state of
residence; (ii) the Acquired shares will be registered to the same shareholder
account as the shares to be surrendered (the "Exchanged Shares"); (iii) the
Exchanged Shares must have been held in the shareholder's account for at least
30 days prior to the exchange; (iv) except for exchanges into the Cash
Management Fund, the account value of the Fund whose shares are to be acquired
must equal or exceed the minimum initial investment amount required by that Fund
after the exchange is implemented; and (v) a properly executed exchange request
has been received by the Transfer Agent.
The Fund reserves the right to delay the actual purchase of the Acquired
Shares for up to five business days if it determines that it would be
disadvantaged by an immediate transfer of proceeds from the redemption of
Exchanged Shares. Normally, however, the redemption of Exchanged Shares and the
purchase of Acquired Shares will take place on the day that the exchange request
is received in proper form. The Fund reserves the right to terminate or modify
its exchange privileges at any time upon prominent notice to shareholders. Such
notice will be given at least 60 days in advance. It is the policy of Northstar
to discourage and prevent frequent trading by shareholders among the Funds in
response to market fluctuations. Accordingly, in order to maintain a stable
asset base in each Fund and to reduce administrative expenses borne by each
Fund, Northstar generally restricts shareholders to a maximum of six exchanges
across the Northstar Fund complex each calendar year. If a shareholder exceeds
this limit, future exchange requests may be denied.
Conversion Feature. Class B shares of the Fund will automatically convert
to Class A shares without a sales charge at the relative net asset values of
each of the classes after eight years from the acquisition of the Class B
shares, and as a result, will thereafter be subject to the lower distribution
fee (but same service fee) under the Class A Rule 12b-1 plan for the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"). In order to so
qualify, the Fund must, among other things, (i) derive each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or
10
<PAGE>
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in stock, securities or currencies; (ii) derive less than 30% of its
gross income each taxable year from the sale or other disposition of certain
assets, including securities, held for less than three months (the "30%
Limitation"); and (iii) at the end of each quarter of the taxable year maintain
at least 50% of the value of its total assets in cash, government securities,
securities of other regulated investment companies, and other securities of
issuers that represent, with respect to each issuer, no more than 5% the value
of the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and with no more than 25% of its assets invested in the securities
(other than those of the U.S. Government or other regulated investment
companies) of any one issuer or of two or more issuers that the Fund controls
and that are engaged in the same, similar or related trades and businesses. As a
regulated investment company, the Fund generally will not be subject to federal
income tax on its income and gains that it distributes to shareholders, if at
least 90% of its investment company taxable income (which includes dividends,
interest and the excess of any short-term capital gains over long-term capital
losses) for the taxable year is distributed.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of a Fund's ordinary income
for the calendar year plus 98% of its capital gain net income recognized during
the one-year period ending on October 31 plus undistributed amounts from prior
years. The Fund intends to make distributions sufficient to avoid imposition of
the excise tax. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund during October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable as if
received on December 31 in the year they are declared by the Fund, rather than
the year in which they are received.
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by a Fund for selling a put or call option is not included in income at
the time of receipt. If the option expires, the premium is a short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is a
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining the gain or loss.
Certain options, futures contracts and forward contracts in which the Fund
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses ("60/40 gains or losses"); however, foreign currency gains or
losses (as discussed below) arising from certain section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by a Fund
at the end of each taxable year (and, generally, for purposes of the 4% excise
tax, on October 31 of each year) are treated as sold on such date at fair market
value, resulting in unrealized gains or losses being treated as though they were
realized.
Hedging transactions undertaken by the Fund may result in straddles for
U.S. federal income tax purposes. The straddle rules may accelerate income to a
Fund, defer losses to a Fund, and affect the character of gains (or losses)
realized by a Fund. Hedging transactions may increase the amount of short-term
capital gains realized by a Fund that is taxed as ordinary income when
distributed to shareholders. A Fund may make one or more of the various
elections available under the Code with respect to hedging transactions. If the
Fund makes any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected positions will be determined
under rules that vary according to the elections made.
Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time a Fund accrues interest or other receivables,
or accrues expenses or other liabilities, denominated in a foreign currency and
the time the Fund actually collects such receivables, or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and certain
options, futures and forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
11
<PAGE>
A Fund will not realize a gain or loss on a short sale of a security until
it closes the transaction by delivering the borrowed security to the lender. All
or a portion of any gain arising from a short sale may be treated as short-term
capital gain, regardless of the period for which the Fund held the security used
to close the short sale. In addition, the Fund's holding period for any security
that is substantially identical to that which is sold short may be reduced or
eliminated as a result of the short sale.
Investments by the Fund in zero coupon securities will result in income to
the Fund equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Fund receives no cash interest payments.
This income is included in determining the amount of income that the Fund must
distribute to maintain its status as a regulated investment company and to avoid
the payment of federal income tax and the 4% excise tax. If the Fund invests in
certain high yield original issue discount obligations issued by corporations, a
portion of the original issue discount accruing on the obligations may be
eligible for the deduction for dividends received by corporations. In such
event, a portion of the dividends of investment company taxable income received
from the Fund by its corporate shareholders may be eligible for this deduction.
Gains derived by the Fund from the disposition of any market discount
bonds (i.e., bonds purchased other than at original issue, where the face value
of the bonds exceeds their purchase price) held by the Fund will be taxed as
ordinary income to the extent of the accrued market discount on the bonds,
unless the Fund elects to include the market discount in income as it accrues.
If the Fund invests in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), these investments would be subject to special tax rules
designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's
earnings. In the absence of certain elections to report these earnings on a
current basis, regardless of whether the Fund actually receives any
distributions from the PFIC, investors in the Fund would be required to report
certain "excess distributions" from, and any gains from the disposition of stock
of, the PFIC as ordinary income. This ordinary income would be allocated ratably
to the Fund's holding period for the stock. Any amounts allocated to prior years
would be taxable at the highest rate of tax applicable in that year, increased
by an interest charge determined as though the amounts were underpayments of
tax.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. If more than
50% of the value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible and
may elect to "pass through" to the Fund's shareholders the amount of foreign
taxes paid by the Fund. Pursuant to this election, a shareholder will be
required to include in gross income (in addition to dividends actually received)
its pro rata share of the foreign taxes paid by the Fund, and may be entitled
either to deduct its pro rata share of the foreign taxes in computing its
taxable income or to use the amount as a foreign tax credit against its U.S.
Federal income tax liability, subject to limitations. Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will "pass through" for that year. If the Fund is
not eligible to make the election to "pass through" to its shareholders its
foreign taxes, the foreign taxes it pays will reduce its investment company
taxable income and distributions by the Fund will be treated as U.S. source
income.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to its foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Fund's income flows through to its shareholders. With respect to
the Fund, gains from the sale of securities will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains from
foreign currency denominated debt securities, receivables and payables, and
options, futures and forward transactions, will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income (as defined for purposes of the
foreign tax credit), including the foreign source passive income passed through
by the Fund.
The current position of the Internal Revenue Service (the "IRS") generally
is to treat a regulated investment company as owning its proportionate share of
the income and assets of any partnership in which it is a partner, in applying
the 90% qualifying income requirement, the 30% Limitation and the asset
diversification requirements that, as described above, the Fund must satisfy to
qualify as a regulated investment company under the Code. These requirements may
limit the extent to which the Fund may invest in limited partnerships,
especially in the case of limited partnerships that do not primarily invest in a
diversified portfolio of stocks and securities.
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of the Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net
12
<PAGE>
long-term capital gains over net short-term capital losses), if any, designated
as capital gain dividends are taxable as long-term capital gains, regardless of
how long the shareholder has held the Fund's shares, and are not eligible for
the dividends-received deduction. Shareholders receiving distributions in the
form of additional shares, rather than cash, generally will have a cost basis in
each such share equal to the net asset value of a share of the Fund on the
reinvestment date. A distribution of an amount in excess of the Fund's current
and accumulated earnings and profits will be treated by a shareholder as a
return of capital that is applied against and reduces the shareholder's basis in
his or her shares. To the extent that the amount of any such distribution
exceeds the shareholder's basis in his or her shares, the excess will be treated
by the shareholder as a gain from a sale or exchange of the shares. Shareholders
will be notified annually as to the U.S. federal tax status of distributions,
and shareholders receiving distributions in the form of additional shares will
receive a report as to the net asset value of those shares.
Upon the sale or other disposition of shares of the Fund, a shareholder
may realize a capital gain or loss that will be long-term or short-term,
generally depending upon the shareholder's holding period for the shares. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund originally
acquired with a sales charge are disposed of within 90 days after the date on
which they were acquired and new shares of a regulated investment company are
acquired without a sales charge or at a reduced sales charge. In that case, the
gain or loss realized on the disposition will be determined by excluding from
the tax basis of the shares all or a portion of the sales charge incurred in
acquiring those shares. This exclusion applies to the extent that the otherwise
applicable sales charge with respect to the newly acquired shares is reduced as
a result of the shareholder having incurred a sales charge paid for the new
shares. This rule may be applied to successive acquisitions of shares of stock.
Distributions by a Fund reduce the net asset value of that Fund's shares.
Should a distribution reduce the net asset value of a share below a
shareholder's cost for the share, such a distribution nevertheless generally
would be taxable to the shareholder as ordinary income or long-term capital
gains, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution by a Fund. The
price of shares purchased at that time may include the amount of the forthcoming
distribution, but the distribution generally would be taxable to them.
Some shareholders may be subject to withholding of Federal income tax on
dividends and redemption payments from a Fund ("backup withholding") at the rate
of 31%. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. Generally, shareholders
subject to backup withholding will be (i) those for whom a certified taxpayer
identification number is not on file with a Fund, (ii) those about whom
notification has been received (either by the shareholder or by a Fund) from the
IRS that they are subject to backup withholding or (iii) those who, to a Fund's
knowledge, have furnished an incorrect taxpayer identification number.
Generally, to avoid backup withholding, an investor must, at the time an account
is opened, certify under penalties of perjury that the taxpayer identification
number furnished is correct and that he or she is not subject to backup
withholding.
The foregoing discussion relates solely to U.S. Federal income tax law.
Dividends and distributions also may be subject to state, local and foreign
taxes. Dividends paid by the Fund from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers regarding the possible exclusion
of this portion of their dividends for state and local tax purposes. Non-U.S.
investors also should consult their tax advisers concerning the tax consequences
of ownership of shares of the Fund, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
Shareholders of Class A, Class B and Class C shares may direct that income
dividends and capital gain distributions be paid to them through various options
listed in the "How the Fund Pays Distributions -- Distribution Options" section
of the Fund's current Prospectus. If a shareholder selects either of two such
options (that: (a) income dividends be paid in cash and capital gain
distributions be paid in additional shares of the same class of the Fund at net
asset value; or (b) income dividends and capital gain distributions both be paid
in cash), and the dividend/distribution checks cannot be delivered, or, if such
checks remain uncashed for six months, the Fund reserves the right to reinvest
the dividend or distribution in the shareholder's account
13
<PAGE>
at the then-current net asset value and to convert the shareholder's election to
automatic reinvestment in shares of the Fund from which the distributions were
made. The Fund has received from the IRS, rulings to the effect that (i) the
implementation of the multiple class purchase arrangement will not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Code, and (ii) that any conversion feature associated with a class of shares
does not constitute a taxable event under federal income tax law.
UNDERWRITER AND DISTRIBUTION SERVICES
Pursuant to an Underwriting Agreement, Northstar Distributors, Inc. is the
Underwriter for the Fund and as such conducts a continuous offering pursuant to
a "best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. The Underwriter is an affiliate of the
Adviser and the Administrator.
The Underwriting Agreement may be terminated at any time on not more than
60 days written notice, without payment of a penalty, by the Underwriter, by
vote of a majority of the outstanding class of voting securities of the Fund, or
by vote of a majority of the Trustees, who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan or in any agreements. The Underwriting Agreements will terminate
automatically in the event of their assignment.
In addition to the amount paid to dealers pursuant to the sales charge
table in the Prospectus, the Underwriter from time to time pays, from its own
resources or pursuant to the Plans, a bonus or other incentive to dealers (other
than the Underwriter) that employ a registered representative who sells a
minimum dollar amount of the shares of the Fund during a specific period of
time. Dealers may not use sales of any of the Fund's shares to qualify for or
participate in such programs to the extent such may be prohibited by a dealer's
internal procedures or by the laws of any state or any self-regulatory agency,
such as the National Association of Securities Dealers, Inc. Such bonuses or
other incentives take the form of payment for travel expenses, including
lodging, incurred in connection with trips taken by qualifying registered
representatives and members of their families to places within or outside the
United States, or other bonuses such as certificates for airline tickets, dining
establishments or the cash equivalent of such bonuses. The Underwriter, from
time to time, reallows all or a portion of the sales charge on Class A shares,
which it normally reallows to individual selling dealers. However, such
additional reallowance generally will be made only when the selling dealer
commits to substantial marketing support such as internal wholesaling through
dedicated personnel, internal communications and mass mailings.
Each Fund has adopted separate distribution plans under Rule 12b-1 of the
1940 Act for each class of shares of the Fund (collectively the "Plans"). The
Plans permit each Fund to compensate the Underwriter in connection with
activities intended to promote the sale of shares of each class of shares of
each Fund.
Pursuant to the Plan for Class A shares, each Fund may compensate the
Underwriter up to 0.30% of average daily net assets of such Fund's Class A
shares. Under the Plans for Class B and Class C shares, each Fund may compensate
the Underwriter up to 1.00% of the average daily net assets attributable to the
respective class of such Fund. Expenditures by the Underwriter under the Plans
shall consist of: (i) commissions to sales personnel for selling shares of the
Funds (including underwriting fees and financing expenses incurred in connection
with the sale of Class B and Class C shares); (ii) compensation, sales
incentives and payments to sales, marketing and service personnel; (iii)
payments to broker-dealers and other financial institutions that have entered
into agreements with the Underwriter in the form of a Dealer Agreement for
Northstar Funds for services rendered in connection with the sale and
distribution of shares of the Funds; (iv) payment of expenses incurred in sales
and promotional activities, including advertising expenditures related to the
Funds; (v) the costs of preparing and distributing promotional materials; (vi)
the cost of printing the Funds' Prospectus and SAI for distribution to potential
investors; and (vii) other activities that are reasonably calculated to result
in the sale of shares of the Funds.
A portion of the fees paid to the Underwriter pursuant to the 12b-1 plans
not exceeding 0.25% annually of the average daily net assets of each Fund's
shares may be paid as compensation for providing services to each Fund's
shareholders, including assistance in connection with inquiries related to
shareholder accounts (the "Service Fee"). In order to receive Service Fees under
the Plans, participants must meet such qualifications as are established in the
sole discretion of the Underwriter, such as services to each Fund's
shareholders; or services providing each Fund with more efficient methods of
offering shares to coherent groups of clients, members or prospects of a
participant; or services permitting purchases or sales of shares, or
transmission of such purchases or sales by computerized tape or other electronic
equipment; or other processing.
The Plans are designed to be compensation plans and therefore amounts
spent by the distributor in excess of plan limits are not carried over from year
to year for reimbursement. The Plans do, however, contemplate that amounts paid
to the distributor may compensate it for past distribution efforts without
regard to any particular time period.
14
<PAGE>
If the Plans are terminated in accordance with their terms, the
obligations of a Fund to compensate the Underwriter for distribution related
services pursuant to the Plans will cease; however, subject to approval by the
Trustees, including a majority of the independent Trustees, a Fund may continue
to make payments past the date on which each Plan terminates up to the annual
limits set forth in each Plan for the purpose of compensating the Underwriter
for services that were incurred during the term of the Plan.
The Trustees have concluded that there is a reasonable likelihood that the
Plans will benefit each Fund and its shareholders and that the Plans should
result in greater sales and/or fewer redemptions of Fund shares. On a quarterly
basis, the Trustees will review a report on expenditures under the Plans and the
purposes for which expenditures were made. The Trustees will conduct an
additional, more extensive review annually in determining whether the Plans
shall be continued. By their terms, continuation of the Plans from year to year
is contingent on annual approval by a majority of the Trustees acting separately
on behalf of each Fund and by a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plans or any related agreements (the
"Plan Trustees"). The Plans provide that they may not be amended to increase
materially the costs that a Fund may bear pursuant to the applicable Plan
without approval of the shareholders of the affected Fund and that other
material amendments to the Plans must be approved by a majority of the Plan
Trustees acting separately on behalf of each Fund, by vote cast in person at a
meeting called for the purpose of considering such amendments. The Plans further
provide that while each plan is in effect, the selection and nomination of
Trustees who are not "interested persons" shall be committed to the discretion
of the Trustees who are not "interested persons." A Plan may be terminated at
any time by vote of a majority of the Plan Trustees or a majority of the
outstanding class of shares of the affected Fund to which the Plan relates.
TRUSTEES AND OFFICERS
The Trustees and principal Officers of the Trust and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and Officers is 300 First Stamford
Place, Stamford, Connecticut 06902.
Paul S. Doherty -- Trustee. Age: 64.
President, Doherty, Wallace, Pillsbury and Murphy, P.C., Attorneys.
Director, Tambrands, Inc. Since October 1993, Trustee of the Northstar
affiliated investment companies.
Robert B. Goode, Jr. -- Trustee. Age: 68.
Currently retired. From 1990 to 1991, Chairman of The First Reinsurance
Company of Hartford. From 1987 to 1989, President and Director of American
Skandia Life Assurance Company. Since October 1993, Trustee of the Northstar
affiliated investment companies.
Alan L. Gosule -- Trustee. Age: 58.
Partner, Rogers & Wells. Director, F.L. Putnam Investment Management Co.,
Inc.
Mark L. Lipson* -- Trustee and President. Age: 49.
Director, Chairman and Chief Executive Officer of Northstar and Northstar,
Inc. Director of Northstar Administrators Corporation and Director and Chairman
of Northstar Distributors, Inc., President and Trustee of the Northstar
affiliated investment companies since October 1993. Prior to August, 1993,
Director, President and Chief Executive Officer of National Securities &
Research Corporation and President and Director/Trustee of the National
Affiliated Investment Companies and certain of National's subsidiaries.
Walter H. May -- Trustee. Age: 62.
Retired. Former Senior Executive for Piper Jaffrey, Inc.
David W.C. Putnam -- Trustee. Age: 59.
President, Clerk and Director of F.L. Putnam Securities Company,
Incorporated, F.L. Putnam Investment Management Company, Incorporated,
Interstate Power Company, Inc., Trust Realty Corp. and Bow Ridge Mining Co.;
Director of Anchor Investment Management Corporation; President and Trustee of
Anchor Capital Accumulation Trust, Anchor International Bond Trust, Anchor Gold
and Currency Trust, Anchor Resources and Commodities Trust and Anchor Strategic
Assets Trust.
John R. Smith -- Trustee. Age: 75.
From 1970-1991, Financial Vice President of Boston College; President of
New England Fiduciary Company (financial planning) since 1991; Chairman of
Massachusetts Educational Financing Authority since 1987; Vice Chairman of
Massachusetts Health and Education Authority.
15
<PAGE>
John G. Turner* -- Trustee. Age: 59.
Since May 1993, Chairman and CEO of ReliaStar Financial Corporation and
Northwestern NationalLife Insurance Co. and Chairman of other ReliaStar
Affiliated Insurance Companies since 1995. Since October 1993, Director of
Northstar and affiliates. Prior to May 1993, President and CEO of ReliaStar and
Northwestern National.
David W. Wallace -- Trustee. Age: 74.
Chairman of Putnam Trust Company, Lone Star Industries and FECO Engineered
Systems, Inc. He is also President and Trustee of Robert R. Young Foundation and
Governor of the New York Hospital. Director of UMC Electronics and Zurn
Industries, Inc. Former Chairman and Chief Executive Officer, Todd Shipyards and
Bangor Punta Corporation, and former Chairman and Chief Executive Officer of
National Securities & Research Corporation. Since October 1993, Trustee of the
Northstar affiliated investment companies.
Stephanie L. Beckner -- Vice President and Secretary. Age: 30.
Vice President, Secretary and Counsel of Northstar, Northstar affiliated
companies and Northstar affiliated investment companies.
Thomas Ole Dial -- Vice President. Age: 42.
Executive Vice President and Chief Investment Officer-Fixed Income of
Northstar and Principal, T.D. & Associates, Inc. From 1989 to August 1993,
Executive Vice President and Chief Investment Officer-Fixed Income of National
Securities and Research Corporation, Vice President of National Affiliated
Investment Companies, and Vice President of NSRAsset Management Corporation.
From 1988 to 1989, President of Dial Capital Management.
Mary Lisanti -- Vice President. Age: 42.
Executive Vice President and Chief Investment Officer-Equities of
Northstar. From September 1996 to May 1998, Portfolio Manager with Strong
Capital Management. From March 1993 to August 1996, Managing Director and
Portfolio Manager with Bankers Trust Corporation.
Agnes Mullady -- Vice President and Treasurer. Age: 40.
Senior Vice President and Chief Financial Officer of Northstar; Senior
Vice President, Treasurer and President of Northstar Administrators Corporation;
and Vice President and Treasurer of Northstar Distributors, Inc. and Northstar
affiliated investment companies. From 1987 to 1993, Vice President and Treasurer
of National Securities & Research Corporation.
- -------------
*Deemed to be an "interested person" of the Trust, as defined by the 1940 Act.
Northstar and Northstar Administrators Corporation make their personnel
available to serve as Officers and "Interested Trustees" of the Trust. All
Officers and Interested Trustees of the Trust 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 Trust and to retail funds sponsored or advised by
the Adviser, and a per meeting fee of $1,500 for attendance at each joint
meeting of the Trusts and the other Northstar retail funds. The Trust also
reimburses Trustees for expenses incurred by them in connection with such
meetings.
Compensation Table
Period Ending December 31, 1997
<TABLE>
<CAPTION>
Pension Benefits Estimated Annual Total Compensation
Compensation Accrued as Part of Benefits upon from all Funds (17) in
from Funds(a) Fund Expenses Retirement Northstar Complex(b)
------------- ------------- ---------- --------------------
<S> <C> <C> <C> <C>
Paul S. Doherty .................. 13,239 0 0 13,750
Robert B. Goode, Jr. ............. 14,500 0 0 15,000
Alan L. Gosule ................... 14,988 0 0 15,500
Mark L. Lipson ................... 0 0 0 0
Walter H. May .................... 14,989 0 0 15,000
David W.C. Putnam ................ 12,625 0 0 13,125
John R. Smith .................... 14,989 0 0 15,500
John G. Turner ................... 0 0 0 0
David W. Wallace ................. 13,239 0 0 13,750
- ------------
</TABLE>
(a) See table below for Fund specific compensation. The Northstar Research
Enhanced Index Fund commenced operations on December 30, 1998, the
Northstar Emerging Markets Value Fund commenced operations on January 1,
1998, and the Mid-Cap Growth Fund commenced operations on August 20, 1998.
(b) Compensation paid by the Northstar Trust Funds, the Northstar Galaxy Trust
Funds (formerly the "Northstar Variable Trust Funds"), the Northstar Equity
Trust Fund and the remaining five funds, Northstar Special, Government
Securities, High Yield, Growth and Balance Sheet Opportunities Funds.
16
<PAGE>
Individual Fund
Fiscal Year Compensation Tables
<TABLE>
<CAPTION>
Mid-Cap Growth + International Emerging Income and Government
Special Growth(a) Value Value Markets Growth Securities
------ -------- -------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul S. Doherty ............ 1,518 0 915 500 0 1,401 1,212
Robert B. Goode, Jr. ....... 1,604 0 1,073 659 0 1,501 1,334
Alan L. Gosule ............. 1,677 0 1,074 659 0 1,560 1,371
Mark L. Lipson ............. 0 0 0 0 0 0 0
Walter H. May .............. 1,677 0 1,074 659 0 1,560 1,371
David W.C. Putnam .......... 1,434 0 902 489 0 1,330 1,164
John R. Smith .............. 1,677 0 1,074 659 0 1,560 1,371
John G. Turner ............. 0 0 0 0 0 0 0
David W. Wallace ........... 1,518 0 915 500 0 1,401 1,212
<CAPTION>
High High Balance
High Total Total Sheet
Yield Return II Return Growth Opportunities
--------- ----------- -------- ------ -------------
<S> <C> <C> <C> <C> <C>
Paul S. Doherty ............ 1,432 500 2,395 1,229 1,052
Robert B. Goode, Jr. ....... 1,528 659 2,377 1,349 1,193
Alan L. Gosule ............. 1,591 659 2,554 1,388 1,211
Mark L. Lipson ............. 0 0 0 0 0
Walter H. May .............. 1,591 659 2,554 1,388 1,211
David W.C. Putnam .......... 1,357 489 2,207 1,179 1,022
John R. Smith .............. 1,591 659 2,554 1,388 1,211
John G. Turner ............. 0 0 0 0 0
David W. Wallace ........... 1,432 500 2,395 1,229 1,052
</TABLE>
- ----------
(a) The Northstar Mid-Cap Growth Fund commenced operations on August 20, 1998.
The compensation amounts noted are estimates for the period ending
December 31, 1998.
OTHER INFORMATION
Independent Accountants. PricewaterhouseCoopers LLP has been selected as
the independent accountants of the Northstar Trust. PricewaterhouseCoopers LLP
audits the Fund's annual financial statements and expresses an opinion thereon.
Custodian. State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02110, acts as custodian, and fund accounting agent for the Trust.
Transfer Agent. Pursuant to a Transfer Agency Agreement with the Fund,
First Data Investor Services Group, Inc., 4400 Computer Drive, Westborough, MA
01581-5120, acts as the transfer agent for the Fund.
Reports to Shareholders. The fiscal year of the Northstar Trust ends on
October 31. The Fund will send financial statements to its shareholders at least
semiannually. An annual report containing financial statements audited by the
independent accountants will be sent to shareholders each year.
Organizational and Related Information. The Northstar Research Enhanced
Index Fund, a series of the Trust, was organized in 1998.
The shares of the Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders will be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares of the Fund or class having voting rights. Except as set
forth above and subject to the 1940 Act, the Trustees will continue to hold
office and appoint successor Trustees.
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Declaration of Trust
for the Fund contains provisions intended to limit such liability and to provide
indemnification out of Fund property of any shareholder charged or held
personally liable for obligations or liabilities of the Fund solely by reason of
being or having been a
17
<PAGE>
shareholder of the Fund and not because of such shareholder's acts or omissions
or for some other reason. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund itself would be unable to meet its obligations.
Year 2000 Compliance. The services provided to the Fund by the Adviser,
the Administrator and the Fund's other service providers are dependent on those
service providers' computer systems. Many computer software and hardware systems
in use today cannot distinguish between the year 2000 and the year 1900 because
of the way dates are encoded and calculated (the "Year 2000 Issue"). The failure
to make this distinction could have a negative implication on handling
securities trades, pricing and account services. The Adviser, the Administrator
and the Fund's other service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Issue with respect to the computer
systems that they use. Although there can be no assurances, the Fund believes
these steps will be sufficient to avoid any material adverse impact on the Fund.
The costs or consequences of incomplete or untimely resolution of the Year 2000
Issue are unknown to the Adviser, Administrator and the Fund's other service
providers at this time but could have a material adverse impact on the
operations of the Fund and the Adviser, Administrator and the Fund's other
service providers. Further, there can be no assurances, that the systems of the
companies in which the Fund invests will be timely converted or that the value
of such investments will not be adversely affected by Year 2000 Issue.
PERFORMANCE INFORMATION
Performance information for the Fund may be compared in reports and
promotional literature to (1) the S&P 500, Dow Jones Industrial Average
("DJIA"), or other unmanaged indices, so that investors may compare the Fund's
results to those of a group of unmanaged securities that are widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm that ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; (iii) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Fund; and (iv) well known
monitoring sources of certificates of deposit performance rates, such as Solomon
Brothers, Federal Reserve Bulletin, American Bankers and Tower Data/The Wall
Street Journal. Unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for administrative and management costs and
expenses. Performance rankings are based on historical information and are not
intended to indicate future performance.
In addition, the Fund may, from time to time, include various measures of
the Fund's performance, including the current yield, the tax equivalent yield
and the average annual total return of shares of the Fund in advertisements,
promotional literature or reports to shareholders or prospective investors. Such
materials may occasionally cite statistics to reflect the Fund's volatility
risk.
Average Annual Total Return. Standardized quotations of average annual
total return ("Standardized Return") for each class of shares will be expressed
in terms of the average annual compounded rate of return for a hypothetical
investment in such class of shares over periods of 1, 5 and 10 years or up to
the life of the class of shares, calculated for each class separately pursuant
to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures reflect the deduction of a proportional share of
each class's expenses (on an annual basis), the deduction of the maximum initial
sales load (in the case of Class A shares) and the maximum contingent deferred
sales charge applicable to a complete redemption of the investment (in the case
of Class B and Class C shares), and assume that all dividends and distributions
are reinvested when paid.
18
<PAGE>
Yield. Quotations of yield for a specific class of shares of the Fund will
be based on all investment income attributable to that class earned during a
particular 30-day (or one month) period (including dividends and interest), less
expenses accrued during the period ("net investment income"), and will be
computed by dividing the net investment income per share of that class earned
during the period by the maximum offering price per share on the last day of the
month, according to the following formula:
Yield = [2[(a-b + 1) to the power of 6 -1]]/cd
Where:
a = dividends and interest earned during the period attributable to a
specific class of shares
b = expenses accrued for the period attributable to that class (net of
reimbursements)
c = the average daily number of shares of that class outstanding during
the period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period
The maximum offering price includes a maximum contingent deferred sales
load of 5% for Class B shares and 1% for Class C shares.
All accrued expenses are taken into account as follows. Accrued expenses
include all recurring expenses that are charged to all shareholder accounts in
proportion to the length of the base period, including but not limited to
expenses under the Fund's distribution plan. Except as noted, the performance
results take the contingent deferred sales load into account.
Non-Standardized Return. In addition to the performance information
described above, the Fund may provide total return information that is not
calculated according to the formula set forth above ("Non-Standardized Return").
Neither initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return. Excluding the Fund's sales charge from a
total return calculation produces a higher total return figure.
The Fund may quote its performance in various ways, using various types of
comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied by
the Fund in advertising is historical and is not intended to indicate future
returns. The Fund's share prices and total returns fluctuate in response to
market conditions and other factors, and the value of the Fund's shares when
redeemed may be more or less than their original cost.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or selections
from, editorials or articles about the Fund. These editorials or articles may
include quotations of performance from other sources, such as Lipper or
Morningstar. Sources for Fund performance information and articles about the
Fund may include the following: Banxquote, Barron's, Business Week, CDA
Investment Technologies, Inc, Changing Times, Consumer Digest, Financial World,
Forbes, Fortune, IBC/Donoghue's, Money Fund Report, Ibbotson Associates, Inc.,
Investment Company Data, Inc., Investor's Daily, Lipper Analytical Services,
Inc.'s Mutual Fund Performance Analysis, Money, Mutual Fund Values, The New York
Times, Personal Investing News, Personal Investor, Success, USA Today, U.S. News
and World Report, The Wall Street Journal and Wiesenberger Investment Company
Services.
When comparing yield, total return and investment risk of shares of the
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while the Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. Government.
Money market mutual funds may seek to offer a fixed price per share.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest, and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
19
<PAGE>
APPENDIX
Description of Moody's Investors Service, Inc. ("MOODY'S") Corporate Bond
Ratings
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Description of Standard & Poor's Corporation's ("S&P") Corporate Debt Ratings
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest 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.
A-1
<PAGE>
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-) -- The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE>
[LOGO]
NORTHSTAR
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 5, 1999
*NORTHSTAR RESEARCH ENHANCED INDEX FUND
INSTITUTIONAL SHARES
300 First Stamford Place
Stamford, Connecticut 06902
(203) 602-7950
(800) 595-7827
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of the
Institutional Class Shares of the Northstar Research Enhanced Index Fund (the
"Fund") Fund dated January 5, 1999, as each may be revised from time to time. To
obtain a copy of the Fund's Prospectus, please contact Northstar Investment
Management Corporation at the address or phone number listed above.
Northstar Investment Management Corporation ("Northstar" or the "Adviser")
serves as the Fund's investment adviser. Northstar has engaged J.P. Morgan
Investment Management Inc. ("J.P. Morgan" or the "Sub-Adviser") to serve as
Sub-Adviser to the Northstar Research Enhanced Index Fund, subject to the
supervision of Northstar. Northstar Distributors, Inc. (the "Underwriter") is
the underwriter to the Fund. Northstar Administrators Corporation (the
"Administrator") is the Fund's administrator. The Underwriter and the
Administrator are affiliates of Northstar.
----------
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS ................................................... 2
INVESTMENT TECHNIQUES ..................................................... 2
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION ........................... 6
SERVICES OF NORTHSTAR, THE SUB-ADVISER AND THE ADMINISTRATOR .............. 8
NET ASSET VALUE ........................................................... 9
REDEMPTIONS ............................................................... 9
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................ 10
UNDERWRITER AND DISTRIBUTION SERVICES ..................................... 13
TRUSTEES AND OFFICERS ..................................................... 14
OTHER INFORMATION ......................................................... 16
PERFORMANCE INFORMATION ................................................... 17
APPENDIX .................................................................. A-1
<PAGE>
INVESTMENT RESTRICTIONS
Northstar Research Enhanced Index Fund. The Fund has adopted investment
restrictions numbered 1 through 9 as fundamental policies. These restrictions
cannot be changed without approval by the holders of a majority (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund's
outstanding voting shares. Investment restrictions numbered 12 through 15 are
not fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Fund may not:
1. Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks up to 331/3%
of its net assets for temporary purposes but only if, immediately after such
borrowing there is asset coverage of 300%, and (b) enter into transactions in
options, futures, and options on futures and other transactions not deemed to
involve the issuance of senior securities;
2. Underwrite the securities of others;
3. Purchase or sell real property, including real estate limited
partnerships (the Fund may purchase marketable securities of companies that deal
in real estate or interests therein, including real estate investment trusts);
4. Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
5. Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 331/3% of net assets at the time the loan is made, to brokers
or dealers or other financial institutions not affiliated with the Fund or
Northstar, subject to conditions established by Northstar) (See "Lending
Portfolio Securities" in this SAI), and may purchase or hold participations in
loans, in accordance with the investment objectives and policies of the Fund, as
described in the current Prospectus and SAI of the Fund;
6. Invest more than 25% of its assets in any one industry;
7. With respect to 75% of the Fund's assets, purchase a security (other
than U.S. Government obligations) if, as a result, more than 5% of the value of
total assets of the Fund would be invested in securities of a single issuer;
8. 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;
9. Borrow money in excess of 331/3% of its net assets for temporary
purposes;
10. 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);
11. Sell short, except that the Fund may enter into short sales against
the box;
12. 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 1940 Act, rules thereunder or any order
pursuant thereto or by any state in which shares of the Fund are registered;
13. Make an investment for the purpose of exercising control over
management;
14. Invest more than 15% of its net assets in illiquid securities; or
15. Borrow any amount in excess of 331/3% of the Fund's assets, other than
for temporary emergency or administrative purposes.
In addition to the restrictions described above, the Fund may, from time
to time, agree to additional investment restrictions for purposes of compliance
with the securities laws of foreign jurisdictions where the Fund intends to
offer or sell its shares.
INVESTMENT TECHNIQUES
The Fund's Sub-Adviser intends to monitor the sector and security
weightings of its portfolio relative to the composition of the S&P 500 Index. In
that regard, the Sub-Adviser intends to manage the Fund so that its sector
weightings and securities holdings closely approximate the sector and securities
weightings of the Index. As noted in the prospectus, the Sub-Adviser may vary
modestly the weightings of portfolio securities so that index securities that
appear to be overvalued may be underwighted and seurities that may appear to be
underweighted may be overvalued. Steps will be taken periodically to rebalance
positions consistent with maintaining reasonable transaction costs and
reasonable weightings relative to the Index. While the Fund seeks to modestly
outperform the S&P 500 Index, the Fund expects that its returns will have a
coefficient correlation of 0.90% or better to the S&P 500 Index.
2
<PAGE>
Derivative Instruments. The Fund may invest in Derivative Instruments (as
defined in the Fund's Prospectus) for a variety of reasons, including to enhance
return, hedge certain market risks, or provide a substitute for purchasing or
selling particular securities. Derivatives may provide a cheaper, quicker or
more specifically focused way for the Fund to invest than "traditional"
securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (i.e., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, Northstar will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it would
review the credit quality of a security to be purchased by a Fund.
Over-the-counter Derivatives are less liquid than exchange-traded Derivatives
since the other party to the transaction may be the only investor with
sufficient understanding of the Derivative to be interested in bidding for it.
Firm Commitments and When-Issued Securities. The Fund may enter into firm
commitment agreements to purchase securities at an agreed-upon price on a
specified future date. An amount of cash or short-term U.S. Government
Securities equal to the Fund's commitment will be deposited in a segregated
account at the Fund's custodian bank to secure the Fund's obligation. Although a
the intention of actually acquiring the securities for its portfolio (or for
delivery pursuant to options contracts it has entered into), the Fund may
dispose of a security prior to settlement if Northstar deems it advisable to do
so. A Fund entering into the forward commitment may realize short-term gains or
losses in connection with such sales.
The Fund may also purchase securities on a when-issued or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date, normally within one month. The value of the security on the
settlement date may be more or less than the price paid as a result of, among
other things, changes in the level of interest rates or other market factors.
Accordingly, there is a risk of loss, which is in addition to the risk of
decline in the value of the Fund's other assets. The Fund will establish a
segregated account with its custodian in which it will maintain cash and
marketable securities equal in value to commitments for when-issued or delayed
delivery securities. While when-issued or delayed delivery securities may be
sold prior to the settlement date, it is intended that a Fund will purchase such
securities with the purpose of actually acquiring them, unless a sale appears
desirable for investment reasons.
Floating or Variable Rate Instruments. The Fund may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Such bonds are
frequently secured by letters of credit or other credit support arrangements
provided by banks. Floating or variable rate instruments provide for adjustments
in the interest rate at specified intervals (weekly, monthly, semiannually,
etc.). A Fund would anticipate using these bonds as cash equivalents, pending
longer term investment of its funds.
Futures Transactions -- In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the United States, such as the London International
Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may
have greater risk potential than domestic markets. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. In
addition, any profits that the Fund might realize in trading could be eliminated
by adverse changes in the exchange rate, or the Fund could incur losses as a
result of those changes. Transactions on foreign exchanges may include both
commodities which are traded on domestic exchanges and those which are not.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges
3
<PAGE>
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
trading day. Futures contract prices could move to the limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and potentially subjecting the Fund to
substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant market,
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged and
the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission (the "SEC"), the Fund may be required to segregate cash or
liquid securities in connection with its commodities transactions in an amount
generally equal to the value of the underlying commodity.
Specific Futures Transactions. The Fund may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
The Fund may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
The Fund may purchase and sell currency futures. A foreign currency future
obligates the Fund to purchase or sell an amount of a specific currency at a
future date at a specific price.
Index Warrants. The Fund may purchase put warrants and call warrants whose
values vary depending on the change in the value of one or more specified
securities indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at any time
during the term of the warrant, to receive upon exercise of the warrant a cash
payment from the issuer, based on the value of the underlying index at the time
of exercise. In general, if the value of the underlying index rises above the
exercise price of the index warrant, the holder of a call warrant will be
entitled to receive a cash payment from the issuer upon exercise, based on the
difference between the value of the index and the exercise price of the warrant;
if the value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise, based on the
difference between the exercise price of the warrant and the value of the index.
The holder of a warrant would not be entitled to any payments from the issuer at
any time when, in the case of a call warrant, the exercise price is greater than
the value of the underlying index, or, in the case of a put warrant, the
exercise price is less than the value of the underlying index. If the Fund were
not to exercise an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant. The Fund will
normally use index warrants in a manner similar to its use of options on
securities indices. The risks of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not obligations of
a regulated clearing agency, but are backed only by the credit of the bank or
other institution that issues the warrant. Also, index warrants generally have
longer terms than index options. Although the Strategic Income Fund will
normally invest only in exchange-listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized clearing agency.
In addition, the terms of index warrants may limit the Fund's ability to
exercise the warrants at such time, or in such quantities, as the Fund would
otherwise wish to do.
International Investing. The Fund may invest up to 20% of its total assets
in foreign securities. This 20% limit is designed to accommodate the increased
globalization of companies as well as the redomiciling of companies for tax
treatment purposes. It is not currently expected to be used to increase direct
non-US exposure. Investments in foreign securities involve special risks,
including currency fluctuations, political or economic instability in the
country of issue and the possible imposition of exchange controls or other laws
or restrictions. In addition, securities prices in foreign markets are generally
subject to different economic, financial, political and social factors than are
the prices of securities in U.S. markets. With respect to some foreign countries
there may be the possibility of expropriation or confiscatory taxation,
limitations on liquidity of securities or political or economic developments
which could affect the foreign investments of the Fund. Moreover, securities of
foreign issuers generally will not be registered with the SEC, and such issuers
will generally not be subject to the
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SEC's reporting requirements. Accordingly, there is likely to be less publicly
available information concerning certain of the foreign issuers of securities
held by the Fund than is available concerning U.S. companies. Foreign companies
are also generally not subject to uniform accounting, auditing and financial
reporting standards or to practices and requirements comparable to those
applicable to U.S. companies. There may also be less government supervision and
regulation of foreign broker-dealers, financial institutions and listed
companies than exists in the U.S. Commission rates in foreign countries, which
are generally fixed rather than subject to negotiation as in the U.S., are
likely to be higher. These factors could make foreign investments, especially
those in developing countries, more volatile. All of the above issues should be
considered before investing in the Fund.
Lending Portfolio Securities. The Fund may lend portfolio securities to
broker-dealers and other financial institutions in an amount up to one-third of
the value of its total assets, provided that such loans are callable at any time
by the Fund and are at all times secured by collateral held by the Fund at least
equal to the market value, determined daily, of the loaned securities. The Fund
will continue to receive any income on the loaned securities, while
simultaneously earning interest on cash collateral (which will be invested in
short-term debt obligations) or a securities lending fee (in the case of
collateral in the form of U.S. Government Securities).
There may be risks of delay in recovery of the loaned securities and, in
some cases, loss of rights in the collateral should the borrower of the
securities fail financially. Loans of portfolio securities will only be made to
firms considered by Northstar to be creditworthy under guidelines adopted by the
Trustees.
Options -- In General. The Fund may purchase and write (i.e., sell) call
or put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period.
A covered call option written by a Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by a Fund is
covered when, among other things, cash or liquid securities having a value equal
to or greater than the exercise price of the option are placed in a segregated
account with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Specific Options Transactions. The Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or traded
in the over-the-counter market. An option on a stock index is similar to an
option in respect of specific securities, except that settlement does not occur
by delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
The Fund may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a price
which is expected to be lower or higher than the spot price of the currency at
the time the option is exercised or expires.
The Fund may purchase cash-settlement options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps in
pursuit of its investment objective. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating-rate payments for fixed-rate
payments) denominated in U.S. dollars or foreign currency. Equity index swaps
involve the exchange
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by the Fund with another party of cash flows based upon the performance of an
index or a portion of an index of securities which usually includes dividends. A
cash-settled option on a swap gives the purchaser the right, but not the
obligation, in return for the premium paid, to receive an amount of cash equal
to the value of the underlying swap as of the exercise date. These options
typically are purchased in privately negotiated transactions from financial
institutions, including securities brokerage firms.
Successful use by the Fund of options will be subject to the ability of
Northstar to predict correctly movements in the prices of individual stocks, the
stock market generally, foreign currencies or interest rates. To the extent the
Manager's predictions are incorrect, the Fund may incur losses.
Repurchase Agreements. Repurchase agreements are agreements under which a
Fund buys a money market instrument and obtains a simultaneous commitment from
the seller to repurchase the instrument at a specified time and at an agreed
upon yield. Northstar will use standards set by the Fund's Trustees in reviewing
the creditworthiness of parties to repurchase agreements with such Fund. In
addition, no more than an aggregate of 15% of the Fund's net assets, at the time
of investment, will be invested in illiquid investments, including repurchase
agreements having maturities longer than seven days. In the event of failure of
the executing bank or broker-dealer, the Fund could experience some delay in
obtaining direct ownership of the underlying collateral and might incur a loss
if the value of the security should decline, as well as costs in disposing of
the security.
As an alternative to using repurchase agreements, the Fund may, from time
to time, invest up to 10% of its assets in money market investment companies
sponsored by a third party for short-term liquidity purposes. Such investments
are subject to the non-fundamental investment limitations described herein.
Reverse Repurchase Agreements and Dollar Roll Agreements. The Fund may
enter into reverse repurchase agreements and dollar roll agreements. Under a
reverse repurchase agreement or a dollar roll agreement, a Fund sells securities
and agrees to repurchase them, or substantially similar securities in the case
of a dollar roll agreement, at a mutually agreed upon date and price. At the
time the Fund enters into a reverse repurchase or dollar roll agreement, it will
establish and maintain a segregated account with its custodian, containing cash,
U.S. Government Securities, or other liquid assets from its portfolio, having a
value not less than the repurchase price (including accrued interest). The Fund
does not account for dollar rolls as a borrowing.
These agreements may involve the risk that the market value of the
securities to be repurchased by the Fund may decline below the price at which
the Fund is obligated to repurchase. Also, in the event the buyer of securities
under a reverse repurchase agreement or a dollar roll agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement or the dollar roll agreement may effectively be
restricted pending such a decision.
Short Sales. The Fund may make short sales "against the box." A short-sale
is a transaction in which a party sells a security it does not own in
anticipation of decline in the market value of that security. A short sale is"
against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain securities identical to those sold short. When the Fund makes a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities, and is often obligated to pay
over any accrued interest on such borrowed securities.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Northstar places orders for the purchase and sale of the Fund's
securities, supervises their execution and negotiates brokerage commissions on
behalf of the Fund. It is the practice of Northstar to seek the best prices and
best execution of orders and to negotiate brokerage commissions that in the
Adviser's opinion, are reasonable in relation to the value of the brokerage and
research services provided by the executing broker. Northstar seeks to obtain
fair commission rates from brokers. If the execution is satisfactory and if the
requested rate charged by a broker approximates rates currently being quoted by
the other brokers selected by Northstar, the rate is generally deemed by
Northstar to be reasonable. Some brokers may be paid higher rates of commission
if all or a portion of the securities involved in the transaction are positioned
by the broker, if the broker believes it has brought the Fund an unusually
favorable trading opportunity, or if the broker's research services have special
value and payment of such commissions is authorized by Northstar after the
transaction has been consummated. If Northstar more than occasionally differs
with the broker's appraisal of opportunity or value, the broker would not be
selected to execute trades in the future. Northstar believes that the Fund
benefits with a securities industry comprised of many and diverse firms
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and that the long term interest of shareholders of the Fund is best served by
its brokerage policies that include paying a fair commission, rather than
seeking to exploit its leverage to force the lowest possible commission rate.
Over-the-counter purchases and sales are transacted directly with market-makers,
except in those circumstances where, in the opinion of Northstar, better prices
and execution are available elsewhere.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (1) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
Northstar has informal arrangements with various brokers whereby, in
consideration for providing research services and subject to Section 28(e),
Northstar allocates brokerage to those firms, provided that the value of any
research and brokerage services was reasonable in relationship to the amount of
commission paid and was subject to best execution. In no case will Northstar
make binding commitments as to the level of brokerage commissions it will
allocate to a broker, nor will it commit to pay cash if any informal targets are
not met.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry groups
and individual issues. Research services will vary from firm to firm, with
broadest coverage generally from the large full-line firms. Smaller firms, in
general, tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor federal,
state, local and foreign political developments; many of the brokers also
provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff, since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, the outside research provides Northstar with a
diverse perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to Northstar and is available for
the benefit of other accounts advised by Northstar and its affiliates; and not
all of this information will be used in connection with the Fund. While this
information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value, and, in the
opinion of Northstar, it does not reduce the Adviser's expenses by a
determinable amount. The extent to which Northstar makes use of statistical,
research and other services furnished by brokers is considered by Northstar in
the allocation of brokerage business, but there is no formula by which such
business is allocated. Northstar does so in accordance with its judgment of the
best interests of the Fund and its shareholders.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Fund will also
purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed income securities transactions consists primarily of dealer
spreads and underwriting commissions.
In purchasing and selling fixed income securities, it is the policy of the
Fund to obtain the best results, while taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors, such as the dealer's risk in positioning the securities involved. While
Northstar generally seeks reasonably competitive spreads or commissions, the
Fund will not necessarily pay the lowest spread or commission available.
The Fund may, under circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Fund. By allocating
transactions in this manner, Northstar is able to supplement its research and
analysis with the views and information of other securities firms.
A change in securities held in the portfolio of the Fund is known as
"Portfolio Turnover" and may involve the payment by the Fund of dealer mark-ups
or brokerage or underwriting commissions and other transaction costs on the sale
of securities, as well as on the reinvestment of the proceeds in other
securities. Portfolio turnover rate for a fiscal year is the percentage
determined by dividing the lesser of the cost of purchases or proceeds from
sales of portfolio securities by the average of the value of portfolio
securities during such year, all excluding securities whose maturities at
acquisition were one year or less. A 100% annual turnover rate would occur, for
example, if all the securities in the portfolio were replaced once in a period
of one
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year. The Fund cannot accurately predict its portfolio turnover rate, but
Northstar anticipates that the Fund's rate will exceed 150% under normal market
conditions. The Fund's portfolio turnover rate may be higher than that described
above if the Fund finds it necessary to significantly change its portfolio to
adopt a temporary defensive position or respond to economic or market events. A
high turnover rate would increase commission expenses and may involve
realization of gains that would be taxable to shareholders.
The placement of portfolio transactions with broker-dealers who sell
shares of the Fund is subject to rules adopted by the National Association of
Securities Dealers, Inc. ("NASD").
SERVICES OF NORTHSTAR THE SUB-ADVISER AND THE ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with the Fund, Northstar
Investment Management Corporation acts as the Investment Adviser to the Fund. In
this capacity, Northstar, subject to the authority of the Trustees of the
Northstar Equity Trust (the "Trust") is responsible for furnishing continuous
investment supervision to the Fund and is responsible for the management of the
Fund's portfolio.
Northstar is an indirect, wholly-owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar"). ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the life insurance business. Through ReliaStar Life
Insurance Company ("ReliaStar Life") and other subsidiaries, ReliaStar issues
and distributes individual life insurance and annuities, group life and health
insurance and life and health reinsurance, and provides related investment
management services. The address of Northstar is 300 First Stamford Place,
Stamford, Connecticut 06902. The address of ReliaStar is 20 Washington Avenue
South, Minneapolis, Minnesota 55401.
Northstar charges a fee under the Investment Advisory Agreement to the
Fund at an annual rate of 0.70% of the Fund's average daily net assets. This fee
is accrued daily and payable monthly.
The Investment Advisory Agreement for the Fund was originally approved by
the Trustees of the Trust on behalf of the Fund on December 16, 1998, and by the
sole Shareholder of the Northstar Research Enhanced Index Fund on December 16,
1998. The Investment Advisory Agreement will continue in effect for a period of
two years and annually thereafter if specifically approved annually by (a) the
Trustees, acting separately on behalf of the Fund, including a majority of the
Disinterested Trustees, or (b) a majority of the outstanding voting securities
of the Fund as defined in the 1940 Act.
The Fund's Investment Advisory Agreement may be terminated, without
penalty and at any time, by a similar vote upon not more than 60 days nor less
than 30 days written notice by Northstar, the Trustees, or a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act. The
agreement will automatically terminate in the event of its assignment, as
defined in Section 2(a)(4) of the 1940 Act.
Pursuant to a Sub-Advisory Agreement between Northstar and J.P. Morgan
Investment Management Inc., dated December 16, 1998, J.P. Morgan acts as
Sub-Adviser to the Fund. In this capacity, J.P. Morgan, subject to the
supervision and control of Northstar and the Trustees of the Fund, will manage
the Fund's portfolio investments, consistently with the Fund's investment
objective, and will execute any of the Fund's investment policies that it deems
appropriate to utilize from time to time. Fees payable under the Sub-Advisory
Agreement will accrue daily and be paid monthly by Northstar. As compensation
for its services, Northstar will pay J.P. Morgan at the annual rate of 0.20% of
the average daily net assets of the Fund. J.P. Morgan's address is 522 Fifth
Avenue, New York, New York 10036. The Sub-Advisory Agreement for the Fund was
approved by the Trustees of Trust on behalf the Fund on December 16, 1998. The
Sub-Advisory Agreement may be terminated without payment of any penalty by
Northstar, J.P. Morgan, the Trustees of the Trust on behalf of the Fund, or the
shareholders of the Fund on not more than 60 days and not less than 30 days
prior written notice. Otherwise, the Sub-Advisory Agreement will remain in
effect for two years and will, thereafter, continue in effect from year to year,
subject to the annual approval of the Trustees of the Trust on behalf of the
Fund, or the vote of a majority of the outstanding voting securities of the
Fund, and the vote, cast in person at a meeting duly called and held, of a
majority of the Trustees of the Fund who are not parties to the Sub-Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of any such
Party.
Northstar Administrators Corporation serves as administrator for the Fund,
pursuant to an Administrative Services Agreement with the Trust. Subject to the
supervision of the Board of Trustees, the Administrator provides the overall
business management and administrative services necessary to the proper conduct
of the Fund's business, except for those services performed by Northstar under
the Investment Advisory Agreement, the custodian for the Fund under the
Custodian Agreement, the transfer agent for the Fund under the Transfer Agency
Agreement, and such other service providers as may be retained by the Fund from
time to time. The Administrator acts as liaison among these service providers to
the Fund. The Administrator is also responsible for ensuring that the Fund
operates in compliance with applicable legal requirements and for
8
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monitoring Northstar for compliance with requirements under applicable law and
with the investment policies and restrictions of the Fund. The Administrator is
an affiliate of Northstar. The address of the Administrator is: 300 First
Stamford Place, Stamford, Connecticut 06902.
The Administrative Services Agreement was approved by the Trustees of the
Trust on behalf of the Fund on December 16, 1998, and will continue in effect
for a period of two years and annually thereafter if 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 the Fund's
net assets and is payable by the Fund monthly at an annual rate of 0.10% of the
Fund's average daily net assets. In addition, the Administrator charges an
annual account fee of $5.00 for each account of beneficial owners of shares of
the Fund for providing certain shareholder services and assisting broker-dealer
shareholder accounts.
NET ASSET VALUE
Equity securities are valued at the last sale price on the exchange or in
the principal OTC market in which such securities are being valued, or lacking
any sales, at the last available bid price. Prices of long-term debt securities
are valued on the basis of last reported sales price, or if no sales are
reported, the value is determined based upon the mean of representative quoted
bid or asked prices for such securities obtained from a quotation reporting
system or from established market makers, or at prices for securities of
comparable maturity, quality and type. Securities (including OTC options) for
which market quotations are not readily available and other assets are valued at
their fair value as determined by or under the direction of the Trustees. Such
fair value may be determined by various methods, including utilizing information
furnished by pricing services that determine calculations for such securities
using methods based, among other things, upon market transactions for comparable
securities and various relationships between securities that are generally
recognized as relevant.
The net asset value of the Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern Time), on each business day that the
Exchange is open. Net asset value per share is computed by determining the value
of the Fund's assets (securities held plus cash and other assets, including
dividend and interest accrued but not received) less all liabilities of the Fund
(including accrued expenses other than class specific expenses), and dividing
the result by the total number of shares outstanding at such time. The specific
expenses borne by each class of shares will be deducted from that class and will
result in different net asset values and dividends. The net asset value per
share of the Class B and Class C shares of the Fund will generally be lower than
that of the Class A or Class I shares because of the higher class specific
expenses borne by each of the Class B and Class C shares.
Under normal market conditions, daily prices for securities are obtained
from independent pricing services, determined by them in accordance with the
registration statement for the Fund. Securities are valued at market value or,
if a market quotation is not readily available, at their fair value, determined
in good faith under procedures established by and under the supervision of the
Trustees. Money market instruments maturing within 60 days are valued using the
amortized cost method of valuation. This involves valuing a security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Fund would receive if it sold the instrument. See "How Net Asset Value is
Determined" in the Prospectus.
REDEMPTIONS
The right to redeem shares may be suspended and payment therefore
postponed during periods when the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or, if permitted by rules of the SEC,
during periods when trading on the Exchange is restricted, or during any
emergency that makes it impracticable for the Fund to dispose of its securities
or to determine fairly the value of its net assets or during any other period
permitted by order of the SEC for the protection of investors. Furthermore, the
Transfer Agent will not mail redemption proceeds until checks received for
shares purchased have cleared, but payment will be forwarded immediately upon
the funds becoming available.
Exchanges. The following conditions must be met for all exchanges among
the Fund, other Northstar funds and the Cash Management Fund and the Money
Market Portfolio: (i) the shares that will be acquired in the exchange (the
"Acquired Shares") are available for sale in the shareholder's state of
residence; (ii) the Acquired shares will be registered to the same shareholder
account as the shares to be surrendered (the "Exchanged Shares"); (iii) the
Exchanged Shares must have been held in the shareholder's account for at least
30 days prior to the exchange; (iv) except for exchanges into the Cash
Management
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Fund, the account value of the Fund whose shares are to be acquired must equal
or exceed the minimum initial investment amount required by that Fund after the
exchange is implemented; and (v) a properly executed exchange request has been
received by the Transfer Agent.
The Fund reserves the right to delay the actual purchase of the Acquired
Shares for up to five business days if it determines that it would be
disadvantaged by an immediate transfer of proceeds from the redemption of
Exchanged Shares. Normally, however, the redemption of Exchanged Shares and the
purchase of Acquired Shares will take place on the day that the exchange request
is received in proper form. The Fund reserves the right to terminate or modify
its exchange privileges at any time upon prominent notice to shareholders. Such
notice will be given at least 60 days in advance. It is the policy of Northstar
to discourage and prevent frequent trading by shareholders among the Funds in
response to market fluctuations. Accordingly, in order to maintain a stable
asset base in each Fund and to reduce administrative expenses borne by each
Fund, Northstar generally restricts shareholders to a maximum of six exchanges
across the Northstar Fund complex each calendar year. If a shareholder exceeds
this limit, future exchange requests may be denied.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"). In order to so
qualify, the Fund must, among other things, (i) derive each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies; (ii) derive less than 30% of its gross
income each taxable year from the sale or other disposition of certain assets,
including securities, held for less than three months (the "30% Limitation");
and (iii) at the end of each quarter of the taxable year maintain at least 50%
of the value of its total assets in cash, government securities, securities of
other regulated investment companies, and other securities of issuers that
represent, with respect to each issuer, no more than 5% the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
with no more than 25% of its assets invested in the securities (other than those
of the U.S. Government or other regulated investment companies) of any one
issuer or of two or more issuers that the Fund controls and that are engaged in
the same, similar or related trades and businesses. As a regulated investment
company, the Fund generally will not be subject to federal income tax on its
income and gains that it distributes to shareholders, if at least 90% of its
investment company taxable income (which includes dividends, interest and the
excess of any short-term capital gains over long-term capital losses) for the
taxable year is distributed.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of a Fund's ordinary income
for the calendar year plus 98% of its capital gain net income recognized during
the one-year period ending on October 31 plus undistributed amounts from prior
years. The Fund intends to make distributions sufficient to avoid imposition of
the excise tax. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund during October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable as if
received on December 31 in the year they are declared by the Fund, rather than
the year in which they are received.
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by a Fund for selling a put or call option is not included in income at
the time of receipt. If the option expires, the premium is a short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is a
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining the gain or loss.
Certain options, futures contracts and forward contracts in which the Fund
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses ("60/40 gains or losses"); however, foreign currency gains or
losses (as discussed below) arising from certain section 1256 contracts
10
<PAGE>
may be treated as ordinary income or loss. Also, section 1256 contracts held by
a Fund at the end of each taxable year (and, generally, for purposes of the 4%
excise tax, on October 31 of each year) are treated as sold on such date at fair
market value, resulting in unrealized gains or losses being treated as though
they were realized.
Hedging transactions undertaken by the Fund may result in straddles for
U.S. federal income tax purposes. The straddle rules may accelerate income to a
Fund, defer losses to a Fund, and affect the character of gains (or losses)
realized by a Fund. Hedging transactions may increase the amount of short-term
capital gains realized by a Fund that is taxed as ordinary income when
distributed to shareholders. A Fund may make one or more of the various
elections available under the Code with respect to hedging transactions. If the
Fund makes any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected positions will be determined
under rules that vary according to the elections made.
Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time a Fund accrues interest or other receivables,
or accrues expenses or other liabilities, denominated in a foreign currency and
the time the Fund actually collects such receivables, or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and certain
options, futures and forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988"gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
A Fund will not realize a gain or loss on a short sale of a security until
it closes the transaction by delivering the borrowed security to the lender. All
or a portion of any gain arising from a short sale may be treated as short-term
capital gain, regardless of the period for which the Fund held the security used
to close the short sale. In addition, the Fund's holding period for any security
that is substantially identical to that which is sold short may be reduced or
eliminated as a result of the short sale.
Investments by the Fund in zero coupon securities will result in income to
the Fund equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Fund receives no cash interest payments.
This income is included in determining the amount of income that the Fund must
distribute to maintain its status as a regulated investment company and to avoid
the payment of federal income tax and the 4% excise tax. If the Fund invests in
certain high yield original issue discount obligations issued by corporations, a
portion of the original issue discount accruing on the obligations may be
eligible for the deduction for dividends received by corporations. In such
event, a portion of the dividends of investment company taxable income received
from the Fund by its corporate shareholders may be eligible for this deduction.
Gains derived by the Fund from the disposition of any market discount
bonds (i.e., bonds purchased other than at original issue, where the face value
of the bonds exceeds their purchase price) held by the Fund will be taxed as
ordinary income to the extent of the accrued market discount on the bonds,
unless the Fund elects to include the market discount in income as it accrues.
If the Fund invests in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), these investments would be subject to special tax rules
designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's
earnings. In the absence of certain elections to report these earnings on a
current basis, regardless of whether the Fund actually receives any
distributions from the PFIC, investors in the Fund would be required to report
certain "excess distributions" from, and any gains from the disposition of stock
of, the PFIC as ordinary income. This ordinary income would be allocated ratably
to the Fund's holding period for the stock. Any amounts allocated to prior years
would be taxable at the highest rate of tax applicable in that year, increased
by an interest charge determined as though the amounts were underpayments of
tax.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. If more than
50% of the value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible and
may elect to "pass through" to the Fund's shareholders the amount of foreign
taxes paid by the Fund. Pursuant to this election, a shareholder will be
required to include in gross income (in addition to dividends actually received)
its pro rata share of the foreign taxes paid by the Fund, and may be entitled
either to deduct its pro rata share of the foreign taxes in computing its
taxable income or to use the amount as a foreign tax credit against its U.S.
Federal income tax liability, subject to limitations. Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will "pass through" for that year. If the Fund is
not eligible to make the election to "pass through" to its shareholders its
foreign taxes, the foreign taxes it pays will reduce its investment company
taxable income and distributions by the Fund will be treated as U.S. source
income.
11
<PAGE>
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to its foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Fund's income flows through to its shareholders. With respect to
the Fund, gains from the sale of securities will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains from
foreign currency denominated debt securities, receivables and payables, and
options, futures and forward transactions, will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income (as defined for purposes of the
foreign tax credit), including the foreign source passive income passed through
by the Fund.
The current position of the Internal Revenue Service (the "IRS") generally
is to treat a regulated investment company as owning its proportionate share of
the income and assets of any partnership in which it is a partner, in applying
the 90% qualifying income requirement, the 30% Limitation and the asset
diversification requirements that, as described above, the Fund must satisfy to
qualify as a regulated investment company under the Code. These requirements may
limit the extent to which the Fund may invest in limited partnerships,
especially in the case of limited partnerships that do not primarily invest in a
diversified portfolio of stocks and securities.
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of the Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated as capital
gain dividends are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the Fund on the
reinvestment date. A distribution of an amount in excess of the Fund's current
and accumulated earnings and profits will be treated by a shareholder as a
return of capital that is applied against and reduces the shareholder's basis in
his or her shares. To the extent that the amount of any such distribution
exceeds the shareholder's basis in his or her shares, the excess will be treated
by the shareholder as a gain from a sale or exchange of the shares. Shareholders
will be notified annually as to the U.S. federal tax status of distributions,
and shareholders receiving distributions in the form of additional shares will
receive a report as to the net asset value of those shares.
Upon the sale or other disposition of shares of the Fund, a shareholder
may realize a capital gain or loss that will be long-term or short-term,
generally depending upon the shareholder's holding period for the shares. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund originally
acquired with a sales charge are disposed of within 90 days after the date on
which they were acquired and new shares of a regulated investment company are
acquired without a sales charge or at a reduced sales charge. In that case, the
gain or loss realized on the disposition will be determined by excluding from
the tax basis of the shares all or a portion of the sales charge incurred in
acquiring those shares. This exclusion applies to the extent that the otherwise
applicable sales charge with respect to the newly acquired shares is reduced as
a result of the shareholder having incurred a sales charge paid for the new
shares. This rule may be applied to successive acquisitions of shares of stock.
Distributions by a Fund reduce the net asset value of that Fund's shares.
Should a distribution reduce the net asset value of a share below a
shareholder's cost for the share, such a distribution nevertheless generally
would be taxable to the shareholder as ordinary income or long-term capital
gains, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution by a Fund. The
price of shares purchased at that time may include the amount of the forthcoming
distribution, but the distribution generally would be taxable to them.
Some shareholders may be subject to withholding of Federal income tax on
dividends and redemption payments from a Fund ("backup withholding") at the rate
of 31%. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. Generally, shareholders
subject to backup withholding will be (i) those for whom a certified taxpayer
identification number is not on file with a Fund, (ii) those about whom
notification has been received (either by the shareholder or by a Fund) from the
IRS that they are subject to backup withholding or (iii) those who,
12
<PAGE>
to a Fund's knowledge, have furnished an incorrect taxpayer identification
number. Generally, to avoid backup withholding, an investor must, at the time an
account is opened, certify under penalties of perjury that the taxpayer
identification number furnished is correct and that he or she is not subject to
backup withholding.
The foregoing discussion relates solely to U.S. Federal income tax law.
Dividends and distributions also may be subject to state, local and foreign
taxes. Dividends paid by the Fund from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers regarding the possible exclusion
of this portion of their dividends for state and local tax purposes. Non-U.S.
investors also should consult their tax advisers concerning the tax consequences
of ownership of shares of the Fund, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
Shareholders of Class A, Class B and Class C shares may direct that income
dividends and capital gain distributions be paid to them through various options
listed in the "How the Fund Pays Distributions -- Distribution Options" section
of the Fund's current Prospectus. If a shareholder selects either of two such
options (that: (a) income dividends be paid in cash and capital gain
distributions be paid in additional shares of the same class of the Fund at net
asset value; or (b) income dividends and capital gain distributions both be paid
in cash), and the dividend/distribution checks cannot be delivered, or, if such
checks remain uncashed for six months, the Fund reserves the right to reinvest
the dividend or distribution in the shareholder's account at the then-current
net asset value and to convert the shareholder's election to automatic
reinvestment in shares of the Fund from which the distributions were made. The
Fund has received from the IRS, rulings to the effect that (i) the
implementation of the multiple class purchase arrangement will not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Code, and (ii) that any conversion feature associated with a class of shares
does not constitute a taxable event under federal income tax law.
UNDERWRITER AND DISTRIBUTION SERVICES
Pursuant to Underwriting Agreements, Northstar Distributors, Inc. is the
Underwriter for the Fund and as such conducts a continuous offering pursuant to
a "best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. The Underwriter is an affiliate of the
Adviser and the Administrator.
The Underwriting Agreements may be terminated at any time on not more than
60 days written notice, without payment of a penalty, by the Underwriter, by
vote of a majority of the outstanding class of voting securities of the Fund, or
by vote of a majority of the Trustees, who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan or in any agreements. The Underwriting Agreements will terminate
automatically in the event of their assignment.
13
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal Officers of the Trust and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and Officers is 300 First Stamford
Place, Stamford, Connecticut 06902.
Paul S. Doherty -- Trustee. Age: 64.
President, Doherty, Wallace, Pillsbury and Murphy, P.C., Attorneys.
Director, Tambrands, Inc. Since October 1993, Trustee of the Northstar
affiliated investment companies.
Robert B. Goode, Jr. -- Trustee. Age: 68.
Currently retired. From 1990 to 1991, Chairman of The First Reinsurance
Company of Hartford. From 1987 to 1989, President and Director of American
Skandia Life Assurance Company. Since October 1993, Trustee of the Northstar
affiliated investment companies.
Alan L. Gosule -- Trustee. Age: 58.
Partner, Rogers & Wells. Director, F.L. Putnam Investment Management Co.,
Inc.
Mark L. Lipson* -- Trustee and President. Age: 49.
Director, Chairman and Chief Executive Officer of Northstar and Northstar,
Inc. Director of Northstar Administrators Corporation and Director and Chairman
of Northstar Distributors, Inc., President and Trustee of the Northstar
affiliated investment companies since October 1993. Prior to August, 1993,
Director, President and Chief Executive Officer of National Securities &
Research Corporation and President and Director/Trustee of the National
Affiliated Investment Companies and certain of National's subsidiaries.
Walter H. May -- Trustee. Age: 62.
Retired. Former Senior Executive for Piper Jaffrey, Inc.
David W.C. Putnam -- Trustee. Age: 59.
President, Clerk and Director of F.L. Putnam Securities Company,
Incorporated, F.L. Putnam Investment Management Company, Incorporated,
Interstate Power Company, Inc., Trust Realty Corp. and Bow Ridge Mining Co.;
Director of Anchor Investment Management Corporation; President and Trustee of
Anchor Capital Accumulation Trust, Anchor International Bond Trust, Anchor Gold
and Currency Trust, Anchor Resources and Commodities Trust and Anchor Strategic
Assets Trust.
John R. Smith -- Trustee. Age: 75.
From 1970-1991, Financial Vice President of Boston College; President of
New England Fiduciary Company (financial planning) since 1991; Chairman of
Massachusetts Educational Financing Authority since 1987; Vice Chairman of
Massachusetts Health and Education Authority.
John G. Turner* -- Trustee. Age: 59.
Since May 1993, Chairman and CEO of ReliaStar Financial Corporation and
Northwestern NationalLife Insurance Co. and Chairman of other ReliaStar
Affiliated Insurance Companies since 1995. Since October 1993, Director of
Northstar and affiliates. Prior to May 1993, President and CEO of ReliaStar and
Northwestern National.
David W. Wallace -- Trustee. Age: 74.
Chairman of Putnam Trust Company, Lone Star Industries and FECO Engineered
Systems, Inc. He is also President and Trustee of Robert R. Young Foundation and
Governor of the New York Hospital. Director of UMC Electronics and Zurn
Industries, Inc. Former Chairman and Chief Executive Officer, Todd Shipyards and
Bangor Punta Corporation, and former Chairman and Chief Executive Officer of
National Securities & Research Corporation. Since October 1993, Trustee of the
Northstar affiliated investment companies.
Stephanie L. Beckner -- Vice President and Secretary. Age: 30.
Vice President, Secretary and Counsel of Northstar, Northstar affiliated
companies and Northstar affiliated investment companies.
Thomas Ole Dial -- Vice President. Age: 42.
Executive Vice President and Chief Investment Officer-Fixed Income of
Northstar and Principal, T.D. & Associates, Inc. From 1989 to August 1993,
Executive Vice President and Chief Investment Officer-Fixed Income of National
Securities and Research Corporation, Vice President of National Affiliated
Investment Companies, and Vice President of NSR Asset Management Corporation.
From 1988 to 1989, President of Dial Capital Management.
14
<PAGE>
Mary Lisanti -- Vice President. Age: 42.
Executive Vice President and Chief Investment Officer-Equities of
Northstar. From September 1996 to May 1998, Portfolio Manager with Strong
Capital Management from March 1993 to August 1996, Managing Director and
Portfolio Manager with Bankers Trust Corporation.
Agnes Mullady -- Vice President and Treasurer. Age: 40.
Senior Vice President and Chief Financial Officer of Northstar; Senior
Vice President, Treasurer and President of Northstar Administrators Corporation;
and Vice President and Treasurer of Northstar Distributors, Inc. and Northstar
affiliated investment companies. From 1987 to 1993, Vice President and Treasurer
of National Securities & Research Corporation.
- ----------
*Deemed to be an "interested person" of the Trust, as defined by the 1940 Act.
Northstar and Northstar Administrators Corporation make their personnel
available to serve as Officers and "Interested Trustees" of the Trust. All
Officers and Interested Trustees of the Trust 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 Trust and to retail funds sponsored or advised by
the Adviser, and a per meeting fee of $1,500 for attendance at each joint
meeting of the Trusts and the other Northstar retail funds. The Trust also
reimburses Trustees for expenses incurred by them in connection with such
meetings.
Compensation Table
Period Ended December 31, 1998
<TABLE>
<CAPTION>
Pension Benefits Estimated Annual Total Compensation
Compensation Accrued as Part of Benefits Upon from All Funds (18) in
from Funds(a) Fund Expenses Retirement Northstar Complex(b)
------------- ------------------ ---------------- -----------------------
<S> <C> <C> <C> <C>
Paul S. Doherty .................................. 13,239 0 0 13,750
Robert B. Goode, Jr .............................. 14,500 0 0 15,000
Alan L. Gosule ................................... 14,988 0 0 15,500
Mark L. Lipson ................................... 0 0 0 0
Walter H. May .................................... 14,989 0 0 15,000
David W.C. Putnam ................................ 12,625 0 0 13,125
John R. Smith .................................... 14,989 0 0 15,500
John G. Turner ................................... 0 0 0 0
David W. Wallace ................................. 13,239 0 0 13,750
</TABLE>
- ------------
(a) See table below for Fund specific compensation. The Northstar Research
Enhanced Index Fund commenced operations on December 30, 1998, the
Northstar Emerging Markets Value Fund commenced operations on January 1,
1998 and the Northstar Mid-Cap Growth Fund commenced operations on August
20, 1998.
(b) Compensation paid by the Northstar Trust Funds, the Northstar Galaxy Trust
Funds (formerly the "Northstar Variable Trust Funds"), the Northstar
Equity Trust Fund and the remaining five funds, Northstar Growth, Special,
Balance Sheet Opportunities, Government Securities and High Yield Funds.
Individual Fund
Fiscal Year Compensation Tables
<TABLE>
<CAPTION>
Mid-Cap Growth + International Emerging Income and Government
Special Growth(a) Value Value Markets Growth Securities
------ ------- -------- ------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul S. Doherty ......... 1,518 0 915 500 0 1,401 1,212
Robert B. Goode, Jr. .... 1,604 0 1,073 659 0 1,501 1,334
Alan L. Gosule .......... 1,677 0 1,074 659 0 1,560 1,371
Mark L. Lipson .......... 0 0 0 0 0 0 0
Walter H. May ........... 1,677 0 1,074 659 0 1,560 1,371
David W.C. Putnam ....... 1,434 0 902 489 0 1,330 1,164
John R. Smith ........... 1,677 0 1,074 659 0 1,560 1,371
John G. Turner .......... 0 0 0 0 0 0 0
David W. Wallace ........ 1,518 0 915 500 0 1,401 1,212
</TABLE>
- ----------
(a) The Northstar Mid-Cap Growth Fund commenced operations on August 20, 1998.
The compensation amounts noted are estimates for the period ending
December 31, 1998.
15
<PAGE>
High High Balance
High Total Total Sheets
Yield Return II Return Growth Opportunities
----- --------- ------ ------ -------------
Paul S. Doherty ......... 1,432 500 2,395 1,229 1,052
Robert B. Goode, Jr. .... 1,528 659 2,377 1,349 1,193
Alan L. Gosule .......... 1,591 659 2,554 1,388 1,211
Mark L. Lipson .......... 0 0 0 0 0
Walter H. May ........... 1,591 659 2,554 1,388 1,211
David W.C. Putnam ....... 1,357 489 2,207 1,179 1,022
John R. Smith ........... 1,591 659 2,554 1,388 1,211
John G. Turner .......... 0 0 0 0 0
David W. Wallace ........ 1,432 500 2,395 1,229 1,052
OTHER INFORMATION
Independent Accountants. PricewaterhouseCoopers LLP has been selected as
the independent accountants of the Northstar Trust. PricewaterhouseCoopers LLP
audits the Fund's annual financial statements and expresses an opinion thereon.
Custodian. State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02110, acts as custodian, and fund accounting agent for the Trust.
Transfer Agent. Pursuant to a Transfer Agency Agreement with the Fund,
First Data Investor Services Group, Inc., 4400 Computer Drive, Westborough, MA
01581-5120, acts as transfer agent for the Fund.
Reports to Shareholders. The fiscal year of the Northstar Trust ends on
October 31. The Fund will send financial statements to its shareholders at least
semiannually. An annual report containing financial statements audited by the
independent accountants will be sent to shareholders each year.
Organizational and Related Information. The Northstar Research Enhanced
Index Fund, a series of the Trust, was organized in 1998.
The shares of the Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders will be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares of the Fund or class having voting rights. Except as set
forth above and subject to the 1940 Act, the Trustees will continue to hold
office and appoint successor Trustees.
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Declaration of Trust
for the Fund contains provisions intended to limit such liability and to provide
indemnification out of Fund property of any shareholder charged or held
personally liable for obligations or liabilities of the Fund solely by reason of
being or having been a shareholder of the Fund and not because of such
shareholder's acts or omissions or for some other reason. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Year 2000 Compliance. The services provided to the Fund by the Adviser,
the Administrator and the Fund's other service providers are dependent on those
service providers' computer systems. Many computer software and hardware systems
in use today cannot distinguish between the year 2000 and the year 1900 because
of the way dates are encoded and calculated (the "Year 2000 Issue"). The failure
to make this distinction could have a negative implication on handling
securities trades, pricing and account services. The Adviser, the Administrator
and the Fund's other service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Issue with respect to the computer
systems that they use. Although there can be no assurances, the Fund believes
these steps will be sufficient to avoid any material adverse impact on the Fund.
The costs or consequences of incomplete or untimely resolution of the Year 2000
Issue are unknown to the Adviser, Administrator and the Fund's other service
providers at this time but could have a material adverse impact on the
operations of the Fund and the Adviser, Administrator and the Fund's other
service providers. Further, there can be no assurances, that the systems of the
companies in which the Fund invests will be timely converted or that the value
of such investments will not be adversely affected by Year 2000 Issue.
16
<PAGE>
PERFORMANCE INFORMATION
Performance information for the Fund may be compared in reports and
promotional literature to (1) the S&P 500, Dow Jones Industrial Average
("DJIA"), or other unmanaged indices, so that investors may compare the Fund's
results to those of a group of unmanaged securities that are widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm that ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; (iii) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Fund; and (iv) well known
monitoring sources of certificates of deposit performance rates, such as Solomon
Brothers, Federal Reserve Bulletin, American Bankers and Tower Data/The Wall
Street Journal. Unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for administrative and management costs and
expenses. Performance rankings are based on historical information and are not
intended to indicate future performance.
In addition, the Fund may, from time to time, include various measures of
the Fund's performance, including the current yield, the tax equivalent yield
and the average annual total return of shares of the Fund in advertisements,
promotional literature or reports to shareholders or prospective investors. Such
materials may occasionally cite statistics to reflect the Fund's volatility
risk.
Average Annual Total Return. Standardized quotations of average annual
total return ("Standardized Return") for each class of shares will be expressed
in terms of the average annual compounded rate of return for a hypothetical
investment in such class of shares over periods of 1, 5 and 10 years or up to
the life of the class of shares, calculated for each class separately pursuant
to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures reflect the deduction of a proportional share of
each class's expenses (on an annual basis), the deduction of the maximum initial
sales load (in the case of Class A shares) and the maximum contingent deferred
sales charge applicable to a complete redemption of the investment (in the case
of Class B and Class C shares), and assume that all dividends and distributions
are reinvested when paid.
Yield. Quotations of yield for a specific class of shares of the Fund will
be based on all investment income attributable to that class earned during a
particular 30-day (or one month) period (including dividends and interest), less
expenses accrued during the period ("net investment income"), and will be
computed by dividing the net investment income per share of that class earned
during the period by the maximum offering price per share on the last day of the
month, according to the following formula:
Yield = [2[(a-b + 1) to the power of 6 -1]]/cd
Where:
a = dividends and interest earned during the period attributable to a
specific class of shares
b = expenses accrued for the period attributable to that class (net of
reimbursements)
c = the average daily number of shares of that class outstanding during
the period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period
17
<PAGE>
All accrued expenses are taken into account as follows. Accrued expenses
include all recurring expenses that are charged to all shareholder accounts in
proportion to the length of the base period, including but not limited to
expenses under the Fund's distribution plan. Except as noted, the performance
results take the contingent deferred sales load into account.
Non-Standardized Return. In addition to the performance information
described above, the Fund may provide total return information that is not
calculated according to the formula set forth above ("Non-Standardized Return").
Neither initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return. Excluding the Fund's sales charge from a
total return calculation produces a higher total return figure.
The Fund may quote its performance in various ways, using various types of
comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied by
the Fund in advertising is historical and is not intended to indicate future
returns. The Fund's share prices and total returns fluctuate in response to
market conditions and other factors, and the value of the Fund's shares when
redeemed may be more or less than their original cost.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or selections
from, editorials or articles about the Fund. These editorials or articles may
include quotations of performance from other sources, such as Lipper or
Morningstar. Sources for Fund performance information and articles about the
Fund may include the following: Banxquote, Barron's, Business Week, CDA
Investment Technologies, Inc, Changing Times, Consumer Digest, Financial World,
Forbes, Fortune, IBC/Donoghue's, Money Fund Report, Ibbotson Associates, Inc.,
Investment Company Data, Inc., Investor's Daily, Lipper Analytical Services,
Inc.'s Mutual Fund Performance Analysis, Money, Mutual Fund Values, The New York
Times, Personal Investing News, Personal Investor, Success, USA Today, U.S. News
and World Report, The Wall Street Journal and Wiesenberger Investment Company
Services.
When comparing yield, total return and investment risk of shares of the
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while the Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. Government.
Money market mutual funds may seek to offer a fixed price per share.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest, and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
18
<PAGE>
APPENDIX
Description of Moody's Investors Service, Inc. ("Moody's") Corporate Bond
Ratings
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Description of Standard & Poor's Corporation's ("S&P") Corporate Debt Ratings
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
A-1
<PAGE>
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-) -- The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation.(1)
(b) By-laws.(1)
(c) N/A
(d) Investment Advisory Contracts.(3)
(d)(1) Subadvisory Agreement with J.P. Morgan
(e) Underwriting Contracts.(3)
(f) N/A
(g) Custodian Agreements.(2)
(h) Other Material Contracts.(3)
(i) Legal Opinion.
(j) N/A
(k) N/A
(l) N/A
(m) Rule 12b-1 Plan.(3)
(n) N/A
(o) Rule 18f-3 Plan.
- ----------------------
NOTES TO EXHIBIT LISTING
(1). Included in Registrant's Registration Statement filed August 24, 1993
and incorporated herein by reference.
(2). Included in Registrant's Post-Effective Amendment No. 7 filed
December 29, 1995 and incorporated herein by reference.
(3). Included in Registrant's Post-Effective Amendment No. 36 filed
October 23, 1998, and incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
There are no persons controlled by or under common control with the Registrant.
ITEM 25. INDEMNIFICATION - NORTHSTAR TRUST
Section 4.3 of 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, 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 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-
<PAGE>
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
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.
C-2
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "MANAGEMENT OF THE FUNDS" in the Prospectus and "Services of Northstar, the
Sub-Adviser and the Administrator" and "Trustees and Officers" in the Statement
of Additional Information, each of which is included in the Registration
Statement. Set forth is a list of each officer and director of the Adviser
indicating each business, profession, vocation or employment of a substantial
nature in which each such person has been engaged since January 31, 1994.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL
INVESTMENT BUSINESS, PROFESSION
NAME ADVISER VOCATION OR EMPLOYMENT
- --------- --------------------------- --------------------------------------------
<S> <C> <C>
John Turner Director Chairman and CEO, ReliaStar
Financial Corp. and affiliates;
Director of Northstar Affiliates;
Trustee and Chairman, Northstar
Affiliated Investment Companies.
John Flittie Director President, ReliaStar Financial Corp.
and affiliates; Director, Northstar
Affilates.
Mark L. Lipson Chairman/CEO Director and Officer of Northstar
Director Distributors, Inc., Northstar
Administrators Corp. and Northstar,
Inc. Trustee and President, Northstar
Affiliated Investment Companies.
Robert J. Adler Executive President Northstar Distributors, Inc.
Vice
President,
Sales &
Marketing
Jeffrey Aurigemma Vice Vice President - Northstar Affiliated
President - Investment Companies
Investments and Portfolio Manager
Stephanie L. Beckner Vice President, Vice President & Secretary of
Secretary and Counsel Northstar Affiliates and the Northstar
Affiliated Investment Companies
Jeffrey Bernstein Vice President - Vice President, Northstar
Investments Affiliated Investment Companies
and Portfolio Manager, Former
Portfolio Manager with Strong Capital
Management, Former Portfolio Manager with
Berkeley Capital. Former Assistant
Portfolio Manager with Bankers Trust
Corporation
Thomas Ole Dial Executive Vice President, Northstar Affiliated
Vice Investment Companies, and
President - Principal, TD Associates Inc.
Chief Investment Officer
Fixed Income
Mary Lisanti Executive Vice President, Northstar Affiliated
Vice President Investment Companies, Former
Chief Investment Officer - Portfolio Manager with Strong Capital
Equities Management, Former Managing Director and
Portfolio Manager with Bankers Trust Corporation
Agnes Mullady Sr. Vice Vice President & Treasurer of
President Northstar Affiliates and the Northstar
and CFO Affiliated Investment Companies
Mark Sfarra Vice Vice President - Northstar
President - Distributors, Inc.
Marketing
Stephen Vondrak Vice Vice President - Northstar
President - Distributors, Inc., Former Regional
Sales & Marketing Marketing Manager with Roger
Engemann and Associates from
1991-1994.
</TABLE>
C-3
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITER
(a) See "HOW THE FUNDS ARE ORGANIZED AND MANAGED", "MEET THE PORTFOLIO
MANAGERS" and "YOUR GUIDE TO BUYING, SELLING AND EXCHANGING SHARES OF NORTHSTAR
FUNDS" in the Prospectus and "Underwriter and Distribution Services" in the
Statement of Additional Information, both of which are included in this
Post-Effective Amendment to the Registration Statement. Unless
otherwise indicated, the principal business address for each person is c/o
Northstar, 300 First Stamford Place, Stamford, CT 06902.
<TABLE>
<CAPTION>
(b) (1) (2) (3)
Name and Principal Position and Offices Position and Offices
Address with Underwriter with Registrant
- ------------------- -------------------- --------------------
<S> <C> <C>
John Turner Director Trustee, Chairman
20 Washington Ave. South
Minneapolis, MN
John Flittie Director None
20 Washington Ave. South
Minneapolis, MN
Mark L. Lipson Chairman & Director Trustee and President
Robert J. Adler President None
Mark Blinder Reg. Vice President None
Mike Brescia Reg. Vice President None
Jennifer Byrne Reg. Vice President None
Eugene Carlin Reg. Vice President None
Charles Dolce Reg. Vice President None
Chris Erbeck Reg. Vice President None
Neil Gargiulo Reg. Vice President None
Edward Ittner Reg. Vice President None
Nancy Lavin Reg. Vice President None
David Linton Reg. Vice President None
Stephen O'Brien Reg. Vice President None
Gregg Smyth Reg. Vice President None
Mark Sfarra Vice President None
Stephen Vondrak Vice President None
Stephanie L. Beckner Vice President, Secretary & Counsel Vice President &
Secretary
Agnes Mullady Vice President Vice President
& Treasurer & Treasurer
</TABLE>
C-4
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
State Street Bank and Trust Co. maintains such records as Custodian and Fund
Accounting Agent for the Northstar Trust:
(1) Receipts and delivery of securities including certificate numbers;
(2) Receipts and disbursement of cash;
(3) Records of securities in transfer, securities in physical possession,
securities owned and securities loaned.
(4) Fund Accounting Records.
First Data Investor Services Group, ("First Data") maintains the following
records at One Exchange Place, 11th Floor, Boston, Massachusetts, 02109, as
Transfer Agent and Blue Sky Administrator for the Northstar Trust:
(1) Shareholder Records;
(2) Share accumulation accounts: Details as to dates, number of shares
and share prices of each account;
(3) Fund Accounting Records; and
(4) State Securities Regisitration Records.
All other records required by item 30(a) are maintained at the office of the
Administrator, 300 First Stamford Place, Stamford, CT 06902.
ITEM 29. Management Services
Not Applicable.
ITEM 30. Undertakings
(a) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees when
requested in writing to do so by the holders of at least 10% of the Trust's
outstanding shares of beneficial interest and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
(b) Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certified that it meets all the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and the Fund has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stamford
and the State of Connecticut on the 24th day of December, 1998.
REGISTRANT
By: MARK L. LIPSON
------------------------------
Mark L. Lipson*, President
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURES TITLE DATE
JOHN G. TURNER Chairman and December 24, 1998
John G. Turner* Trustee
MARK L. LIPSON Trustee December 24, 1998
Mark L. Lipson*
JOHN R. SMITH Trustee December 24, 1998
John R. Smith*
PAUL S. DOHERTY Trustee December 24, 1998
Paul S. Doherty*
DAVID W. WALLACE Trustee December 24, 1998
David W. Wallace*
ROBERT B. GOODE, JR. Trustee December 24, 1998
Robert B. Goode, Jr.*
ALAN L. GOSULE Trustee December 24, 1998
Alan L. Gosule*
DAVID W.C. PUTNAM Trustee December 24, 1998
David W.C. Putnam*
WALTER H. MAY, JR. Trustee December 24, 1998
Walter H. May, Jr.**
AGNES MULLADY Principal Financial December 24, 1998
Agnes Mullady and Accounting Officer
</TABLE>
By: AGNES MULLADY*
Agnes Mullady
Attorney-in-fact
* Executed pursuant to powers of attorney filed with Northstar Trust and
Strategic Income Fund - PEA No. 6; Northstar Government Securities Fund - PEA
No. 15; Northstar Balance Sheet Opportunities Fund - PEA No. 14; Northstar
Growth Fund - PEA No. 14; Northstar Special Fund - PEA No. 14; and Northstar
High Yield Fund - PEA No.10.
** Executed pursuant to power of attorney filed with Northstar Trust and
Strategic Income Fund - PEA No. 8; Northstar Government Securities Fund - PEA
No. 17; Northstar Balance Sheet Opportunities Fund - PEA No. 16; Northstar
Growth Fund - PEA No. 16; Northstar Special Fund - PEA No. 16; and Northstar
High Yield Fund - PEA No. 12 .
C-6
<PAGE>
INDEX TO EXHIBITS
----------------------
NORTHSTAR TRUST
<TABLE>
<CAPTION>
Exhibit Letter Under
Part C of Form N1-A Name of Exhibit Page Number Herein
- ------------------- --------------- ------------------
<S> <C> <C>
(d)(1) Subadvisory Agreement with J.P. Morgan
(i) Legal Opinion
(o) Rule 18f-3 Plan
</TABLE>
NORTHSTAR RESEARCH ENHANCED INDEX FUND
SUBADVISORY AGREEMENT
AGREEMENT made this 21st day of December, 1998 by and between Northstar
Investment Management Corporation, a Delaware Corporation (hereinafter the
"Adviser"), investment adviser for the Northstar Research Enhanced Index Fund
(hereinafter the "Fund") and J.P. Morgan Investment Management Inc., a Delaware
corporation (hereinafter the "Subadviser").
WHEREAS, the Adviser has been retained by the Fund, an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), to provide investment advisory
services to the Fund pursuant to an Investment Advisory Agreement dated December
1, 1998 (the "Investment Advisory Agreement"); and
WHEREAS, the Fund's Trustees, including a majority of the Trustees who are
not "interested persons," as defined in the 1940 Act, and the Fund's
shareholders have approved the appointment of the Subadviser to perform certain
investment advisory services for the Fund pursuant to this Subadvisory Agreement
with the Adviser and the Subadviser is willing to perform such services for the
Fund;
WHEREAS, the Subadviser is or will be registered as an investment adviser
under the Investment Advisers Act of 1940, as amended ("Advisers Act") prior to
performing its services for the Fund under this Agreement;
NOW THEREFORE, in consideration of the promises and mutual convenants
herein contained, it is agreed between the Adviser and the Subadviser as
follows:
1. Appointment. The Adviser hereby appoints the Subadviser to perform
advisory services to the Fund for the periods and on the terms set forth in this
Subadvisory Agreement. The Subadviser accepts such appointment and agrees to
furnish the services herein set forth, for the compensation herein provided.
2. Duties of Subadviser. The Adviser hereby authorizes Subadviser to
manage the investment and reinvestment of cash and investments comprising the
assets of the Fund with power on behalf of and in the name of the Fund at
Subadviser's discretion; subject at all times to the supervision of the Adviser
and the Trustees of the Fund:
(a) to direct the purchase, subscription or other acquisition of
investments and to direct the sale, redemption, and exchange of investments,
subject to the duty to render to the Trustees of the Fund, the Adviser and the
Custodian written reports of the composition of the portfolio of the Fund as
often as the Trustees of the Fund shall reasonably require;
(b) to make all decisions relating to the manner, method and timing of
investment transactions, to select brokers, dealers and other intermediaries by
or through whom such transactions will be effected, and to engage such
consultants, analysts and experts in connection therewith as may be considered
necessary or appropriate;
(c) to direct banks, brokers or custodians to disburse funds or assets
solely in order to execute investment transactions for the Fund, provided that
the Subadviser shall have no other authority to direct the transfer of the
Fund's funds or assets to itself or other persons and shall have no other
authority over the disbursement (as opposed to investment decisions) of funds or
assets nor any custody of any of the Fund's funds or assets; and
(d) to take all such other actions as may be considered necessary or
appropriate to discharge its duties hereunder; provided that any specific or
general directions which the Trustees of the Fund, or the Adviser may give to
the Subadviser with regard to any of the foregoing powers shall, unless the
contrary is expressly stated therein, override the general authority given by
this provision to the extent that the Trustees of the Fund may, at any time and
from time to time, direct, either generally or to a limited extent and either
alone or in concert with the Adviser or the Subadviser (provided that such
directions would not cause the Subadviser to violate any fiduciary duties or any
laws with regard to the Subadviser's duties and responsibilities), all or any of
the same as they shall think fit and, in particular, the Adviser shall have the
right to request the Subadviser to place trades through brokers and other agents
of the Adviser's choice, subject to the Subadviser's judgment that such brokers
or agents will
<PAGE>
execute such trades on the best overall terms available, taking into
consideration factors the Subadviser deems relevant including, without
limitation, the price of the security, research or other services which render
that broker's services the most appropriate for the Subadviser's needs, the
financial condition and dealing and execution capability of the broker or dealer
and the reasonableness of the commission, if any, for the specific transaction
and on a continuing basis; and provided further that nothing herein shall be
construed as giving the Subadviser power to manage the aforesaid cash and
investments in such a manner as would cause the Fund to be considered a "dealer"
in stocks, securities or commodities for U.S. federal income tax purposes.
The Adviser shall monitor and review the performance of the Subadviser
under this Agreement, including but not limited to the Subadviser's performance
of the duties delineated in subparagraphs (a)-(d) of this provision.
The Subadviser further agrees that, in performing its duties hereunder, it
will
(a) (i) comply with the 1940 Act and all rules and regulations
thereunder, the Advisers Act, the Internal Revenue Code (the "Code") and all
other applicable federal and state laws and regulations, the current Prospectus
and Statement of Additional Information for the Fund supplied to the Subadviser
by the Adviser, and with any applicable procedures adopted by the Trustees in
writing supplied to the Subadviser by the Adviser; (ii) manage the Fund in
accordance with the investment requirements for regulated investment companies
under Subchapter M of the Code and regulations issued thereunder; (iii) direct
the placement of orders pursuant to its investment determinations for the Fund
directly with the issuer, or with any broker or dealer, in accordance with
applicable policies expressed in the Fund's Prospectus and/or Statement of
Additional Information and in accordance with applicable legal requirements.
(b) furnish to the Fund whatever non-proprietary reports the Fund may
reasonably request with respect to the Fund's assets or contemplated strategies.
In addition, the Subadviser will keep the Fund and the Trustees informed of
developments materially affecting the Fund's portfolio and shall, on the
Subadviser's own initiative, furnish to the Fund from time to time whatever
information the Subadviser believes appropriate for this purpose;
(c) make available to the Fund's administrator, Northstar
Administrators Corp. (the "Administrator"), the Adviser, and the Fund, promptly
upon their request, such copies of its investment records and ledgers with
respect to the Fund as may be required to assist the Adviser, the Administrator
and the Fund in their compliance with applicable laws and regulations. The
Subadviser will furnish the Trustees with such periodic and special reports
regarding the Fund as they may reasonably request;
(d) immediately notify the Adviser and the Fund in the event that the
Subadviser or any of its affiliates: (i) becomes aware that it is subject to a
statutory disqualification that prevents the Subadviser from serving as an
investment adviser pursuant to this Subadvisory Agreement; or (ii) becomes aware
that it is the subject of an administrative proceeding or enforcement action by
the Securities and Exchange Commission ("SEC") or other regulatory authority.
The Subadviser further agrees to notify the Fund and the Adviser immediately of
any material fact known to the Subadviser respecting or relating to the
Subadviser that is not contained in the Fund's Registration Statement, or any
amendment or supplement thereto, but that is required to be disclosed therein,
and of any statement contained therein that becomes untrue in any material
respect. The Fund, Adviser, Administrator, and their Affiliates shall likewise
immediately notify the Subadviser if any of them becomes aware of any regulatory
action of the type described in this subparagraph 2(d).
3. Allocation of Charges and Expenses. The Subadviser shall pay all
expenses associated with the management of its business operations in performing
its responsibilities hereunder, including the cost of its own overhead,
research, compensation and expenses of its directors, officers and employees,
and other internal operating costs; provided, however, that the Subadviser shall
be entitled to reimbursement on a monthly basis by the Adviser of all reasonable
out-of-pocket expenses properly incurred by it in connection with serving as
subadviser to the Fund. For the avoidance of doubt, the Fund shall bear its own
overhead and other internal operating costs (whether incurred directly or by the
Adviser or the Subadviser) including, without limitation:
<PAGE>
(a) the costs incurred by the Fund in the preparation and printing of
the Prospectus or any offering literature (including any form of advertisement
or other solicitation materials calculated to lead to investors subscribing for
shares);
(b) all fees and expenses on behalf of the Fund to the Transfer Agent
and the Custodian;
(c) the reasonable fees and expenses of accountants, auditors, lawyers
and other professional advisors to the Fund;
(d) any interest, fee or charge payable on or on account of any
borrowing by the Fund;
(e) fiscal and governmental charges and duties relating to the
purchase, sale, issue or redemption of shares and increases in authorized share
capital of the Fund;
(f) the fees of any stock exchange or over-the-counter market on which
shares of the Fund may from time to time be listed, quoted or dealt in and the
expenses of obtaining any such listing, quotation or permission to deal;
(g) the fees and expenses (if any) payable to Trustees;
(h) brokerage, fiscal or governmental charges or duties in respect of
or in connection with the acquisition, holding or disposal of any of the assets
of the Fund or otherwise in connection with its business;
(i) the expenses of publishing details and prices of shares of the Fund
in newspapers and other publications;
(j) all expenses incurred in the convening of meetings of shareholders
or in the preparation of agreements or other documents relating to the Fund or
in relation to the safe custody of the documents of title of any investments;
(k) all Trustees communication costs; and
(1) all premiums and costs for Fund insurance and blanket fidelity
bonds.
4. Compensation. As compensation for the services provided by the
Subadviser under this Agreement, the Adviser will pay the Subadviser at the end
of each calendar month an advisory fee computed daily at an annual rate equal to
0.20 of 1% of the Fund's average daily net assets. The "average daily net
assets" of the Fund shall mean the average of the values placed on the Fund's
net assets as of 4:00 p.m. (New York time) on each day on which the net asset
value of the Fund is determined consistent with the provisions of Rule 22c-1
under the 1940 Act or, if the Fund lawfully determines the value of its net
assets as of some other time on each business day, as of such other time. The
value of net assets of the Fund shall always be determined pursuant to the
applicable provisions of the Fund's Declaration of Trust and the Registration
Statement. If, pursuant to such provisions, the determination of net asset value
is suspended for any particular business day, then for the purposes of this
Section 4, the value of the net assets of the Fund as last determined shall be
deemed to be the value of its net assets as of the close of regular trading on
the New York Stock Exchange, or as of such other time as the value of the net
assets of the Fund's portfolio may lawfully be determined, on that day. If the
determination of the net asset value of the shares of the Fund has been so
suspended for a period including any month end when the Subadviser's
compensation is payable pursuant to this Section, the Subadviser's compensation
payable at the end of such month shall be computed on the basis of the value of
the net assets of the Fund as last determined (whether during or prior to such
month). If the Fund determines the value of the net assets of its portfolio more
than once on any day, then the last such determination thereof on that day shall
be deemed to be the sole determination thereof on that day for the purposes of
this Section 4.
5. Books and Records. The Subadviser agrees to maintain such books and
records with respect to its services to the Fund as are required by Section 31
under the 1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by applicable
<PAGE>
laws or regulations. The Subadviser also agrees that records it maintains and
preserves pursuant to Rules 31a-2 under the 1940 Act (excluding trade secrets or
intellectual property rights) in connection with its services hereunder are the
property of the Fund and will be surrendered promptly to the Fund upon its
request and the Subadviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with its services hereunder which may be requested in order to
determine whether the operations of the Fund are being conducted in accordance
with applicable laws and regulations.
6. Standard of Care and Limitation of Liability. The Subadviser shall
exercise its best judgment in rendering the services provided by it under this
Subadvisory Agreement. The Subadviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund or the holders
of the Fund's shares or by the Adviser in connection with the matters to which
this Subadvisory Agreement relates, provided that nothing in this Subadvisory
Agreement shall be deemed to protect or purport to protect the Subadviser
against liability to the Fund or to holders of the Fund's shares or to the
Adviser to which the Subadviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or by reason of the Subadviser's reckless disregard of its obligations
and duties under this Subadvisory Agreement. As used in this Section 6, the term
"Subadviser" shall include any officers, directors, employees or other
affiliates of the Subadviser performing services for the Fund.
7. Services Not Exclusive. The Advisor understands that the Subadviser now
acts, will continue to act and may act in the future as investment advisor to
fiduciary and other managed accounts and as investment advisor to other
investment companies, and, except as may be separately agreed to from time to
time between the Advisor and the Subadviser, the Trust has no objection to the
Subadviser so acting, provided that whenever the Fund and one or more other
accounts or investment companies advised by the Subadviser have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a methodology believed to be equitable to each entity. The
Subadviser agrees to allocate similar opportunities to sell securities. The
Advisor recognizes that, in some cases, this procedure may limit the size of the
position that may be acquired or sold for the Fund. In addition, the Adviser
understands that the persons employed by the Subadviser to assist in the
performance of the Shareholder's duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of the Subadviser or any affiliate of the Subadviser to
engage in and devote time and attention to other business or to render services
of whatever kind or nature.
8. Duration and Termination. This Agreement shall become effective as of
the date of its execution and shall continue in effect for a period of two years
from the date of execution. Thereafter, this Agreement shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by (i) the Fund's Trustees or (ii) a
vote of a "majority" (as defined in the 1940 Act) of the Fund's outstanding
voting securities, provided that in either event the continuance also is
approved by a majority of the Fund's Trustees who are not "interested persons"
(as defined in the 1940 Act) of any party to this Agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable, without penalty, on 60 days written notice, by the
Adviser, by the Fund's Trustees, or by vote of holders of a majority of the
Fund's shares. For a period of eighteen months from the date of execution of
this Agreement, the Subadviser may terminate this Agreement, without penalty, on
six months written notice. Thereafter, the Subadviser may terminate this
Agreement, without penalty, on 60 days written notice. This Agreement will
terminate automatically five business days after the Subadviser receives written
notice of the termination of the advisory agreement between the Fund and the
Adviser. This Agreement also will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
9. Amendments. No provision of this Subadvisory Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by both parties, and no material amendment of this Subadvisory Agreement
shall be effective until approved by an affirmative vote of (i) a majority of
the outstanding voting securities of the Fund, and (ii) a majority of the
Trustees of the Fund, including a majority of Trustees who are not interested
persons of any party to this Subadvisory Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is required
by applicable law.
10. Indemnification. (a) The Adviser hereby agrees to indemnify the
Subadviser and its affiliates from and against all liabilities, losses,
expenses, reasonable attorneys' fees and
<PAGE>
costs (other than attorneys' fees and costs in relation to the preparation of
this Agreement; each party bearing responsibility for its own such costs and
fees) or damages (other than liabilities, losses, expenses, attorneys fees and
costs or damages arising from the Subadviser failing to meet the standard of
care required in Section 6 of this Subadvisory Agreement in the performance by
the Subadviser of, or its failure to perform, the services required hereunder),
arising from the Adviser's (its affiliates and their respective agents and
employees) failure to perform its duties or assume its obligations hereunder, or
from its wrongful actions or omissions, including, but not limited to, any
claims for non-payment of advisory fees; claims asserted or threatened by any
shareholder of the Fund, governmental or regulatory agency, or any other person;
claims arising from any wrongful act by the Fund or any of the Fund's trustees,
officers, employees, or representatives, or by the Adviser, its officers,
employees or representatives, or from any actions by the Fund's distributors or
any representative of the Fund; any action or claim against the Subadviser based
on any alleged untrue statement or misstatement of material fact in any
registration statement, prospectus, shareholder report or other information or
materials covering shares filed or made public by the Fund or any amendment
thereof or supplement thereto, or the failure or alleged failure to state
therein a material fact required to be stated in order that the statements
therein are not misleading, provided that such claim is not based upon
information provided to the Adviser by the Subadviser or approved by the
Subadviser in the manner provided in paragraph 12(b) of this Agreement, or which
facts or information the Subadviser failed to provide or disclose. With respect
to any claim for which the Subadviser shall be entitled to indemnity hereunder,
the Adviser shall assume the reasonable expenses and costs (including any
reasonable attorneys' fees and costs) of the Subadviser of investigating and/or
defending any claim asserted or threatened by any party, subject always to the
Adviser first receiving a written undertaking from the Subadviser to repay any
amounts paid on its behalf in the event and to the extent of any subsequent
determination that the Subadviser was not entitled to indemnification hereunder
in respect of such claim.
(b) The Subadviser hereby agrees to indemnify the Adviser, its
affiliates and the Fund from and against all liabilities, losses, expenses,
reasonable attorneys' fees and costs (other than attorneys' fees and costs in
relation to the preparation of this Agreement; each party bearing responsibility
for its own such costs and fees) or damages (other than liabilities, losses,
expenses, attorneys fees and costs or damages arising from the Adviser's failure
to perform its responsibilities hereunder or claims arising from its acts or
failure to act in performing this Agreement) arising from Subadviser's (its
affiliates and their respective agents and employees) willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of the
Subadviser's reckless disregard of its obligations and duties under this
Subadvisory Agreement, or arising from failure to act in any action or claim
against the Adviser based on any alleged untrue statement or misstatement of a
material fact made or provided by or with the consent of Subadviser contained in
any registration statement, prospectus, shareholder report or other information
or materials relating to the Fund and shares issued by the Fund, or the failure
or alleged failure to state a material fact therein required to be stated in
order that the statements therein are not misleading, which fact should have
been made or provided by the Subadviser to the Adviser. With respect to any
claim for which the Adviser is entitled to indemnity hereunder, the Subadviser
shall assume the reasonable expenses and costs (including any reasonable
attorneys' fees and costs) of the Adviser of investigating and/or defending any
claim asserted or threatened by any party, subject always to the Subadviser
first receiving a written undertaking from the Adviser to repay any amounts paid
on its behalf in the event and to the extent of any subsequent determination
that the Adviser was not entitled to indemnification hereunder in respect of
such claim.
(c) In the event that the Subadviser or Adviser is or becomes a party
to any action or proceedings in respect of which indemnification may be sought
hereunder, the party seeking indemnification shall promptly notify the other
party thereof. After becoming notified of the same, the party from whom
indemnification is sought shall be entitled to participate in any such action or
proceeding and shall assume any payment for the full defense thereof with
counsel reasonably satisfactory to the party seeking indemnification. After
properly assuming the defense thereof, the party from whom indemnification is
sought shall not be liable hereunder to the other party for any legal or other
expenses subsequently incurred by such party in connection with the defense
thereof, other than damages, if any, by way of judgment, settlement, or
otherwise pursuant to this provision. The party from whom indemnification is
sought shall not be liable hereunder for any settlement of any action or claim
effected without its written consent, which consent shall not be unreasonably
withheld.
11. Independent Contractor. Subadviser shall for all purposes of this
Agreement be deemed to be an independent contractor and, except as otherwise
expressly provided herein, shall have no authority to act for, bind or represent
the Fund in any way or otherwise be deemed to be an agent of the Fund. Likewise,
the Fund, the
<PAGE>
Adviser and their respective affiliates, agents and employees shall not be
deemed agents of the Subadviser and shall have not authority to bind Subadviser.
12. Use of Name. (a) The Fund may, subject to sub-clause (b) below, use
the name, "J.P. Morgan Investment Management Inc." or "J.P. Morgan" for
promotional purposes only for so long as this Agreement (or any extension,
renewal or amendment thereof) continues in force, unless the Subadviser shall
specifically consent in writing to such continued use thereafter. Any permitted
use by the Fund during the term hereof of the name of the Subadviser or J.P.
Morgan shall in no way prevent the Subadviser or any of it shareholders or any
of their successors, from using or permitting the use of such name (whether
singly or in any combination with any other words) for, by or in connection with
an entity or enterprise other than the Fund. The name and right to the name J.P.
Morgan Investment Management Inc. or any derivation of the name J.P. Morgan
shall at all times be owned and be the sole and exclusive property of J.P.
Morgan and its affiliated entities. J.P. Morgan Investment Management Inc., by
entering into this Agreement, is allowing the Fund to use the name J.P. Morgan
Investment Management Inc. and/or J.P. Morgan solely by or on behalf of the
Fund. At the conclusion of this Agreement or in the event of any termination of
this Agreement or if the Subadviser's services are terminated for any reason,
each of the authorized parties and their respective employees, representatives,
affiliates, and associates agree that they shall immediately cease using the
name J.P. Morgan Investment Management Inc. and/or J.P. Morgan of said name for
any purpose whatsoever.
(b) The Adviser and its affiliates shall not publish or distribute, and
shall cause the Fund not to publish or distribute to Fund shareholders,
prospective investors, sales agents or members of the public any disclosure
document, offering literature (including any form of advertisement or other
solicitation materials calculated to lead investors to subscribe for and
purchase shares of the Fund) or other document referring by name to the
Subadviser or any of its affiliates, unless the Subadviser shall have consented
in writing to such references in the form and context in which they appear;
provided however, that where the Fund timely seeks to obtain approval of
disclosure contained in any documents required to be filed by the Fund, and such
approval is not forthcoming on or before the date on which such documents are
required by law to be filed, the Subadviser shall be deemed to have consented to
such disclosure.
13. Miscellaneous.
(a) This Subadvisory Agreement shall be governed by the laws of the
State of New York, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder. In the event of any litigation in which the Adviser and the
Subadviser are adverse parties and there are no other parties to such
litigation, such action shall be brought in the United States District Court for
the State of New York, located in New York, New York.
(b) The captions of this Subadvisory Agreement are included for
convenience only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
(c) This Agreement may be executed in one or more counterparts, all of
which taken together shall be deemed to constitute one and the same instrument.
14. Notices. Any notice, instruction or other instrument required or
permitted to be given hereunder may be delivered in person to the offices of the
parties as set forth therein during normal business hours, or delivered or sent
by prepaid registered mail, express mail or by facsimile to the parties at such
offices or such other address as may be notified by either party from time to
time. Such notice, instruction or other instrument shall be deemed to have been
served, in the case of a registered letter at the expiration of seventy-two (72)
hours after posting; in the case of express mail, within twenty-four (24) hours
after dispatch; and in the case of facsimile, immediately on dispatch, and if
delivered outside normal business hours it shall be deemed to have been received
at the next time after delivery or transmission when normal business hours
commence. Evidence that the notice, instruction or other instrument was properly
addressed, stamped and put into the post shall be conclusive evidence of
posting.
15. Non-Solicitation. Adviser, its affiliates and their respective agents
(including brokers engaged in marketing and selling shares of the Fund), and
each of their employees and affiliates agree not to knowingly solicit
<PAGE>
to invest, or accept or retain as investors, in the Fund any persons or entities
who are clients of or investors in any fund or investment vehicle managed by any
entity owned or affiliated with J.P. Morgan Investment Management Inc.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of December 21, 1998.
Northstar Investment Management Corporation
By: /s/ MARK L. LIPSON
-------------------------------------
MARK L. LIPSON
Chairman and CEO
J.P. Morgan Investment Management Inc.
By: /s/ GEORGE C.W. GATCH
-------------------------------------
George C.W. Gatch
Managing Director
Exhibit i
DECHERT PRICE & RHOADS
1775 EYE STREET, N.W.
WASHINGTON, D.C. 20006
December 28, 1998
The Northstar Trust
300 First Stamford Place
Stamford, CT 06902
Dear Sirs:
In connection with the registration under the Securities Act of 1933 of an
indefinite number of shares of beneficial interest (the "Shares") of the
Northstar Research Enhanced Index Fund (the "Fund"), a series of The Northstar
Trust (the "Company"), we have examined such matters as we have deemed
necessary, and we are of the opinion that, as permitted by its Declaration of
Trust, and assuming that the Company or its agent receives consideration for
such Shares in accordance with the provisions of its Declaration of Trust, the
Shares will be legally and validly issued, will be fully paid, and will be
non-assessable by the Company.
We hereby consent to the use of this opinion as an exhibit to the
Company's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission (File No. 33-67852) for the registration under the
Securities Act of 1933 of an indefinite number of the Shares, and to the use of
our name in the prospectus and statement of additional information contained
therein, and any amendments thereto.
Very truly yours,
By: /s/ Dechert Price & Rhoads
--------------------------
Dechert Price & Rhoads
AMENDED AND RESTATED
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
FOR
NORTHSTAR FUNDS
NORTHSTAR TRUST
AND
NORTHSTAR EQUITY TRUST
I. Introduction
The Northstar Funds, the Northstar Trust and the Northstar Equity Trust
hereby adopt this Multiple Class Plan (the "Plan") pursuant to Rule 18f-3
under the Investment Company Act of 1940 (the "1940 Act") on behalf of the
funds currently comprising The Northstar Funds: Northstar Special Fund,
Northstar Growth Fund, Northstar Balance Sheet Opportunities Fund,
Northstar Government Securities Fund, Northstar Strategic Income Fund, and
Northstar High Yield Fund; the current series of the Northstar Trust:
Northstar Income and Growth Fund, Northstar High Total Return Fund,
Northstar High Total Return Fund II, Northstar Growth + Value Fund,
Northstar International Fund, Northstar Emerging Markets Fund, and
Northstar Research Enhanced Index Fund; the current series of Northstar
Equity Trust: Northstar Mid-Cap Growth Fund; and any funds or series
thereof that may be established in the future (referred to herein
collectively as the "Funds" and individually as a "Fund").
II. Multiple Class Structure
Each of the Funds continuously offers three classes of shares: "Class A
Shares," "Class B Shares" and "Class C Shares." Northstar Growth Fund,
Northstar Special Fund, Northstar Research Enhanced Index Fund and
Northstar Mid-Cap Growth Fund also offer a fourth class of shares
designated "Class I Shares." In addition, prior to June 5, 1995, the
Northstar Special Fund, Northstar Growth Fund, Northstar Balance Sheet
Opportunities Fund, Northstar Government Securities Fund, Northstar
Strategic Income Fund and Northstar High Yield Fund each offered only one
class of shares, which is currently designated as "Class T shares." Class
T shares are no longer offered for sale by the Funds, except in connection
with reinvestment of dividends and other distributions, upon exchanges of
Class T shares of another Fund, and upon exchange of shares from the Class
T Account of The Cash Management Fund of Salomon Brothers Investment
Series (the "Money Market Portfolio").
Shares of each class of a Fund shall represent an equal pro rata interest
in such Fund and, generally, shall have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications and terms and conditions, except that: (a)
each class shall have a different designation; (b) each class shall bear
any Class Expenses, as defined in Section C below; and (c) each class
shall have exclusive voting rights on any matter submitted to shareholders
that relates solely to its distribution arrangement
<PAGE>
and each class shall have separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the
interests of any other class. In addition, Class A, Class B, Class C,
Class I and Class T shares shall have the features described below.
A. Sales Charge Structure
(1) Class A Shares. Class A shares of a Fund shall be offered at
net asset value plus an initial sales charge. The front-end
sales charge shall be in such amount as is disclosed in the
Funds' prospectus or supplements thereto and shall be subject
to reductions for larger purchases and such waivers or
reductions as are disclosed in the Funds' prospectus or
supplements thereto. Class A shares generally shall not be
subject to a contingent deferred sales charge; however, a
contingent deferred sales charge in such amount as may be
described in the Funds' prospectus or supplements thereto may
be imposed on redemptions of Class A shares acquired in a
purchase of over a million dollars that are redeemed within 18
months of their purchase. Additional contingent deferred sales
charges may be imposed in such other cases as the Board may
approve and as are disclosed in the Funds' prospectus or
supplements thereto.
(2) Class B Shares. Class B shares of a Fund shall be offered at
net asset value without the imposition of an initial sales
charge. A contingent deferred sales charge in such amount as
is described in the Funds' prospectus or supplements thereto
shall be imposed on Class B shares, subject to such waivers or
reductions as are disclosed in the Funds' prospectus or
supplements thereto.
(3) Class C Shares. Class C shares of a Fund shall be offered at
net asset value without the imposition of a sales charge at
the time of purchase. A contingent deferred sales charge in
such amount as is described in the Funds' prospectus or
supplements thereto shall be imposed on redemptions of Class C
shares made within one year from the first day of the month
after purchase, subject to waivers or reductions as are
disclosed in the Funds' prospectus or supplements thereto.
(4) Class I Shares. Class I shares are offered to certain
institutional investors without the imposition of an initial
sales charge or a contingent deferred sales charge.
(4) Class T Shares. Class T shares are no longer offered for sale
by the Funds but may be obtained pursuant to the methods
described above. A contingent deferred sales charge in such
amount as is described in the Funds' prospectus or supplements
thereto shall be imposed on redemptions of Class T shares made
within four years after their purchase, subject to waivers or
reductions as are disclosed in the Funds' prospectus or
supplements thereto.
-2-
<PAGE>
B. Service and Distribution Plans
Each Fund has adopted a 12b-1 plan for each class of shares of that
Fund (other than Class I Shares of the Northstar Growth Fund) with
the following terms:
(1) Class A Shares. Class A shares of each Fund, shall pay
Northstar Distributors, Inc. (the "Underwriter") 0.25%
annually of the average daily net assets of each Fund's Class
A shares for service activities, as defined in the rules of
the National Association of Securities Dealers, and 0.05%
annually of the average daily net assets of each Fund's Class
A shares for distribution activities.
(2) Class B Shares. Class B shares of each Fund, shall pay the
Underwriter 0.25% annually of the average daily net assets of
each Fund's Class B shares for service activities, as defined
in the rules of the National Association of Securities
Dealers, and 0.75% annually of the average daily net assets of
each Fund's Class B shares for distribution activities.
(3) Class C Shares. Class C shares of each Fund shall pay the
Underwriter 0.25% annually of the average daily net assets of
each Fund's Class C shares for service activities, as defined
in the rules of the National Association of Securities
Dealers, and 0.75% annually of the average daily net assets of
each Fund's Class C shares for distribution activities.
(4) Class I Shares. Class I shares of each Fund pay no service or
distribution fees.
(5) Class T Shares. Class T shares of the Northstar Growth Fund,
Northstar Special Fund and Northstar Strategic Income Fund
shall pay the Underwriter 0.95% annually of the average daily
net assets of those Funds' Class T shares; Class T shares of
the Northstar Balance Sheet Fund shall pay the Underwriter
0.75% annually of the average daily net assets of that Fund's
Class T shares; and the Northstar Government Securities Fund
and Northstar High Yield Fund shall pay 0.65% of the average
daily net assets of those Funds' Class T shares. In each case,
0.25% of the average daily net assets of each Fund's Class T
shares, which is paid annually to the Underwriter pursuant to
the 12b-1 plans, shall be allocated to pay for service
activities, as defined in the rules of the National
Association of
-3-
<PAGE>
Securities Dealers, with the remainder allocated toward
payment for distribution activities.
C. Allocation of Income and Expenses
(1) The gross income of each Fund shall, generally, be allocated
to each class on the basis of net assets. To the extent
practicable, certain expenses (other than Class Expenses as
defined below which shall be allocated more specifically)
shall be subtracted from the gross income on the basis of the
net assets of each class of each Fund. These expenses include:
(a) Expenses incurred by each Trust (for example, fees of
Trustees, auditors and legal counsel) not attributable
to a particular Fund or to a particular class of shares
of a Fund ("Trust Expenses"); and
(b) Expenses incurred by a Fund not attributable to any
particular class of the Fund's shares (for example,
advisory fees, custodial fees, or other expenses
relating to the management of the Fund's assets) ("Fund
Expenses").
(2) Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (i) payments made pursuant to a 12b-1
plan; (ii) transfer agency fees and expenses, including any
expenses of broker-dealers and other third parties providing
shareholder services to shareholders of a specific class;
(iii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders of a specific
class; (iv) Blue Sky registration fees incurred by a class;
(v) SEC registration fees incurred by a class; (vi) the
expense of administrative personnel and services to support
the shareholders of a specific class; (vii) litigation or
other legal expenses relating solely to one class; and (viii)
Trustees' fees incurred as a result of issues relating to one
class. Expenses in category (i) and (ii) above must be
allocated to the class for which such expenses are incurred.
All other "Class Expenses" listed in categories (iii)-(viii)
above may be allocated to a class but only if the President
and Treasurer have determined, subject to Board approval or
ratification, which of such categories of expenses will be
treated as Class Expenses, consistent with applicable legal
principles under the Act and the Internal Revenue Code of
1986, as amended.
Therefore, expenses of a Fund shall be apportioned to each
class of shares depending on the nature of the expense item.
Trust Expenses and Fund Expenses will be allocated among the
classes of shares based on their
-4-
<PAGE>
relative net asset values. Approved Class Expenses shall be
allocated to the particular class to which they are
attributable.
In the event a particular expense is no longer reasonably
allocable by class or to a particular class, it shall be
treated as a Trust Expense or Fund Expense, and in the event a
Trust Expense or Fund Expense becomes allocable at a different
level, including as a Class Expense, it shall be so allocated,
subject to compliance with Rule 18f-3 and to approval or
ratification by the Board of Trustees.
The initial determination of expenses that will be allocated
as Class Expenses and any subsequent changes thereto shall be
reviewed by the Board of Trustees and approved by such Board
and by a majority of the Trustees who are not "interested
persons," as defined in the 1940 Act.
D. Exchange Privileges. Shareholders may exchange shares of a Fund for
the same class of shares of another Fund or for shares of the Money
Market Portfolio except that Class I Shares of the Growth Fund do
not provide for any exchange privileges.
Shareholders of a class who exchange shares of a Fund for shares of
the Money Market Portfolio may only exchange shares of the Money
Market Portfolio for shares of another Fund in the same class as the
shareholder originally held. Exchanges are effected at net asset
value per share next computed following receipt of a properly
executed exchange request, without a sales charge, provided,
however, that in the case of a exchanges into Class A shares of a
Fund after a direct purchase into the Money Market Portfolio, the
applicable sales charge shall be imposed. Collection of the
contingent deferred sales charge shall be deferred on shares subject
to a charge that are exchanged for shares of the same class of
another Fund, or converted to shares of the Money Market Portfolio.
Under these circumstances, the combined holding period of shares in
each Fund or in a Fund and the Money Market Portfolio, shall be used
to calculate the conversion period discussed below, if applicable,
and to determine the deferred sales charge due upon redemption. Each
Fund reserves the right to terminate or modify its exchange
privileges at any time.
E. Conversion Features. Class B and Class T shares automatically
convert to Class A shares after eight years from purchase in the
case of Class B shares, and on the later of May 31, 1998 or eight
years after purchase in the case of Class T shares.
For purposes of conversion to Class A shares, shares purchased
through the reinvestment of dividends and distributions paid in
respect of Class B or Class T shares in a shareholder's Fund account
will be considered to be held in a separate
-5-
<PAGE>
subaccount. Each time any Class B or Class T shares in the
shareholder's Fund account (other than those in the subaccount)
convert to Class A, an equal pro rata portion of the Class B or
Class T shares in the subaccount will also convert to Class A.
Shares shall be converted at the relative net asset values of the
two classes without the imposition of a sales charge, fee or other
charge. If the amount of Class A 12b-1 expenses of any Fund is
increased materially without the approval of the Class B and Class T
shareholders, any conversion will only take place in a manner
permitted by Rule 18f-3.
F. Waiver or Reimbursement of Expenses. Expenses may be waived or
reimbursed by any adviser, by the Underwriter or any other provider
of services to the Funds without the prior approval of the Board of
Trustees.
III. Board Review
A. Initial Approval
The Board of Trustees, including a majority of the Trustees who are
not "interested persons" of the Funds and the Trusts as defined in
the 1940 Act, initially approved the Plan, with regard to the Funds
and classes thereof that were offered at the time, on October 29,
1996, approved an amendment to the Plan on July 29, 1998, and
approved this amended and restated Plan on December 16, 1998. These
approvals were based on a determination that the Plan, including the
expense allocation, is in the best interests of each class and Fund
individually and of the Trusts. Their determination was based on
their review of information furnished to them which they deemed
reasonably necessary and sufficient to evaluate the Plan.
B. Approval of Amendments
The Plan may not be amended materially unless the Board of Trustees,
including a majority of the Trustees who are not "interested
persons" of the Funds and the Trusts as defined in the 1940 Act,
have found that the proposed amendment, including any proposed
related expense allocation, is in the best interests of each class
and Fund individually and of the Trusts. Such finding shall be based
on information requested by the Board and furnished to them which
the Board deems reasonably necessary to evaluate the proposed
amendment.
C. Periodic Review
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<PAGE>
The Board shall review reports of expense allocations and such other
information as they request at such times, or pursuant to such
schedule, as they may determine consistent with applicable legal
requirements.
IV. Miscellaneous
A. Limitation of Liability
The Board of Trustees and the shareholders of each Fund shall not be
liable for any obligations of the Trusts or any Fund under this
Plan, and the Underwriter or any other person, in asserting any
rights or claims under this Plan, shall look only to the assets and
property of the Trusts or such Funds in settlement of such right or
claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Trusts, on behalf of the Funds, have adopted this
amended and restated Multiple Class Plan as of this 16th day of December, 1998.
NORTHSTAR FUNDS
NORTHSTAR TRUST
NORTHSTAR EQUITY TRUST
By: _________________________________
Title: Vice President and Treasurer