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File No. 33-73140
811-8220
As filed with the Securities and Exchange Commission on April 30, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form N1-A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 6
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7
NORTHSTAR VARIABLE TRUST
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(Exact name of Registrant as specified in charter)
Two Pickwick Plaza, Greenwich, CT 06830
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(Address of Principal Executive Offices)
(203) 863-6200
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(Registrant's telephone number)
Mark L. Lipson
c/o Northstar Investment Management Corporation
Two Pickwick Plaza, Greenwich, Connecticut 06830
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(Name and address of agent for service)
Copies of all correspondence to:
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1500 K St., N.W., Suite 500
Washington, D.C. 20005
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
X immediately upon filing pursuant to paragraph (b)
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on [date] pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on [date] pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on [date] pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
__________________________________________________________________________
* Registrant has registered an indefinite number of shares of beneficial
interest by its initial Registration Statement pursuant to Rule 24f-2 under
the Investment Company Act of 1940, as amended, which became effective May
6, 1994. Registrant filed the notice required by Rule 24f-2 with respect to
its most recent fiscal year on February 14, 1997.
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NORTHSTAR VARIABLE TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A)
UNDER THE SECURITIES ACT OF 1933
PART A
PROSPECTUS OF ALL SERIES OF NORTHSTAR VARIABLE TRUST
FORM N-1A PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Synopsis Cover Page
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Investment Programs;
Investment Objectives and Policies;
Other Investment Strategies
and Techniques; Risk Factors;
General Information
5. Management of the Fund Management of the Funds
6. Capital Stock and Other How Net Asset Value is
Securities Determined; Dividends,
Distributions and Taxes;
Performance Information;
General Information
7. Purchases of Securities Being Purchase of Shares; How Net Asset
Value is Determined.
8. Redemption or Repurchase Redemption of Shares; How Net Asset
Value is Determined
9. Legal Proceedings Not Applicable
<PAGE>
NORTHSTAR VARIABLE TRUST
CROSS REFERENCE SHEET
PART B
FORM N-1A CAPTION IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information & History Cover Page; Other Information
13. Investment Objectives & Policies Cover Page; Investment Objectives
and Policies; Investment
Restrictions; Other Investment
Techniques
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal N/A
Holders of Securities
16. Investment Advisory and Services of the Adviser and
Other Services Administrator; Services of the
Subadviser
17. Brokerage Allocation and Portfolio Transactions and
Other Practices Brokerage Allocation; Portfolio
Turnover
18. Capital Stock and Other Securities Purchases, Redemptions and
Exchange Transactions
19. Purchases, Redemptions and Net Asset Value; Purchases,
Pricing Redemption and Exchange
Transaction; Dividends and
Distributions
20. Tax Status Federal Income Tax Status
21. Underwriter Not Applicable
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
<PAGE>
PROSPECTUS APRIL 30, 1997
NORTHSTAR VARIABLE TRUST
NORTHSTAR GROWTH FUND
NORTHSTAR INCOME AND GROWTH FUND
NORTHSTAR MULTI-SECTOR BOND FUND
NORTHSTAR HIGH YIELD BOND FUND
Two Pickwick Plaza (203) 863-6200
Greenwich, Connecticut, 06830 (800) 595-7827
Northstar Growth Fund, Northstar Income and Growth Fund, Northstar
Multi-Sector Bond Fund and Northstar High Yield Bond Fund (the "Funds") are four
diversified investment portfolios comprising series of the Northstar Variable
Trust (formerly "Northstar/NWNL Trust"), an open-end, series, management
investment company. This Prospectus sets forth basic information about the Trust
and the Funds that prospective investors should know before investing. It should
be read and retained for future reference. A Statement of Additional
Information, dated April 30, 1997, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Statement of
Additional Information is available without charge upon request to the Trust at
the address or telephone number set forth above.
Shares of the Funds are offered at net asset value and currently are sold to
segregated asset accounts ("Variable Accounts") of ReliaStar Life Insurance
Company (formerly "Northwestern National Life Insurance Company"),
Northern Life Insurance Company ("Northern"), and ReliaStar Bankers Security
Life Insurance Company ("BSL") (collectively the "Affiliated Insurance
Companies") to serve as an investment medium for variable annuity or variable
life insurance contracts (the "Variable Contracts") issued by the Affiliated
Insurance Companies. The Variable Accounts of ReliaStar Life Insurance Company
("RealiaStar"), Northern and BSL invest in shares of one or more of the Funds
in accordance with allocation instructions received from Variable Contract
owners. Such allocation rights are described further in the accompanying
Prospectus for the Variable Account.
NORTHSTAR GROWTH FUND ("GROWTH FUND") is a diversified portfolio with an
investment objective of seeking long-term capital growth primarily through
investments in equity securities of companies that are believed to provide above
average potential for capital appreciation.
NORTHSTAR INCOME AND GROWTH FUND ("INCOME AND GROWTH FUND") is a diversified
portfolio with an investment objective of seeking current income balanced with
the objective of achieving capital appreciation. The Fund will seek to achieve
its objective through investments in common and preferred stocks, convertible
securities, investment grade corporate debt securities and government
securities, selected for their prospects of producing income and/or capital
appreciation.
NORTHSTAR MULTI-SECTOR BOND FUND ("MULTI-SECTOR FUND") is a diversified
portfolio with an investment objective of maximizing current income. The Fund
will seek to achieve its objective by investment in the following sectors of the
fixed income securities markets: (a) securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities; (b) investment grade corporate debt securities (c) investment
grade or comparable quality debt securities issued by foreign corporate issuers,
and securities issued by foreign governments and their political subdivisions,
limited to 35% of assets determined at the time of investment; and (d) high
yield-high risk fixed income securities of U.S. and foreign issuers, limited to
50% of assets determined at the time of investment. See "Risk Factors."
NORTHSTAR HIGH YIELD BOND FUND ("HIGH YIELD FUND") is a diversified
portfolio with an investment objective of seeking high income by investing
predominantly in high yield-high risk lower-rated U.S. dollar-denominated debt
securities. It is the Fund's policy, while investing in income producing
securities, also to maximize total return from a combination of income and
capital appreciation.
THE HIGH YIELD FUND WILL NORMALLY INVEST AT LEAST 65% OF ITS ASSETS IN LOWER
RATED HIGH YIELD-HIGH RISK BONDS, COMMONLY KNOWN AS "JUNK BONDS," AND THE
MULTI-SECTOR FUND MAY INVEST UP TO 50% OF ITS ASSETS IN THESE SECURITIES. THESE
SECURITIES MAY INVOLVE HIGH RISK AND ARE CONSIDERED TO BE SPECULATIVE WITH
REGARD TO PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTMENT IN THESE FUNDS
MAY NOT BE APPROPRIATE FOR ALL INVESTORS. CONTRACT OWNERS SHOULD CAREFULLY
ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THESE FUNDS. SEE "RISK FACTORS
- - HIGH YIELD SECURITIES."
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF THE
VARIABLE ACCOUNT, WHICH ACCOMPANIES THIS PROSPECTUS. BOTH PROSPECTUSES SHOULD BE
READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
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>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Financial Highlights............................................................ 3
Investment Programs............................................................. 4
Investment Objectives and Policies.............................................. 4
Risk Factors.................................................................... 7
Other Investment Strategies and Techniques...................................... 8
Performance Information......................................................... 9
How Net Asset Value is Determined............................................... 10
Management of the Funds......................................................... 11
Purchase of Shares.............................................................. 12
Redemption of Shares............................................................ 12
Dividends, Distributions and Taxes.............................................. 13
General Information............................................................. 13
Appendix........................................................................ A-1
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AT
ANY TIME SUBSEQUENT TO ITS DATE.
2
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NORTHSTAR VARIABLE TRUST FINANCIAL HIGHLIGHTS
The financial highlights for the Trust set forth below present certain
information and ratios as well as performance information about each series of
the Trust for a share outstanding throughout each year or portion thereof.* This
table should be read in conjunction with the audited financial statements of the
Trust dated December 31, 1996 and accompanying notes, which are contained in the
Trust's Annual Report to Shareholders for the fiscal year ended December 31,
1996 incorporated by reference in the Statement of Additional Information, a
copy of which may be obtained without charge from the Trust. The financial
highlights have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose report thereon is also incorporated by reference in the
Statement of Additional Information, and should be read in conjunction with the
related audited financial statements and notes thereto.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
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HIGH YIELD BOND
GROWTH FUND MULTI-SECTOR FUND FUND
----------------- ----------------- -----------------
1996 1995 1994* 1996 1995 1994* 1996 1995 1994*
------ ------ --------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period........................... $11.56 $10.04 $10.00 $ 5.14 $ 4.85 $ 5.00 $ 5.04 $ 4.69 $ 5.00
Income from investment operations:
Net investment income........... 0.04 0.20 0.16 0.41 0.42 0.23 0.45 0.50 0.28
Net realized and unrealized gain
(loss)......................... 2.57 2.27 0.19 0.21 0.29 (0.15) 0.32 0.34 (0.31)
------ ------ --------- ------ ------ --------- ------ ------ ---------
Total from investment
operations..................... 2.61 2.47 0.35 0.62 0.71 0.08 0.77 0.84 (0.03)
------ ------ --------- ------ ------ --------- ------ ------ ---------
Less distributions:
Dividends declared from net
investment income.............. (0.05) (0.19) (0.16) (0.41) (0.42) (0.23) (0.45) (0.49) (0.28)
Dividends from net realized
gain........................... (0.04) (0.76) (0.15) (0.10) 0.00 0.00 (0.09) 0.00 0.00
------ ------ --------- ------ ------ --------- ------ ------ ---------
Total distributions............. (0.09) (0.95) (0.31) (0.51) (0.42) (0.23) (0.54) (0.49) (0.28)
------ ------ --------- ------ ------ --------- ------ ------ ---------
Net Asset Value, end of period.... $14.08 $11.56 $10.04 $5.25 $ 5.14 $ 4.85 $5.27 $ 5.04 $ 4.69
------ ------ --------- ------ ------ --------- ------ ------ ---------
------ ------ --------- ------ ------ --------- ------ ------ ---------
Total Return...................... 22.99% 24.78% 3.47% 12.53% 14.97% 1.41% 15.75% 18.55% (0.95)%
------ ------ --------- ------ ------ --------- ------ ------ ---------
------ ------ --------- ------ ------ --------- ------ ------ ---------
Ratios/supplemental data:
Net assets end of period
(thousands)....................$15,564 $3,813 $2,701 $6,277 $3,766 $2,716 $6,619 $4,773 $2,588
------ ------ --------- ------ ------ --------- ------ ------ ---------
------ ------ --------- ------ ------ --------- ------ ------ ---------
Ratio of expenses to average net
assets......................... 0.80% 0.80% 1.00%(1) 0.80% 0.80% 1.00%(1) 0.80% 0.80% 1.00%(1)
------ ------ --------- ------ ------ --------- ------ ------ ---------
------ ------ --------- ------ ------ --------- ------ ------ ---------
Ratio of expense reimbursement
to average net assets.......... 0.90% 1.24% 1.45%(1) 0.88%% 1.26% 1.41%(1) 0.93% 1.31% 1.55%(1)
------ ------ --------- ------ ------ --------- ------ ------ ---------
------ ------ --------- ------ ------ --------- ------ ------ ---------
Ratio of net investment income
to average net assets.......... 0.65% 1.77% 2.31%(1) 8.38% 8.52% 7.03%(1) 8.72% 10.61% 8.62%(1)
------ ------ --------- ------ ------ --------- ------ ------ ---------
------ ------ --------- ------ ------ --------- ------ ------ ---------
Portfolio Turnover Rate......... 161% 123% 61% 121% 83% 29% 159% 157% 62%
------ ------ --------- ------ ------ --------- ------ ------ ---------
------ ------ --------- ------ ------ --------- ------ ------ ---------
Average Commissions Per Share..... 0.0414 -- 0 -- 0.0597
-------------------
INCOME AND GROWTH
FUND
-----------------
1996 1995 1994*
------ ------ ---------
<S> <C> <C> <C>
Net Asset Value, beginning of
period........................... $11.39 $ 9.92 $10.00
Income from investment operations:
Net investment income........... 0.40 0.37 0.20
Net realized and unrealized gain
(loss)......................... 1.15 1.73 (0.01)
------ ------ ---------
Total from investment
operations..................... 1.55 2.10 0.19
------ ------ ---------
Less distributions:
Dividends declared from net
investment income.............. (0.41) (0.37) (0.20)
Dividends from net realized
gain........................... (0.81) (0.26) (0.07)
------ ------ ---------
Total distributions............. (1.22) (0.63) (0.27)
------ ------ ---------
Net Asset Value, end of period.... $11.72 $11.39 $ 9.92
------ ------ ---------
------ ------ ---------
Total Return...................... 13.80% 21.39% 2.02%
------ ------ ---------
------ ------ ---------
Ratios/supplemental data:
Net assets end of period
(thousands).................... $12,579 $7,410 $3,595
------ ------ ---------
------ ------ ---------
Ratio of expenses to average net
assets......................... 0.80% 0.80% 1.00%(1)
------ ------ ---------
------ ------ ---------
Ratio of expense reimbursement
to average net assets.......... 0.60% 0.94% 1.43%(1)
------ ------ ---------
------ ------ ---------
Ratio of net investment income
to average net assets.......... 3.67% 3.63% 3.11%(1)
------ ------ ---------
------ ------ ---------
Portfolio Turnover Rate......... 129% 74% 45%
------ ------ ---------
------ ------ ---------
Average Commissions Per Share..... 0.0401
</TABLE>
- ------------------------
(1)Annualized
* Each Fund commenced operations on May 6, 1994.
3
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INVESTMENT PROGRAMS
Northstar Variable Trust (the "Trust") is a Massachusetts business trust
organized as an open-end, diversified, series, management investment company.
Currently the Trust offers four series comprising four separate investment
portfolios - Northstar Growth Fund, Northstar Income and Growth Fund, Northstar
Multi-Sector Bond Fund, and Northstar High Yield Bond Fund (the "Funds"). Each
of the Funds has its own investment objective and investment policies as
described below. The Trustees of the Trust reserve the right to change any of
the investment policies, strategies or practices of any of the Funds, as
described in this Prospectus and the Statement of Additional Information,
without shareholder approval, except in those instances where shareholder
approval is expressly required.
The investment objective of each Fund is a fundamental policy which may not
be changed without the approval of holders of a majority of the outstanding
shares of the Fund. There can, of course, be no assurance that each Fund will
achieve its investment objective since all investments are inherently subject to
market risks.
INVESTMENT OBJECTIVE AND POLICIES
NORTHSTAR GROWTH FUND. The investment objective of the Fund is to seek
long-term capital growth primarily through investments in equity securities
diversified over industries and companies which are believed to provide above
average potential for capital appreciation. Securities in which the Fund will
normally invest include common stocks, preferred stocks, and securities
convertible into common stock, and the Fund may also invest in warrants and
options to purchase common stocks. Under normal conditions, the Fund does not
intend to invest more than 35% of its assets in convertible securities. The Fund
may invest in large seasoned companies which are believed to possess superior
return potential similar to companies with formative growth profiles, and may
invest in small and medium sized companies with above average earnings growth
potential relative to market value. Investing in equity securities of small and
medium-sized companies may involve greater risk than is associated with
investing in more established companies. Small to medium-sized companies often
have limited product and market diversification, fewer financial resources or
may be dependent on a few key managers. Any one of the foregoing may change
suddenly and have an immediate impact on the value of the company's securities.
Furthermore, whenever the securities markets are experiencing rapid price
changes due to national economic trends, secondary growth securities have
historically been subject to exaggerated price changes. Although the Fund will
invest predominantly in equity and equity related securities it may also invest
in non-equity securities, such as corporate bonds or U.S. Government obligations
during periods, when, in the opinion of the Adviser or Subadviser, prevailing
market, financial or economic conditions warrant. Although the Fund selects
securities for long-term investment, the Fund may engage in short-term
transactions.
The Fund may invest up to 20% of its assets in equity securities of foreign
issuers, not more than 10% of which may be invested in issuers that are not
listed on a U.S. Securities exchange. The Fund normally will purchase American
Depository Receipts for foreign securities which are actively traded in a United
States market or on a U.S. securities exchange. While investment in foreign
securities is intended to increase diversification, such investments involve
risks in addition to the credit and market risks normally associated with
domestic securities. See "Risk Factors - Foreign Investments."
NORTHSTAR INCOME AND GROWTH FUND. The Fund's investment objective is to seek
current income balanced with the objective of achieving capital appreciation.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in income-producing securities. In seeking to achieve its objective, the
Fund will invest in equity securities of domestic and foreign issuers that have
prospects for dividend income and growth of capital, including common stocks,
preferred stocks, and securities convertible into common stocks, and selected
investment grade debt securities of domestic and foreign private and government
issuers. These debt securities would include U.S. Government obligations,
foreign and domestic corporate bonds, and bonds issued by foreign governments
considered stable by the Adviser and supported through the authority to levy
taxes by national state or provincial governments or similar political
subdivisions. The proportion of holdings in common stocks, preferred stocks,
other equity-related securities, and debt securities will vary in accordance
with the level of return that can be achieved from these various types of
securities. Under normal conditions, the Fund does not intend to invest more
than 35% of its assets in convertible securities. Securities are also purchased
on the basis of fundamental attraction regarding capital appreciation prospects.
In this way, income is "balanced" with capital. The Fund invests in equity
securities that are listed primarily on the New York Stock Exchange or American
Stock Exchange or that are traded in the over-the-counter market. Equity and
equity-related securities purchased by the Fund will typically be of large
well-established companies, but may also include to a lesser extent small
capitalization companies
4
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selected for their growth potential. Debt securities purchased by the Fund will
only be securities rated investment grade ( I.E., in the top four rating
categories of Moodys or S&P) at the time of purchase. Securities that are in the
lowest investment grade debt category may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than in the case
with higher grade securities. In the event that an existing holding is
downgraded to below investment grade, the Fund may nevertheless retain the
security.
The Fund may invest up to 20% of its net assets in the securities of foreign
issuers, not more than 10% of which shall be in issuers whose securities are not
listed on a U.S. securities exchange. The Fund normally will purchase American
Depository Receipts for foreign securities which are actively traded in a United
States market or on a U.S. securities exchange. While investment in foreign
securities is intended to increase diversification, such investments involve
risks in addition to the credit and market risks normally associated with
domestic securities. See "Risk Factors - Foreign Investments."
NORTHSTAR MULTI-SECTOR BOND FUND. The Fund's investment objective is to
maximize current income consistent with the preservation of capital. The Fund
will seek to achieve its objective by investing in four sectors of the fixed
income securities markets: (a) securities issued or guaranteed as to principal
and interest by the U.S. Government, its agencies, authorities or
instrumentalities ("U.S. Government Bonds"); (b) corporate debt securities rated
investment grade at the time of purchase ("Investment Grade Bonds"); (c)
investment grade or comparable quality debt securities issued by foreign
corporate issuers and foreign governments and their political subdivisions
("Foreign Bonds"); and (d) high yield-high risk fixed income securities of U.S.
and foreign issuers ("High Yield Bonds"). See the Appendix for a description of
bond ratings. Under normal circumstances, at least 65% of the Fund's total
assets will be invested in these four sectors. Securities that are in the lowest
investment grade debt category may have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade securities. See "High Yield Bonds." The Fund's assets generally
will be invested in each market sector but the Fund may invest any amount of its
assets in any one sector (except for High Yield Bonds, in which sector the Fund
will not invest more than 50% of its assets determined at the time of
investment, and no more than 35% of the Fund's assets will be invested in
Foreign Bonds, including foreign High Yield Bonds), and the Fund may choose not
to invest in a sector in order to achieve its investment objective. The Adviser
believes that this strategy may achieve a more stable net asset value since
diversification over several market sectors tends to reduce volatility; however,
there can be no assurance that certain economic and other factors will not cause
fluctuations in the value of the securities held by the Fund, resulting in
fluctuations of the Fund's net asset value.
The following is a description of the four sectors in which the Fund
invests:
U.S. GOVERNMENT BONDS. The U.S. Government Bonds in which the Fund may
invest are (1) U.S. Treasury obligations such as bills, notes and bonds, which
differ only in their interest rates, maturities and times of issuance; and (2)
obligations issued or guaranteed by U.S. Government agencies, authorities and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Government, (b) the right of the issuer to borrow
an amount limited to a specific line of credit from the U.S. Treasury (which
line of credit is equal to the face value of the government obligation), (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality, or (d) the creditworthiness of the
instrumentality. The Fund may invest in U.S. Government Bonds denominated in
foreign currencies and may invest in pass-through securities that are derived
from mortgages. See "Mortgage-Backed Securities" below.
WITH RESPECT TO OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES, AUTHORITIES AND INSTRUMENTALITIES, GUARANTEES AS TO THE TIMELY PAYMENT
OF PRINCIPAL AND INTEREST DO NOT EXTEND TO THE MARKET VALUE OF THE FUND'S
SHARES. THE MARKET VALUE OF U.S. GOVERNMENT BONDS FLUCTUATES AS INTEREST RATES
CHANGE.
INVESTMENT GRADE BONDS. The Fund may invest in all types of long- and
short-term debt obligations of U.S. issuers denominated in U.S. dollars and in
foreign currencies. Investment Grade Bonds will be rated in the top four rating
categories of Moody's or S&P, or deemed to be of comparable quality by the
Adviser if the securities are unrated. Securities rated Baa or BBB (the lowest
investment grade category) are medium grade investment obligations that may have
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments, in the case of such obligations. For a more complete
description of ratings, see the Appendix.
FOREIGN BONDS. The Foreign Bonds in which the Fund may invest are issued by
foreign private issuers and foreign governments. Foreign governments will be
limited to those considered stable by the Adviser, and the Fund
5
<PAGE>
will only invest in obligations supported through the authority to levy taxes by
national, state or provincial governments or similar political subdivisions. For
risk considerations involved, see "Risk Factors - Foreign Investments."
Normally, foreign corporate issues in which the Fund will invest will be rated
investment grade or deemed to be of equivalent quality; however, the Fund may
also invest in high yield-high risk securities of foreign private issuers. See
"High Yield Bonds" below and "Risk Factors - High Yield Securities." Normally
the Fund expects to invest its assets in U.S. dollar denominated securities;
however, the Fund may invest up to 35% of assets in non-U.S. dollar denominated
securities. The Fund may hold foreign currency for hedging purposes to
compensate for declines in the U.S. dollar value of foreign currency securities
held by the Fund and against increases in the U.S. dollar value of foreign
currency bonds which the Fund might purchase. The Fund is limited to investing
no more than 35% of its assets in Foreign Bonds, including foreign High Yield
Bonds, determined at the time of investment.
HIGH YIELD BONDS. The High Yield Bonds in which the Fund may invest are debt
obligations of domestic issuers, including High Yield Bonds of domestic issuers
denominated in foreign currencies, and High Yield Bonds of foreign issuers. The
High Yield Bonds that the Fund may purchase are in the lower rating categories
(I.E., BB through CCC by S&P and Ba through Caa by Moody's), or may be unrated
securities. These lower-rated and comparable unrated securities, while selected
for their relatively high yield, may be subject to greater fluctuations in
market value and greater risks of loss of income and principal than higher-rated
securities. High yields often reflect the greater risks associated with the
securities that offer such yields. Because of these greater risks, High Yield
Bonds often carry lower ratings. Economic conditions can sometimes narrow the
spreads between yields on lower-rated (or comparable) securities and
higher-rated securities. If these spreads narrow to such a degree that the
Adviser believes that the yields available on lower-rated or comparable unrated
securities do not justify the higher risks associated with those securities, the
Fund will invest in higher-rated or comparable unrated securities. The Fund may
also invest in High Yield pass-through securities. Investments in High Yield
pass-through securities are subject to prepayment and reinvestment risks similar
to those associated with Mortgage-Backed Securities described below.
The Adviser evaluates the purchase of High Yield Bonds for the Fund
primarily through the exercise of its own investment and credit analysis and on
the ratings assigned by Moody's and S&P. The Fund will not invest in High Yield
Bonds rated lower than CCC/Caa.
As a fundamental policy, the Fund's investments in High Yield Bonds will be
limited to not more than 50% of its assets, determined at the time of
investment. Any subsequent change in the percentage due to changes in the market
value of portfolio securities or other changes in the total assets will not be
considered a violation of this restriction. See "Risk Factors - High Yield
Securities" below.
The Fund may invest in debt securities of any maturity that pay fixed,
floating or adjustable interest rates. The Fund also may invest in discount
obligations, including zero-coupon securities, which do not pay interest but,
rather, are issued at a significant discount to their maturity values, or
securities that pay interest, at the issuer's option, in additional securities
instead of cash (pay-in-kind securities). The values of debt securities
generally fluctuate inversely with changes in interest rates. This is less
likely to be true for adjustable or floating rate securities, since interest
rate changes are more likely to be reflected in changes in the rates paid on the
securities. However, reductions in interest rates also may translate into lower
distributions paid by the Fund. Additionally, because zero-coupon and
pay-in-kind securities do not pay interest but the Fund nevertheless must accrue
and distribute the income deemed to be earned on a current basis, the Fund may
have to sell other investments to raise the cash needed to make income
distributions. To a lesser extent the Fund may invest in equity or
equity-related securities, including common stock, preferred stock, convertible
securities and rights and warrants attached to debt instruments. Typically the
Fund would purchase a high yield security that is convertible or exchangeable
for equity securities, or which carries the right in the form of a warrant or as
part of a unit with the security to acquire equity securities. The Fund would
ordinarily purchase these securities for their yield characteristics or capital
appreciation potential.
NORTHSTAR HIGH YIELD BOND FUND. The investment objective of the Fund is to
seek high income by investing predominantly in high yield - high risk lower
rated and non-rated U.S. dollar denominated debt securities. It is the Fund's
policy, while investing in income producing securities, also to maximize total
return from a combination of income and capital appreciation.
Under normal market conditions, the Fund will seek to achieve its investment
objective by investing at least 65% of its total assets in higher-yielding,
lower-rated U.S. dollar-denominated debt securities of U.S. and foreign issuers,
which involve special risks and are predominantly speculative in character. The
Fund may invest up to 35% of its assets in non-U.S. dollar denominated
securities. Investments in securities offering the high current income
6
<PAGE>
sought by the Fund, while generally providing greater income and potential
opportunity for gain than investments in higher rated securities, also entail
greater risk. The value of high yield securities (and therefore the net asset
value per share of the Fund) can be expected to increase or decrease in response
to changes in interest rates, real or perceived changes in the credit risks
associated with its portfolio investments, and other factors affecting the
credit markets generally. The Fund may invest up to 50% of its assets in
securities of foreign issuers, subject to a limit of 35% of such assets in
emerging market debt. Emerging markets are countries whose sovereign bonds
generally are rated below investment grade and whose financial markets are not
well-developed. The Fund intends to restrict its investments in emerging markets
to those with sound economies that are expected to experience strong growth with
controlled inflation, and therefore higher-than-average returns, over time. See
"Risk Factors - Foreign Investments."
Most of the debt securities in which the Fund invests are lower rated, and
may include bonds in the lowest rating categories (C for Moody's and D for S&P)
and unrated bonds. Most of the securities will be rated at least Caa by Moody's
or at least CCC by S&P, or if not rated, are of equivalent quality in the
opinion of the Adviser. The Fund may invest up to 10%, and hold up to 25%, of
its assets in securities rated below Caa in the case of Moody's or CCC by S&P.
Such debt securities are highly speculative and may be in default of payment of
interest and/or repayment of principal may be in arrears. The issuers of such
debt securities may be involved in bankruptcy or reorganization proceedings
and/or may be restructuring outstanding debt. Investing in bankrupt and troubled
companies involves special risks. See "Risk Factors - High Yield Securities" and
the Appendix.
The Fund may invest in debt securities of any maturity that pay fixed,
floating or adjustable interest rates. The Fund also may invest in discount
obligations, including zero-coupon securities, which do not pay interest but,
rather, are issued at a significant discount to their maturity values, or
securities that pay interest, at the issuer's option, in additional securities
instead of cash (pay-in-kind securities). The values of debt securities
generally fluctuate inversely with changes in interest rates. This is less
likely to be true for adjustable or floating rate securities, since interest
rate changes are more likely to be reflected in changes in the rates paid on the
securities. However, reductions in interest rates also may translate into lower
distributions paid by the Fund. Additionally, because zero-coupon and
pay-in-kind securities do not pay interest but the Fund nevertheless must accrue
and distribute the income deemed to be earned on a current basis, the Fund may
have to sell other investments to raise the cash needed to make income
distributions. To a lesser extent the Fund may invest in equity or
equity-related securities, including common stock, preferred stock, convertible
securities and rights and warrants attached to debt instruments. Typically the
Fund would purchase a high yield security that is convertible or exchangeable
for equity securities, or which carries the right in the form of a warrant or as
part of a unit with the security to acquire equity securities. The Fund would
ordinarily purchase these securities for their yield characteristics or capital
appreciation potential.
RISK FACTORS
HIGH YIELD SECURITIES. Each of the High Yield Fund and the Multi-Sector Fund
may invest in higher yielding securities that carry lower investment grade
ratings. These high yield - high risk securities are rated below investment
grade by the primary rating agencies (Moody's and S&P). See the Appendix for a
description of bond rating categories. The value of lower rated securities
generally is more dependent on the ability of the company to meet interest and
principal payments than is the case for higher rated securities. Conversely, the
value of higher rated securities may be more sensitive to interest rate
movements than lower rated securities. Companies issuing high yield securities
may not be as strong financially as those issuing bonds with higher credit
ratings. Investments in such companies are considered to be more speculative
than higher quality investments. In addition, the market for lower rated
securities is generally less liquid than the market for higher rated securities,
and adverse publicity and investor perceptions may also have a greater negative
impact on the market for these securities.
Companies issuing high yield bonds are more vulnerable to real or perceived
economic changes (such as rising interest rates), political changes or adverse
developments specific to the company. Adverse economic, political or other
developments may impair the company's ability to service principal and interest
obligations, to meet projected business goals and to obtain additional
financing, particularly if the company is highly leveraged. In the event of a
default, a Fund would experience a reduction of its income and could expect a
decline in the market value of the defaulted securities.
7
<PAGE>
Weighted average composition of the following Funds' portfolios at the end
of their 1996 fiscal year was:
<TABLE>
<CAPTION>
MULTI-SECTOR HIGH YIELD
-------------- ------------
<S> <C> <C>
Investment Grade.................................. 14.6% 1.5%
BB................................................ 11.7 16.3
B................................................. 26.4 47.2
CCC............................................... -- 1.5
CC................................................ -- --
C................................................. -- --
D................................................. -- --
Nonrated.......................................... 13.3 20.1
U.S. Governments, equities and other.............. 34.0 13.1
--- ---
TOTAL............................................. 100% 100%
--- ---
--- ---
</TABLE>
This table does not reflect the current or future composition of any of the
Fund's portfolios.
FOREIGN INVESTMENTS. Each Fund may invest in securities of foreign issuers.
Securities of some foreign companies and governments may be traded in the U.S.,
but many foreign securities are traded primarily in foreign markets. In addition
to generally higher transaction costs associated with foreign investing, risks
of foreign investing include:
CURRENCY RISKS. Each Fund must buy the local currency when it buys a foreign
security, and it sells local currency when it sells the security. The value of a
foreign security held by the Fund will be affected by the value of the local
currency relative to the U.S. dollar, causing the Fund to lose money at times,
despite an increase in the value of the security.
POLITICAL AND ECONOMIC RISKS. Political and economic risks may exist,
particularly in underdeveloped and developing countries which may have
relatively unstable governments and economies based on only a few industries. In
some countries, there is the risk that the government may take over the assets
or operations of a company or that the government may impose taxes or limits on
the removal of the Fund's assets from that country.
REGULATORY RISKS. There is generally less government supervision of foreign
markets, and issuers are not subject to the uniform accounting, auditing and
financial reporting standards and practices applicable to domestic issuers.
There also may be less publicly available information about foreign issuers.
OTHER INVESTMENT STRATEGIES AND TECHNIQUES
Unless otherwise stated, each of the following strategies and techniques may
be utilized by each of the Funds. The Funds may, but do not currently intend to,
engage in certain additional investment techniques not described in this
Prospectus. These techniques and additional information on the securities and
techniques described in the Prospectus are contained in the Statement of
Additional Information.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements, either
for temporary defensive purposes or to generate income from its cash balances.
Under a repurchase agreement, the Fund buys a security from a bank or dealer,
which is obligated to buy it back at a fixed price and time. The security is
held in a separate account at the Fund's custodian and constitutes the Fund's
collateral for the bank's or dealer's repurchase obligation. Additional
collateral may be added so that the obligation will at all times be fully
collateralized. However, if the bank or dealer defaults or enters into
bankruptcy, the Fund may experience costs and delays in liquidating the
collateral, and may experience a loss if it is unable to demonstrate its right
to the collateral in a bankruptcy proceeding. Repurchase agreements maturing
more than seven days in the future are considered illiquid, and each Fund will
invest no more than 5% of its net assets in such repurchase agreements at any
time, and under normal market conditions, will limit its investments in
repurchase agreements to 15% of its net assets.
WHEN-ISSUED SECURITIES. Each Fund may acquire securities on a "when-issued"
basis by contracting to purchase securities for a fixed price on a date beyond
the customary settlement time with no interest accruing until settlement. If
made through a dealer, the contract is dependent on the dealer completing the
sale. The dealer's failure could deprive the Fund of an advantageous yield or
price. These contracts may be considered securities and involve risk to the
extent that the value of the underlying security changes prior to settlement.
Each Fund may realize short-term profits or losses if the contracts are sold.
Transactions in when-issued securities may be limited by certain Internal
Revenue Code requirements.
8
<PAGE>
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in
illiquid securities, including restricted securities or private placements. An
illiquid security is a security that cannot be sold quickly in the normal course
of business. Some securities cannot be sold to the U.S. public because of their
terms or because of SEC regulations. The Adviser may determine that securities
that cannot be sold to the U.S. public, but that can be sold to institutional
investors ("Rule 144A" securities) or on foreign markets, are liquid, following
guidelines established by the Trustees of each Fund.
TRADING AND PORTFOLIO TURNOVER. Each Fund generally intends to purchase
securities for long-term investment. However, short-term transactions may result
from liquidity needs, securities having reached a price or yield objective,
changes in interest rates or the credit standing of an issuer, or by reason of
economic or other developments not foreseen at the time of the initial
investment decision. Portfolio turnover rates are usually not a factor in making
buy and sell decisions. Each Fund may purchase a security in anticipation of
relatively short-term price gains. Each Fund may also sell one security and
simultaneously purchase the same or comparable security to take advantage of
short-term differentials in yield or price. Increased portfolio turnover may
result in higher costs for brokerage commissions, dealer mark-ups and other
transaction costs and may also result in taxable capital gains. Short term
trading may also be restricted by certain tax rules.
MORTGAGE-BACKED SECURITIES. Each Fund may invest in mortgage-backed
securities which are securities that directly or indirectly represent an
ownership participation in, or are secured by and payable from, mortgage loans
on real property ("Mortgage-Backed Securities"). Such securities include
mortgage pass-through securities representing participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
government or one of its agencies or instrumentalities. Mortgage pass-through
securities differ from conventional debt securities, which provide for periodic
payment of interest in fixed amounts (usually semi-annually) and principal
payments at maturity or on specified call dates. Mortgage pass-through
securities provide for monthly payments that are a "pass-through" of the
monthly interest and principal payments, including any repayments made by the
individual borrowers on the pooled mortgage loans, net of any fees paid to the
guarantor of such securities and the servicer of the underlying mortgage loans.
The underlying mortgages may be prepaid at any time and such payments are passed
through to the certificate holder as a prepayment of principal. As a result, if
a Fund purchases such a Mortgage-Backed Security at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the Fund purchases a Mortgage-Backed Security
at a discount, faster than expected prepayments will increase, while slower than
expected prepayment will reduce, yield to maturity.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. Generally, however, prepayments on
fixed rate mortgage loans will increase during a period of falling interest
rates and decrease during a period of rising interest rates. Mortgage-Backed
Securities may decrease in value as a result of increases in interest rates and
may benefit less than other fixed income securities from declining interest
rates because of the risk of prepayment. Accelerated prepayments on
Mortgage-Backed Securities purchased by the Funds at a premium also impose a
risk of loss of principal because the premium may not have been fully amortized
at the time the principal is repaid in full.
TEMPORARY INVESTMENTS. In periods of unusual market conditions, for
temporary and defensive purposes, when the Adviser considers it appropriate,
each Fund may invest part or all of its assets in cash, U.S. government
securities, commercial paper, bankers' acceptances, repurchase agreements and
certificates of deposit.
INVESTMENT RESTRICTIONS. Each of the Funds has adopted a number of
investment restrictions, as set forth in the Statement of Additional
Information, some of which are fundamental, and therefore, may not be changed
without shareholder approval.
PERFORMANCE INFORMATION
The Funds may, from time to time, include their yield and total returns in
advertisements or reports to shareholders or prospective investors. Performance
information for the Funds will not be advertised or included in sales literature
unless accompanied by comparable performance information for a separate account
to which the Funds offer their shares. Both yield and total return figures are
computed in accordance with formulas specified by the SEC and are based on
historical earnings and are not intended to indicate future performance. The
yield for each Fund will be computed by dividing (a) net investment income over
a 30-day period by (b) an average value of
9
<PAGE>
invested assets (using the average number of shares entitled to receive
dividends at the end of the period), all in accordance with applicable
regulatory requirements. Such amounts will be compounded for six months and then
annualized for a twelve-month period to derive the yield of each Fund.
Standardized quotations of average annual total return for a Fund's shares
will be expressed in terms of the average annual compounded rate of return of a
hypothetical investment over a period of 1, 5 and 10 years (or up to the life of
the Fund). Standardized total return quotations reflect the deduction of a
proportional share of expenses (on an annual basis) of a Fund, and assume that
all dividends and distributions are reinvested when paid. The Funds also may
quote supplementally a rate of total return over different periods of time or by
non-standardized means. In addition, the Funds may from time to time publish
materials citing historical volatility for shares of each Fund. Volatility is
the standard deviation of day to day logarithmic price changes expressed as an
annualized percentage.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Composite Stock Index
("S&P 500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices
so that Contract Owners may compare a Fund's results with those of a group of
unmanaged securities widely regarded by investors as representative of the
securities markets in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm which
ranks mutual funds by overall performance, investment objective, and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds by overall performance or other criteria; (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an investment in
a Fund; and (iv) well known monitoring sources of bank certificates of deposit
performance rates such as Salomon Brothers, FEDERAL RESERVE BULLETIN, AMERICAN
BANKER, Tower Data and 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.
Quotations of yield or total return for the Funds will not take into account
charges or deductions against any separate account to which the Funds' shares
are sold or charges and deductions against the Variable Contracts issued by the
Affiliated Insurance Companies. The Funds' yield and total return should not be
compared with mutual funds that sell their shares directly to the public since
the figures provided do not reflect charges against the Variable Account or the
Variable Contracts. Performance information for each Fund reflects only the
performance of a hypothetical investment in that Fund during the particular time
period on which the calculations are based. Performance information should be
considered in light of each Fund's investment objective and policies,
characteristics and qualities of the portfolio, and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future. For a description of the methods used to
determine total return for the Funds, see the Statement of Additional
Information.
HOW NET ASSET VALUE IS DETERMINED
The net asset value per share of each Fund is determined at the close of the
general trading session (normally 4:00 p.m.) of the New York Stock Exchange (the
"Exchange") on each business day the Exchange is open. The net asset value of
each Fund is computed by dividing the value of the Fund's securities, plus any
cash and other assets (including dividends and interest accrued but not
collected) less all liabilities (including accrued expenses) by the number of
outstanding shares of each Fund.
Fixed income securities are valued by using independent pricing services,
market quotations, prices provided by market makers, or estimates of market
values obtained from yield data related to instruments or securities with
similar characteristics in accordance with procedures established in good faith
by the Trust's Trustees. Short-term securities with remaining maturities of less
than 60 days are valued at amortized cost unless it is determined by the
Trustees that amortized cost does not reflect the fair value of such
obligations. Other assets are valued at fair value as determined in good faith
by the Trustees.
Generally, trading in foreign securities, as well as trading in corporate
bonds, U.S. government securities, money market instruments and repurchase
agreements, is substantially completed each day at various times prior to the
close of the general trading session of the Exchange. The values of such
securities used in computing the net asset value of the Funds are determined as
of such times. Occasionally, events affecting the value of such securities may
occur between such times and such closing which will not be reflected in the
computation of a Fund's net asset value. If events occur which materially affect
the value of such securities, the securities will be valued at fair market value
as determined in good faith by the Trustees.
10
<PAGE>
MANAGEMENT OF THE FUNDS
THE TRUSTEES. The Trustees of the Trust ("Trustees") oversee the operations
of the Trust and each Fund and perform the various duties imposed on trustees by
the laws of the Commonwealth of Massachusetts and the Investment Company Act of
1940 (the "1940 Act"). The Trustees meet quarterly to review the Funds'
investment policies, performance, expenses and other business affairs and elect
the officers of the Trust annually. The Trustees delegate day to day management
of the Funds to the officers of the Trust.
THE ADVISER AND AFFILIATED SERVICE PROVIDERS. Pursuant to an Investment
Advisory Agreement with the Trust, Northstar Investment Management Corporation
acts as the investment adviser to each Fund. In this capacity, the Adviser,
subject to the authority of the Trustees, is responsible for furnishing
continuous investment supervision to the Funds and is responsible for the
management of the Funds' portfolios. Northstar Administrators Corporation, an
affiliate of the Adviser, furnishes certain administrative, compliance and
accounting services to each Fund. Employees of the Adviser and Administrator
serve as officers of the Funds, and the Adviser provides office space for the
Funds and pays the salaries of all Fund officers and Trustees who are affiliated
with the Adviser.
The Adviser and its affiliates are indirect, majority owned subsidiaries of
ReliaStar Financial Corp. ("ReliaStar"). ReliaStar's address is 20 Washington
Avenue South, Minneapolis, MN 55401. Combined minority interests held by members
of senior management currently equal 20%. ReliaStar is a publicly traded holding
company whose subsidiaries specialize in the life and health insurance
businesses. Through the Affiliated Insurance Companies and other subsidiaries,
ReliaStar issues and distributes individual life insurance, annuities and mutual
funds, group life and health insurance and life and health reinsurance, and
provides related investment management services.
The Adviser's fee is accrued daily against the value of each Fund's net
assets and is payable by each Fund monthly at an annual rate of 0.75% on the
first $250 million of each Fund's average daily net assets scaled down to 0.55%
for assets over $1 billion. The investment advisory fees paid by the Funds are
higher than the fees paid by most mutual funds. The Administrator's fee is
accrued daily against the value of each Fund's net assets and is payable monthly
at an annual rate of .10% of each Fund's average daily net assets.
The Adviser places all orders for the purchase and sale of portfolio
securities. In selecting brokers, the Adviser may consider research and
brokerage services furnished to it. The Adviser also advises other accounts that
may purchase and hold securities in which the Funds may invest and certain
persons affiliated with the Adviser may purchase and hold, directly or
indirectly, securities in which the Funds or other accounts invest, subject to
internal guidelines regarding conflicts of interest.
PORTFOLIO MANAGERS. Thomas Ole Dial has served as manager of the Northstar
High Yield Bond Fund and Northstar Multi-Sector Bond Fund since inception of
each Fund in May 1994. Mr. Dial has also served as portfolio manager of
the Northstar High Total Return Fund since its inception in November 1993, and,
since July 1996 as co-manager of the Northstar Balance Sheet Opportunities
Fund, separate investment companies managed by the Adviser. Mr. Dial is a
Vice President of each Fund and Executive Vice President and Chief Investment
Officer - Fixed Income of the Adviser. Prior to employment by the
Adviser in October 1993, Mr. Dial served as Executive Vice President and Chief
Investment Officer - Fixed Income of National Securities & Research Corporation,
and as portfolio manager for National Bond Fund, National Asset Reserve, and
National Multi-Sector Fixed Income Fund. Prior to National, Mr. Dial managed
high yield securities portfolios through Dial Capital Management and various
financial institutions. Mr. Dial also manages investments for T.D. Partners, a
limited partnership for which the Adviser serves as subadviser.
Jack Fisher has served as manager of the Northstar Income and Growth
Fund since August 1996. Mr. Fisher, who has more than 20 years of
investment experience, is president of Wilson/Bennett Capital Management,
Inc.
Louis Navellier has served as manager of the Northstar Growth Fund
since February 1996. Mr. Navellier, who has managed investments
since 1986, is also the sole shareholder of two other registered
investment advisory firms which, on a combined basis, manage
approximately $1.2 billion of assets for individuals,
institutions and a Navellier-sponsored open-end management
investment company, the Navellier Series Fund.
11
<PAGE>
SUBADVISERS. Navellier Fund Management,
Inc. ("Navellier"), a registered investment adviser, serves as subadviser to the
Growth Fund pursuant to a Subadvisory Agreement dated February 1, 1996, between
the Adviser and Navellier. Navellier is a newly-formed company which is
wholly-owned by Louis G. Navellier. The principal address of Navellier is 1
East Liberty, Third Floor, Reno, NV 89501. For its services, Navellier will
receive a fee equal to 0.48% of the average daily net assets of the Fund.
Wilson/Bennett Capital Management, Inc. ("Wilson/Bennett"), a registered
investment adviser, serves as subadviser to Income and Growth Fund pursuant
to a Subadvisory Agreement dated February 1, 1996, between the Adviser and
Wilson/Bennett. The principal address of Wilson/Bennett is 8260 Greensboro
Drive, Suite 250, McLean, VA 22102. Wilson/Bennett has agreed to waive
all advisory fees until the net assets of the Fund exceed $50 million.
After and so long as the Fund's net assets exceed $50 million, the
Subadviser will be paid an annual fee equal to 0.20 of 1%
of the first $125 million of average daily net asset value of the assets of
the Fund managed by the Subadviser, increasing to 0.25% of 1% for the next
$125 million, and to 0.30 of 1% for the net assets managed by the Subadviser
in excess of $250 million. This fee is calculated and accrued daily and paid
to the Subadviser monthly.
The Adviser is responsible for overseeing the investment management provided
by Navallier and Wilson/Bennett, and assumes all costs and expenses of the
subadvisory arrangements.
CUSTODIAN AND ACCOUNTING SERVICES AGENT. The Funds' custodian and accounting
services agent is State Street Bank and Trust Company, a trust company organized
under the laws of Massachusetts and located at 225 Franklin Street, Boston,
Massachusetts 02110.
PURCHASE OF SHARES
As of the date of the Prospectus, shares of the Funds are offered only for
purchase by the Variable Accounts to serve as an investment medium for the
Variable Contracts issued by the Affiliated Insurance Companies. Shares of the
Funds may be offered in the future to other separate accounts established by one
or more of the Affiliated Insurance Companies or sold to separate accounts of
other affiliated or unaffiliated insurance companies.
Shares of each Fund are sold at their respective net asset values (without a
sales charge) next computed after receipt of a purchase order.
The various Funds may be used independently or in combination. To the extent
that shares of the Funds are sold to the Variable Accounts as the investment
medium for a Variable Contract, the structure of the Funds permits Variable
Contract owners, within the limitations described in their Contracts, to
allocate their accumulated value in the Contracts in response to or in
anticipation of changes in market conditions. The assets of each Fund are
segregated, and a Variable Contract owner's interest is limited to the Fund in
which the Contract's accumulated value is allocated.
The Trust reserves the right to discontinue offering shares of one or more
Funds at any time. In the event that a Fund ceases offering its shares, any
investments allocated by an insurance company investing in the Trust to such
Fund will, subject to any necessary regulatory approvals, be invested in the
Fund deemed appropriate by the Trustees.
Shares of any Fund may be exchanged for shares of any of the other Funds,
all of which are described in this Prospectus. Exchanges are treated as a
redemption of shares of one Fund and a purchase of shares of one or more of the
other Funds and are effected at the respective net asset values per share of
each Series on the date of the exchange. The Trust reserves the right to modify
or discontinue its exchange privilege at any time without notice.
Variable Contract Owners do not deal directly with the Trust to purchase,
redeem, or exchange shares of a Fund, and Variable Contract Owners should refer
to the prospectus for the Variable Account for information on the allocation of
premiums and on transfers of accumulated value among sub-accounts of the
Variable Account.
REDEMPTION OF SHARES
Shares of any Fund may be redeemed on any business day. Redemptions are
effected at the per share net asset value next determined after receipt of the
redemption request. Redemption proceeds normally will be paid within seven days
following receipt of instructions in proper form. The right of redemption may be
suspended by the Trust or the payment date postponed beyond seven days when the
New York Stock Exchange is closed (other than customary weekend and holiday
closing) or for any period during which trading thereon is restricted because an
emergency exists, as determined by the Securities and Exchange Commission,
making disposal of portfolio securities or valuation of net assets not
reasonably practicable, and whenever the Securities and Exchange Commission has
by order permitted such suspension or postponement for the protection of
shareholders. If the Board of Trustees should determine that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or part by a
12
<PAGE>
distribution in kind of securities from the portfolio of the Fund in lieu of
cash, in conformity with applicable rules of the Securities and Exchange
Commission. If shares are redeemed in kind, the redeeming shareholder might
incur brokerage costs in converting the assets into cash.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code ("Code"). Accordingly, a Fund so
qualifying generally will not be subject to federal income taxes to the extent
that it distributes on a timely basis its investment company taxable income and
its net capital gains. Such income and capital gains distributions are
automatically reinvested in additional shares of the Fund, unless the
shareholder elects to receive cash.
Distributions of any investment company taxable income (which includes among
other items, dividends, interest, and any net realized short-term capital gains
in excess of net realized long-term capital losses) are treated as ordinary
income for tax purposes in the hands of the shareholder (Variable Account). Net
capital gains (the excess of any net long-term capital gains over net short-term
capital losses) will, to the extent distributed and classified by a Fund as
capital gain distributions, be treated as long-term capital gains in the hands
of the Variable Account regardless of the length of time the Variable Account
may have held the shares. Income distributions of any net investment income of
the Northstar Growth Fund will be declared and paid annually; any income
distributions from net investment income of the Northstar Income and Growth Fund
will be declared and paid quarterly; any income distributions from net
investment income of the Northstar Multi-Sector Bond Fund and the Northstar High
Yield Bond Fund will be declared daily and paid quarterly. Capital gain
distributions, if any, will be paid at least once annually.
To comply with regulations under section 817(h) of the Code, each Fund is
required to diversify its investments. Generally, a Fund will be required to
diversify its investments so that on the last day of each quarter of a calendar
year no more than 55% of the value of its total assets is represented by any one
investment, no more than 70% is represented by any two investments, no more than
80% is represented by any three investments, and no more than 90% is represented
by any four investments. For this purpose, securities of a given issuer
generally are treated as one investment, but each U.S. Government agency and
instrumentality is treated as a separate issuer. Any security issued,
guaranteed, or insured (to the extent so guaranteed or insured) by the U.S. or
any agency or instrumentality of the U.S. is treated as a security issued by the
U.S. Government or its agency or instrumentality, whichever is applicable.
Compliance with the diversification rules under Section 817(h) of the Code
generally will limit the ability of a Fund to invest greater than 55% of its
total assets in direct obligations of the U.S. Treasury (or any other issuer) or
to invest primarily in securities issued by a single agency or instrumentality
of the U.S. Government.
The Treasury Department announced that it would issue future regulations or
rulings addressing the circumstances in which a variable Contract Owner's
control of the investments of the separate account may cause the Contract Owner,
rather than the insurance company, to be treated as the owner of the assets held
by the separate account. If the Contract Owner is considered the owner of the
securities underlying the separate account, income and gains produced by those
securities would be included currently in the contract owner's gross income. It
is not known what standard will be set forth in the regulations or rulings.
In the event that rules or regulations are adopted, there can be no
assurance that the Funds will be able to operate as currently described in the
Prospectus, or that the Trust will not have to change any Fund's investment
objective or investment policies. While each Fund's investment objective is
fundamental and may be changed only by a vote of a majority of its outstanding
shares, the Trustees have reserved the right to modify the investment policies
of any Fund as necessary to prevent any such prospective rules and regulations
from causing the contract owners to be considered the owners of the shares of a
Fund underlying the Variable Accounts.
Reference is made to the Prospectus for the respective Variable Accounts and
Variable Contracts for information regarding the federal income tax treatment of
distributions to the Variable Accounts. See "Federal Income Tax Status" in the
Funds' Statement of Additional Information for more information on taxes.
GENERAL INFORMATION
ORGANIZATION OF THE FUND
The Trust was organized under Massachusetts law in 1993 as a business trust.
The Declaration of Trust provides that the Trustees are authorized to create an
unlimited number of series. All shares have equal voting rights, except
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that only shares of the respective series are entitled to vote on matters
concerning only that series. Each share of each Fund will be given one vote,
unless a different allocation of voting rights is required under applicable law
for a mutual fund that is an investment medium for variable insurance products.
At the date of this Prospectus, there are four existing series of the Trust
(IE., the Funds).
In accordance with current laws, it is anticipated that an insurance company
issuing a variable contract that participates in the Trust will request voting
instructions from Contract Owners and will vote shares or other voting interests
in the separate account in proportion to the voting instructions received. The
Affiliated Insurance Companies and the Variable Accounts are currently the only
shareholders of the Trust, although other separate accounts of the Affiliated
Insurance Companies or other insurance companies may become shareholders in the
future.
The shares of each Fund, when issued, will be fully paid and non-assessable,
have no preference, preemptive, or similar rights, and will be freely
transferable. There will normally be no meetings of shareholders for the purpose
of electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Shareholders may, in accordance with the Declaration of Trust, cause a
meeting of shareholders to be held for the purpose of voting on the removal of
Trustees. Meetings of the shareholders will be called upon written request of
shareholders holding in the aggregate not less than 10% of the outstanding
shares 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, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees,
officers, employees or agents of the Trust in connection with the Trust's
property or the affairs of the Trust, and requires that notice of the disclaimer
be given in each contract or obligation entered into or executed by the Trust or
its Trustees, officers, employees, or agents. The Declaration of Trust provides
for indemnification out of Trust property for all loss and expense of any
shareholder held personally liable by reason of being or having been a
shareholder of the Trust. The risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations, and thus should be considered
remote.
REGISTRATION STATEMENT
This Prospectus does not contain all the information included in the
Registration Statement filed with the Securities and Exchange Commission under
the 1933 Act and the 1940 Act, with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and regulation
of the Securities and Exchange Commission. The Registration Statement, including
the exhibits filed therewith, may be examined at the office of the Securities
and Exchange Commission in Washington, D.C.
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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.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-1
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April 30, 1997
STATEMENT OF ADDITIONAL INFORMATION
NORTHSTAR VARIABLE TRUST
TWO PICKWICK PLAZA
GREENWICH, CONNECTICUT 06830
(203) 863-6200 (800) 595-7827
Northstar Variable Trust, (the "Trust") is an open-end series management
investment company organized as a Massachusetts business trust. The Trust
consists of four separate series (each a "Fund"), each of which represents
shares of beneficial interest in a separate portfolio of securities and other
assets with its own objective and policies. Each Fund is managed separately by
Northstar Investment Management Corporation, the Funds Adviser. Shares of the
Trust are issued and redeemed in conjunction with investments in and payments
under variable annuity and variable life contracts. Shares of the Trust are
currently offered to separate accounts ("Variable Accounts") of Reliastar Life
Insurance Company (formerly "Northwestern National Life Insurance Company"),
Northern Life Insurance Company and ReliaStar Bankers Security Life Insurance
Company (the "Affiliated Insurance Companies"). The Variable Accounts of the
Affiliated Insurance Companies invest in shares of one or more of the Funds in
accordance with allocation instructions received from Variable Contract Owners.
Such allocation rights are described further in the Prospectus for the Variable
Account. A summary of the four diversified investment portfolios comprising
series of the Trust (the "Funds") is set forth herein and in the Prospectus for
the Funds. This document is not the Prospectus of the Funds but is incorporated
therein by reference and should be read in conjunction with the Prospectus dated
April 30, 1997. Copies of the Prospectus may be obtained upon request and
without charge by contacting the Trust at the address or phone number above.
CONTENTS PAGE
Investment Objectives and Policies 2
Investment Restrictions 4
Other Investment Techniques 6
Portfolio Transactions and Brokerage Allocation 14
Portfolio Turnover 16
Services of the Adviser and Administrator 17
Services of the Subadvisers 18
Net Asset Value 19
Purchases, Redemptions and Exchange Transactions 19
Dividends and Distributions 20
Federal Income Tax Status 20
Trustees and Officers 22
Other Information 24
Performance Information 25
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INVESTMENT OBJECTIVES AND POLICIES
Northstar Growth Fund, Northstar Income and Growth Fund, Northstar Multi-Sector
Bond Fund and Northstar High Yield Bond Fund (the "Funds") are four diversified
investment portfolios comprising series of the Northstar Variable Trust (the
"Trust"), an open-end series management investment company. The investment
objective of each Fund, set forth below, is a fundamental policy which may not
be changed without the approval of the holders of a majority of the outstanding
shares of each Fund. There can be no assurance that each Fund will achieve its
stated investment objective AND THE HIGH YIELD FUND AND MULTI-SECTOR FUND MAY
NOT BE APPROPRIATE FOR ALL INVESTORS. (See "Risk Factors" in the current
Prospectus.) In general, the assets of each Fund are kept fully invested in
securities selected to meet the investment objective of each Fund; however, for
temporary defensive purposes, any part of a Fund's assets may be held from time
to time in cash or cash equivalents. At such times when a Fund's assets are
invested for temporary defensive purposes, the Fund will not be investing in
accordance with its investment objective.
NORTHSTAR GROWTH FUND ("GROWTH FUND"). The Growth Fund has an investment
objective of long-term growth of capital primarily through investments in
equity securities diversified over industries and companies which are believed
to provide above average potential for capital appreciation. Securities in
which the Fund will normally invest include common stocks, preferred stock and
securities convertible into common stock. The Fund may invest in large seasoned
companies which are believed to possess superior return potential similar to
companies with formative growth profiles, and may invest in small and medium
sized companies with above average earnings growth potential relative to market
value. Although the Fund will invest primarily in equity and equity-related
securities, it may also invest in non-equity securities, such as corporate bonds
or U.S. Government obligations during periods, when, in the opinion of the
Fund's Adviser or Subadviser, prevailing market, financial or economic
conditions warrant. The Fund may invest up to 20% of its assets in equity
securities of foreign issuers, not more than 10% of which may be invested in
issuers that are not listed on a U.S. securities exchange.
NORTHSTAR INCOME AND GROWTH FUND ("INCOME AND GROWTH FUND") has an investment
objective of seeking current income balanced with the objective of achieving
capital appreciation. Under normal market conditions, the Fund will invest at
least 65% of its total assets in income-producing securities. In seeking to
achieve its objective, the Fund will invest in equity securities of domestic
and foreign issuers that have prospects for dividend income and growth of
capital, including common stocks, preferred stocks and securities convertible
into common stocks, and selected investment grade debt securities of domestic
and foreign private and government issuers. These debt securities would
include U.S. Government obligations, foreign and domestic corporate bonds,
and bonds issued by foreign governments considered stable by the Adviser and
supported through the authority to levy taxes by national state or provincial
governments or similar political subdivisions. The proportion of holdings in
common stock, preferred stocks, other equity-related securities and debt
securities will vary in accordance with the level of return that can be
achieved from these various types of securities. Securities are also purchased
on the basis of fundamental attraction regarding capital
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appreciation prospects. In this way, income is "balanced" with capital. The
Fund invests in equity securities that are listed primarily on the New York
Stock Exchange or American Stock Exchange or that are traded in the over-the-
counter market. Equity and equity-related securities purchased by the Fund will
typically be of large well-established companies, but may also included to a
lesser extent smaller capitalization companies selected for their growth
potential.
NORTHSTAR MULTI-SECTOR BOND FUND ("MULTI-SECTOR FUND") has an investment
objective to maximize current income. The Fund will seek to achieve its
objective by investing in the following sectors of the fixed income securities
markets: (a) securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, authorities or instrumentalities ("U.S.
Government Bonds"); (b) investment grade or comparable quality corporate debt
securities ("Investment Grade Bonds"); (c) investment grade or comparable
quality debt securities issued by foreign corporate issuers and debt securities
issued by foreign governments and their political subdivisions ("Foreign
Bonds"); and (d) high yield-high risk fixed income securities of U.S. and
foreign issuers ("High Yield Bonds"). Under normal circumstances, at least 65%
of the Fund's total assets will be invested in these four sectors. The Fund's
assets generally will be invested in each market sector, but the Fund may invest
any amount of its assets in any one sector (except for High Yield Bonds, in
which sector the Fund will not invest more than 50% of its assets determined at
the time of investment, and no more than 35% of the Fund's assets may be
invested in Foreign Bonds, including foreign High Yield Bonds), and the Fund may
choose not to invest in a sector in order to achieve its investment objective.
The Adviser believes this strategy may achieve a more stable net asset value
since diversification over several market sectors tends to reduce volatility;
however, there can be no assurance that certain economic and other factors will
not cause fluctuations in the value of the securities held by the Fund,
resulting in fluctuations of the Fund's net asset value.
NORTHSTAR HIGH YIELD BOND FUND ("HIGH YIELD FUND") has an investment objective
of seeking high income by investing predominantly in high yield-high risk,
lower-rated and non-rated U.S. dollar-denominated debt securities. It is the
Fund's policy, while investing in income producing securities, also to maximize
total return from a combination of income and capital appreciation. Under normal
market conditions, the Fund will seek to achieve its investment objective by
investing at least 65% of its total assets in higher-yielding, lower-rated U.S.
dollar-denominated debt securities of U.S. and foreign issuers, which involve
special risks and are predominantly speculative in character. Investments in
securities offering the high current income sought by the Fund, while generally
providing greater income and potential opportunity for gain than investments in
higher rated securities, also entail greater risk. The value of high yield
securities (and therefore the net asset value per share of the Fund) can be
expected to increase or decrease in response to changes in interest rates, real
or perceived changes in the credit risks associated with its portfolio
investments, and other factors affecting the credit markets generally. (See
"Risk Factors" in the current Prospectus.)
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The Fund is subject to a limit of 50% in investments in securities of foreign
issuers, of which no more than 35% may be in emerging market debt, and not more
than 35% may be in non-U.S. Dollar denominated securities.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies and cannot be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities (defined in the 1940 Act as the lesser of (a) more
than 50% of the outstanding shares or (b) 67% or more of the shares represented
at a meeting at which more than 50% of the outstanding shares are represented).
All other investment policies or practices are considered by the Funds to be
non-fundamental and accordingly may be changed without shareholder approval. If
a percentage restriction on investment or use of assets set forth below is
adhered to at the time a transaction is effected, later changes in percentage
resulting from changing market values will not be considered a deviation from
this policy.
A Fund may not:
(1) borrow money, issue senior securities, or pledge, mortgage or hypothecate
its assets, except that it may (i) borrow from banks, but only if
immediately after such borrowing there is asset coverage of 300% and
(ii) enter into transactions in options, futures, and options on
futures as described in the Fund's Prospectus and Statement of Additional
Information (the deposit of assets in escrow in connection with the
writing of covered put and call options and the purchase of securities on
a when-issued or delayed delivery basis and collateral arrangements with
respect to initial or variation margin deposits for futures contracts
will not be deemed to be pledges of the Fund's assets);
(2) underwrite the securities of others;
(3) purchase or sell real property, including real estate limited
partnerships (but each Fund may purchase marketable securities of
companies which deal in real estate or interests therein, including real
estate investment trusts);
(4) deal in commodities or commodity contracts except in the manner described
in the current Prospectus and Statement of Additional Information of the
Trust;
(5) make loans to other persons (but each Fund may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to
brokers or dealers or other financial institutions not affiliated with
the Fund or the Adviser, subject to conditions established by the Adviser
(See "Lending of Securities" in the Prospectus), and may purchase or hold
participations in loans in accordance with the investment objectives and
policies of the Fund as described in the current Prospectus and Statement
of Additional Information of the Trust;
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(6) participate in any joint trading accounts;
(7) purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts will not be deemed to be purchases of securities on
margin);
(8) sell short, except that the Fund may enter into short sales against the
box in the manner described in the current Prospectus and Statement of
Additional Information for the Fund;
(9) invest more than 25% of its assets in any one industry or related group
of industries;
(10) with respect to 75% of a 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; or
(11) with respect to 75% of a Fund's assets 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.
In addition, as a fundamental policy, the Multi-Sector Fund will not invest more
than 50% of the Fund's assets in High Yield-High Risk Bonds, determined at the
time of investment.
The following policies are non-fundamental and may be changed without
shareholder approval:
A Fund may not:
(1) purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that the Fund
may purchase shares of other investment companies subject to such
restrictions as may be imposed by the Investment Company Act of 1940 and
rules thereunder or by any state in which shares of the Fund are
registered; and provided further that the Funds may invest all of their
assets in the securities or beneficial interests of a singly pooled
investment fund having substantially the same objectives, policies and
limitations as the Fund.
(2) make an investment for the purpose of exercising control or management;
or
(3) invest more than 15% of its net assets (determined at the time of
investment) in illiquid securities, including securities subject to legal
or contractual restrictions on resale (which may include private
placements and those 144A securities for which the Trustees, pursuant to
procedures adopted by the Fund, have determined there is no liquid
secondary market), repurchase agreements maturing in more than seven
days, options traded over the counter that a Fund has purchased,
securities being used to cover options a Fund has written, securities for
which market quotations are not readily available, or other securities
which legally or in the Adviser's or Trustees' opinion may be deemed
illiquid;
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As a fundamental policy, the Funds may borrow money from banks to the extent
permitted under the Investment Company Act of 1940. As an operating (non-
fundamental) policy, the Funds do not intend to borrow any amount in excess of
10% of their respective assets, and would do so only for temporary emergency or
administrative purposes. In addition, to avoid the potential leveraging of
assets, the Funds will not make additional investments when its borrowings are
in excess of 5% of total assets. If a Fund should determine to expand its
ability to borrow beyond the current operating policy, the Fund's Prospectus
would be amended and shareholders would be notified.
OTHER INVESTMENT TECHNIQUES
MORTGAGE-BACKED SECURITIES. The Funds may invest in mortgage-backed securities
which are securities that directly or indirectly represent an ownership
participation in, or are secured by and payable from, mortgage loans on real
property ("Mortgage-Backed Securities"). Such securities include mortgage pass-
through securities representing participation interests in pools of residential
mortgage loans originated by U.S. governmental or private lenders and
guaranteed, to the extent provided in such securities, by the U.S. government or
one of its agencies or instrumentalities. Mortgage pass-through securities
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments, including any repayments made by the individual borrowers on
the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans. The underlying
mortgages may be prepaid at any time and such payments are passed through to the
certificate holder as a prepayment of principal. As a result, if the Fund
purchases such a Mortgage-Backed Security at a premium, a prepayment rate that
is faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing yield
to maturity. Conversely, if the Fund purchases a Mortgage-Backed Security at a
discount, faster than expected prepayments will increase, while slower than
expected prepayment will reduce, yield to maturity.
Prepayments on a pool of mortgage loans are influenced by a variety of economic,
geographic, social and other factors, including changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions. Generally, however, prepayments on fixed
rate mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Mortgage-Backed Securities
may decrease in value as a result of increases in interest rates and may benefit
less than other fixed income securities from declining interest rates because of
the risk of prepayment. Accelerated prepayments on Mortgage-Backed Securities
purchased by the Fund at a premium also impose a risk of loss of principal
because the premium may not have been fully amortized at the time the principal
is repaid in full. See "Risk Factors" in the current Prospectus.
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REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. Each Fund may enter
into reverse repurchase agreements and dollar roll agreements. A dollar roll
agreement is identical to a reverse repurchase agreement except for the fact
that substantially identical securities may be repurchased. Under a reverse
repurchase agreement or a dollar roll agreement, a Fund sells securities and
agrees to repurchase them, or substantially similar securities in the case of a
dollar roll agreement, at a mutually agreed upon date and price. The Fund does
not account for dollar rolls as a borrowing. At the time the Fund enters into a
reverse repurchase agreement or a dollar roll agreement, it will establish and
maintain a segregated account with its custodian containing cash, U.S.
government securities, or other liquid assets from its portfolio having a value
not less than the repurchase price (including accrued interest).
While the use of reverse repurchase agreements and dollar roll agreements
creates opportunities for increased income, the use of these agreements may
involve the risk that the market value of the securities to be repurchased by a
Fund may decline below the price at which the Fund is obligated to repurchase.
Also, in the event the buyer of securities under a reverse repurchase agreement
or a dollar roll agreement files for bankruptcy or becomes insolvent, such buyer
or its trustee or receiver may receive an extension of time to determine whether
to enforce the Fund's obligation to repurchase the securities, and the Fund's
use of the proceeds of the reverse repurchase agreement or the dollar roll
agreement may effectively be restricted pending such decision. Dollar roll
agreements may be treated as sales for tax purposes.
SECURITIES LENDING. Each Fund may lend portfolio securities to broker/dealers or
other institutional borrowers (up to 33% of net assets at the time the loan is
made), but only when the borrower pledges cash collateral to the Fund and agrees
to maintain such with the Funds' custodian so that it amounts at all times to at
least 100% of the value of the securities loaned. Furthermore, each Fund may
terminate its loans at any time, and must receive compensation that, in total
and in whatever form, is equivalent to the sum of reasonable interest on the
collateral as
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well as dividends, interest, or other distributions paid on the security during
the loan period. The loan agreement shall not reduce the risk of loss or
opportunity for gain by the Fund on the securities transferred pursuant to the
agreement. Upon expiration of the loan, the borrower of the securities will be
obligated to return to that Fund the same number and kind of securities as those
loaned together with any applicable duly executed stock powers and the Funds
must be permitted to exercise all voting rights, if there are any, with respect
to the securities lent. The Funds may pay reasonable fees in connection with
the loan, including reasonable fees to the Funds' custodian for its services.
LOAN PARTICIPATIONS. Each Fund may invest up to 10% of its assets in loan
participations denominated in U.S. dollars when the Adviser believes such an
investment is consistent with a Fund's investment objective. Loan
participations entail the payment by a Fund of a sum to a U.S. bank or other
domestic financial institution which has lent or will lend money to a U.S.
corporation. In exchange for such payment, the bank agrees to pay to that Fund,
to the extent it is received, a specified portion of the principal and interest
in respect of such loan. A Fund has no contractual relationship with the
borrower. Loan participations may be considered illiquid investments and may
entail the credit risk of both the underlying borrower and the bank or financial
institution which is the intermediary. Loan participations are typically
unrated but the Adviser will limit its investment in loan participations based
upon its opinion of the quality of the investment and the Fund's general
limitations with respect to lower rated investments.
ZERO COUPON, STEP COUPON AND PIK BONDS. The Funds may invest its assets in any
combination of zero coupon bonds, step coupon bonds and bonds on which interest
is payable in kind ("PIK bonds"). A zero coupon bond is a bond that does not
pay interest currently for its entire life. Step coupon bonds frequently do not
entitle the holder to any periodic payments of interest for some initial period
after the issuance of the obligation; thereafter, step coupon bonds pay interest
for fixed periods of time at particular interest rates (a "step coupon bond").
In the case of a zero coupon bond, the nonpayment of interest on a current basis
may result from the bond having no stated interest rate, in which case the bond
pays only principal at maturity and is initially issued at a discount from the
face value. Alternatively, a zero coupon obligation may provide for a stated
rate of interest, but provide that such interest is not payable until maturity,
in which case the bond may initially be issued at par. The value to the
investor of a zero coupon or step coupon bond is represented by the economic
accretion either of the difference between the purchase price and the nominal
principal amount (if no interest is stated to accrue) or of accrued, unpaid
interest during the bond's life or payment deferral period. PIK bonds are
obligations which provide that the issuer thereof may, at its option, pay
interest on such bonds in cash or in the form of additional debt securities.
Such securities benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are
willing to defer receipt of such cash. The Fund generally will accrue income on
such investments for tax and accounting purposes, which would be distributed to
the shareholder (Variable Account) from available cash or liquidated assets.
See also "Dividends, Distributions and Taxes." The market prices of zero
coupon, step coupon and PIK bonds are more volatile than the market prices of
securities that pay interest periodically in cash, and are likely to respond to
changes in interest rates to a greater degree than do bonds that have similar
maturities and credit quality on which regular cash payments of interest are
being made.
8
<PAGE>
COVERED CALL OPTIONS. Each Fund may sell covered call options and purchase
options to close out options previously written. The Funds, in return for the
premium received upon the sale of a call option, gives up the opportunity to
benefit from a price increase in the underlying security above the exercise
price, but conversely retains the risk of loss should the price of the security
decline. A Fund has no control over when it may be required to sell the
underlying securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a seller.
Because call options give the purchaser the right to purchase a specified
security at a designated strike price for a limited period of time, the option
is likely to be exercised only when and if the market price of the security
exceeds the strike price. If the market price never exceeds the strike price
during the option term, the purchaser's loss will be limited to the cash premium
paid to the seller of the option. However, if the market price does exceed the
strike price during the option term by an amount greater than the premium paid
for the option, the purchaser may exercise the option and purchase the security
at the strike price and realize a profit to the extent the proceeds exceed the
amount of premiums and transaction costs. In either circumstance, the seller of
the option retains the premium received for the option but forgoes any potential
profit from an increase in the market price of the underlying security over the
strike price. The option will be terminated upon expiration of the option, the
purchase of an identical option in a closing transaction, or delivery of the
underlying security upon the exercise of the option.
Each Fund will sell only covered call options, meaning that a Fund will only
sell a call option on a security which it already owns. The Funds will not
write call options on when-issued securities. In addition, the Funds will not
sell a covered call option if, as a result, the aggregate market value of all
portfolio securities of Fund covering call options or subject to put options
exceeds 10% of the market value of the Fund's net assets.
If a Fund desires to sell a particular security from its portfolio on which it
has written a call option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security.
There is no assurance that the Fund will be able to effect such closing
transactions at a favorable price. If the Fund cannot enter into such a
transaction, it may be required to hold a security that it might otherwise have
sold, in which case it would continue to be at market risk on the security.
SHORT SALES. The Funds may each make short sales "against the box." A short-
sale is a transaction in which a party sells a security it does not own in
anticipation of a decline in the market value of that security. A short sale is
"against the box" to the extent that a Fund contemporaneously owns or has the
right to obtain securities identical to those sold short.
OVER-THE-COUNTER OPTIONS. The Funds may invest in Over-the-Counter options
("OTC options") on U.S. Government securities. OTC options are purchased from
or sold (written) to dealers or financial institutions which have entered into
direct agreements with a Fund. With OTC options, such variables as expiration
date, exercise price and premium will be agreed upon between a Fund and the
transacting dealer, without the intermediation of a third party such as the
Options Clearing Corporation. The Adviser monitors the creditworthiness of
dealers with whom a Fund enters into OTC option transactions under the general
supervision of the Trustees of the
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<PAGE>
Funds. If the transaction dealer fails to make or take delivery of the U.S.
Government securities underlying an option it has written in accordance with the
terms of the option as written, the Funds would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Funds will
engage in OTC option transactions only with primary U.S. Government securities
dealers recognized by the Federal Reserve Bank of New York.
STOCK INDEX OPTIONS. The Funds may purchase options to hedge against risks of
broad price movements in the equity markets which in some market environments
may correlate more closely with movements in the value of lower rated bonds than
to changes in interest rates. When a Fund sells an option on a stock index, it
will have to establish a segregated account with its custodian in which the Fund
will deposit cash or cash equivalents or a combination of both in an amount
equal to the market value of the option, and will have to maintain the account
while the option is open. For some options, no liquid secondary market may
exist or the market may cease to exist.
PRIVATELY ISSUED COLLATERALIZED MORTGAGE-BACKED OBLIGATIONS ("CMOs"), INTEREST
OBLIGATIONS ("IOs") AND PRINCIPAL OBLIGATIONS ("POs"). Each Fund may invest up
to 5% of its net assets in Privately Issued Collateralized Mortgage-Backed
Obligations ("CMOs"), Interest Obligations ("IOs") and Principal Obligations
("POs") when the Adviser believes that such investments are consistent with the
Fund's investment objective. Collateralized mortgage obligations or "CMOs" are
debt obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, privately issued CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but also may be collateralized by whole
loans or private pass-throughs (such collateral collectively hereinafter
referred to as "Mortgage Assets"). Multi-class pass-through securities are
equity interests in a trust composed of Mortgage Assets. Unless the context
indicates otherwise, all references herein to CMOs include multi-class pass-
through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, are the sources of funds used to
pay debt service on the CMOs or make scheduled distributions on the multi-class
pass-through securities.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche", is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
The principal of and interest on the Mortgage Assets may be allocated among the
several classes of a series of a CMO in innumerable ways.
The Funds may also invest in, among others, parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally call for payments of a
specified amount of principal on each payment date.
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<PAGE>
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. SMBS may be issued by agencies or instrumentalities of the U.S.
government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. SMBS are
structured with two or more classes of securities that receive different
proportions of the interest and principal distributions on a pool of Mortgage
Assets. A common type of SMBS will have at least one class receiving only a
small portion of the interest and a larger portion of the principal from the
Mortgage Assets, while the other classes will receive primarily interest and
only a small portion of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
a rapid rate of principal payments may have a material adverse effect on such
security's yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, a Fund may fail to recoup
fully its initial investment in these securities. The determination of whether
a particular government-issued IO or PO backed by fixed-rate mortgages is liquid
is made by the Adviser under guidelines and standards established by the Board
of Trustees. Such a security may be deemed liquid if it can be disposed of
promptly in the ordinary course of business at a value reasonably close to that
used in the calculation of net asset value per share.
FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS AND FOREIGN CURRENCY
TRANSACTIONS. Each Fund may enter into futures contracts, options on futures
contracts and foreign currency transactions. The Funds will enter into these
transactions solely for the purpose of hedging against the effects of changes in
the value of its portfolio securities or those it intends to purchase due to
anticipated changes in interest rates and currency values, and not for the
purpose of speculation.
FUTURES CONTRACTS. Each Fund may enter into both interest rate futures contracts
and foreign currency futures contracts on domestic and foreign exchanges. A
futures contract to sell a debt security or foreign currency (a "short" futures
position), creates an obligation by the seller to deliver a specified amount of
the underlying security or foreign currency at a certain future time and price.
A futures contract to purchase a debt security or foreign currency (a "long"
futures position) creates an obligation by the purchaser to take delivery of a
specified amount of the underlying security or foreign currency at a certain
future time and price. Although the terms of futures contracts specify actual
delivery or receipt of the underlying commodity, futures contracts generally are
closed out before the delivery date without making or taking delivery by
entering into an opposite position in the same commodity on the same (or a
linked) exchange.
Upon entering into a futures contract, a Fund will be required to deposit with a
broker an amount of cash or cash equivalents equal to approximately 1% to 5% of
the contract price, which amount is subject to change by the exchange on which
the contract is traded or by the broker. This amount, which is known as
"initial margin," does not involve the borrowing of funds to finance the
transactions; rather, it is in the nature of a performance bond or good faith
deposit on the contract that will be returned to the Fund upon termination of
the contract, assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin,"
11
<PAGE>
to and from the broker, will be made daily as the price of the instrument
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable ("marking-to-market").
INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract provides for
the future sale and purchase of a specified amount of a certain debt security at
a stated date, place and price. The Funds may enter into interest rate futures
contracts to protect against fluctuations in interest rates affecting the value
of debt securities that a Fund either holds or intends to acquire. Interest
rate futures contracts currently are based on long-term Treasury Bonds, Treasury
Notes, three-month Treasury Bills and Government National Mortgage Association
modified pass-through mortgage-backed securities ("GNMA pass-through
securities"), and 90-day commercial paper.
FOREIGN CURRENCY FUTURES CONTRACTS. A foreign currency futures contract
provides for the future sale and purchase of a specified amount of a certain
foreign currency at a stated date, place and price. The Funds may enter into
foreign currency futures contracts to attempt to establish the rate at which it
would be entitled to make a future exchange of United States dollars for another
currency. At present, foreign currency futures contracts are based on British
pounds, German deutsche marks, Canadian dollars, Japanese yen, French francs,
Swiss francs, and ECUs.
OPTIONS ON FUTURES CONTRACTS. The Funds may purchase and sell put and call
options on interest rate futures contracts as a hedge against changes in
interest rates and on foreign currency futures contracts as a hedge against
fluctuating currency values, in lieu of purchasing and writing options directly
on the underlying security or currency or purchasing and selling the underlying
futures contracts.
The purchase of an option on an interest rate futures contract will give the
Funds the right to enter into a futures contract to purchase (in the case of a
call option) or to enter into a futures contract to sell (in the case of a put
option) a particular debt security at a specified exercise price at any time
prior to the expiration date of the option. The potential loss related to the
purchase of an option on a futures contract is limited to the premium paid for
the option plus related transaction costs. A call option sold by a Fund exposes
the Fund during the term of the option to the possible loss of an opportunity to
realize appreciation in the market price of the underlying security or to the
possible continued holding of a security which might otherwise have been sold to
protect against depreciation in the market price of the security. In selling
puts, there is a risk that a Fund may be required to buy the underlying security
at a disadvantageous price. Options on interest rate futures contracts
currently are available with respect to Treasury Bonds, Treasury Notes, and
Eurodollars.
OPTIONS ON INTEREST RATE FUTURES. Each Fund may purchase a put option on an
interest rate futures contract to hedge against a decline in the value of its
portfolio securities as a result of rising interest rates. Each Fund may
purchase a call option on an interest rate futures contract to hedge against the
risk of an increase in the price of securities it intends to purchase resulting
from declining interest rates. The Funds may sell put and call options on
interest rates futures contracts as part of closing sale transactions to
terminate its option positions.
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<PAGE>
OPTIONS ON FOREIGN CURRENCY FUTURES. The purchase of options on foreign
currency futures contracts gives each Fund the right to enter into a futures
contract to purchase (in the case of a call option) or to sell (in the case of a
put option) a particular currency at a specified price at any time during the
period before the option expires. Options on foreign currency futures currently
are available with respect to British pounds, German deutsche marks and Swiss
francs. The Funds may purchase options on foreign currency futures as a hedge
against fluctuating currency values.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Funds may engage in foreign currency
exchange transactions to hedge against uncertainty in the level of future
exchange rates. The Funds may conduct its currency exchange transactions on a
"spot" (I.E., cash) basis at the rate then prevailing in the currency exchange
market, or on a forward basis, by entering into futures or forward contracts to
purchase or sell currency. The Fund's dealings in foreign currency exchange
contracts is limited to hedging.
FORWARD FOREIGN CURRENCY CONTRACTS. A forward foreign currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the date of the contract. Forward
currency contracts are entered into in the interbank market on a principal basis
directly between currency dealers, which usually are large commercial banks and
brokerage houses, and their customers, and therefore generally involve no
margin, commissions or other fees. Forward currency contracts will establish a
rate of exchange that can be achieved in the future and thus limit the risk of
loss due to a decline in the value of the hedged currency but also limit any
potential gain that might result in the event the value of the currency
increases.
OPTIONS ON FOREIGN CURRENCY. The Funds may also purchase and sell put and call
options for the purpose of hedging against changes in future currency exchange
rates. An option on a foreign currency gives the purchaser, in return for a
premium paid plus related transaction costs, the right to sell (in the case of a
put option) or to buy (in the case of a call option) the underlying currency at
a specified price until the option expires. The value of an option on foreign
currency depends upon the value of the foreign currency when compared to the
value of the United States dollar. Currency options traded on United States or
other exchanges may be subject to position limits, which may affect the ability
of the Fund to hedge its positions. The Funds will purchase and sell options on
foreign exchanges to the extent permitted by the Commodity Futures Trading
Commission ("CFTC").
The Funds may purchase or sell options on currency only when the Adviser
believes that a liquid secondary markets exists for these options; however, no
assurance can be given that a liquid secondary market will exist for a
particular option at any specific time.
RISK FACTORS AND SPECIAL CONSIDERATIONS. FUTURES CONTRACTS AND RELATED OPTIONS.
A Fund will not use leverage when it enters into long futures contracts or
related options. For each long position that a Fund enters into, it will
segregate cash or cash equivalents having a value equal to the market value of
the contract as collateral with the custodian of the Fund. A Fund will not
enter into futures contracts and related options if as a result the aggregate of
the initial margin
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<PAGE>
deposits on a Fund's existing futures and premiums paid for unexpired options
exceeds 5% of the fair market value of that Fund's assets.
Using futures contracts and related options involves certain risks, including
(1) the risk of imperfect correlation between fluctuations in the value of a
futures contract and the portfolio security that is being hedged; (2) the risk
that a Fund may underperform a fund that does not make use of these
instruments; (3) the risk that no active market will be available to offset a
position; and (4) the risk that the Adviser will not be able to predict
correctly movements in the direction of the interest rate and foreign currency
markets. Loss from futures transactions is potentially unlimited.
Certain exchanges on which futures are traded may establish daily limits in the
amount that the price of a futures or related option contract may fluctuate from
the previous day's settlement price. When a daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that
limit. If a daily limit were reached, a Fund might be prevented from
liquidating unfavorable positions and thus incur losses. In certain situations,
a Fund might be unable to close a position and might also have to make daily
cash payments of variation margin.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Foreign currency futures contracts and
related options, forward foreign currency contracts and options on foreign
currency may be traded on foreign exchanges. The regulation of transactions on
these exchanges may be less extensive than the regulation of transactions on
United States exchanges. The Funds will trade only those options approved by
the CFTC.
Transactions on foreign exchanges also may not involve a clearing mechanism and
related guarantees and may be subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
positions also could be affected adversely by (1) other, foreign political,
legal and economic factors; (2) a lack of information on which to make trading
decisions compared to that which is available in the United States; (3) a delay
in the ability to act on significant events occurring in the foreign markets
during non-business hours in the United States; (4) different exercise and
settlement terms from those imposed in the United States; and (5) less trading
volume than occurs on United States exchanges.
In addition, foreign exchanges offer less protection against defaults in the
forward trading of currencies than is available on United States exchanges.
Because a forward foreign currency contract is not guaranteed by an exchange or
clearing house, a default on the contract would deprive the Fund of unrealized
profits or would force the Fund to cover its commitments for purchase of resale,
if any, at the current market price.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. The Adviser, and the
Subadvisers in the case of the Growth Fund and Income and Growth Fund, places
orders for the purchase and sale of securities, supervises their execution and
negotiates brokerage commissions on behalf of each Fund. For purposes of this
section, discussion of the Adviser includes the Subadvisers, but only with
respect to the Growth Fund and Income and Growth Fund. It is the practice of the
Adviser to seek the best prices and best execution of orders and to negotiate
brokerage commissions which in the Adviser's opinion are reasonable in relation
to the value of the brokerage services provided by the executing
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<PAGE>
broker. Brokers who have executed orders for the Funds are asked to quote a fair
commission for their services. If the execution is satisfactory and if the
requested rate approximates rates currently being quoted by the other brokers
selected by the Adviser, the rate is deemed by the Adviser to be reasonable.
Brokers may ask for higher rates of commission if all or a portion of the
securities involved in the transaction are positioned by the broker, if the
broker believes it has brought a Fund an unusually favorable trading
opportunity, or if the broker regards its research services as being of
exceptional value, and payment of such commissions is authorized by the Adviser
after the transaction has been consummated. If the Adviser more than
occasionally differs with the broker's appraisal of opportunity or value, the
broker would not be selected to execute trades in the future. The Adviser
believes that each Fund benefits with a securities industry comprised of many
and diverse firms and that the long-term interest of shareholders of the Funds
is best served by its brokerage policies which include paying a fair commission
rather than seeking to exploit its leverage to force the lowest possible
commission rate. The primary factors considered in determining the firms to
which brokerage orders are given are the Adviser's appraisal of the firm's
ability to execute the order in the desired manner, the value of research
services provided by the firm, and the firm's attitude toward and interest in
mutual funds in general, including the sale of mutual funds managed and
sponsored by the Adviser. The Adviser does not offer or promise to any broker
an amount or percentage of brokerage commissions as an inducement or reward for
the sale of shares of the Funds. Over-the-counter purchases and sales are
transacted directly with principal market-makers except in those circumstances
where in the opinion of the Adviser better prices and execution are available
elsewhere.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry
groups, and individual issues. Research services will vary from firm to firm,
with broadest coverage generally from the large full-line firms. Smaller firms
in general tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor
federal, state, local and foreign political developments; many of the brokers
also provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff since the brokers as a group tend to
monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, it provides the Adviser with a diverse
perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to the Adviser and is available
for the benefit of other accounts advised by the Adviser and its affiliates and
not all of this information will be used in connection with the Funds. While
this information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value and in the opinion
of the Adviser it does not reduce the Adviser's expenses in a determinable
amount. The extent to which the Adviser makes use of statistical, research and
other services furnished by brokers is considered by the Adviser in the
allocation of brokerage business but there is no formula by which such business
is allocated. The Adviser does so in accordance with its judgment of the best
interest of the Funds and their shareholders.
Purchases and sales of fixed-income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to
dealers serving as market makers for the
15
<PAGE>
securities at a net price. Each Fund will also purchase such securities in
underwritten offerings and will, on occasion, purchase securities directly from
the issuer. Generally, fixed-income securities are traded on a net basis and do
not involve brokerage commissions. The cost of executing fixed-income
securities transactions consists primarily of dealer spreads and underwriting
commissions.
In purchasing and selling fixed-income securities, it is the policy of each Fund
to obtain the best results taking into account the dealer's general execution
and operational facilities, the type of transaction involved and other factors,
such as the dealer's risk in positioning the securities involved. While the
Adviser generally seeks reasonably competitive spreads or commissions, the Funds
will not necessarily pay the lowest spread or commission available.
Each Fund may, in circumstances in which two or more dealers are in a position
to offer comparable results, give preference to a dealer which has provided
statistical or other research services to the Funds. By allocating transactions
in this manner, the Adviser is able to supplement its research and analysis with
the views and information of other securities firms.
During the fiscal years ended December 31, 1994 and 1995,
respectively, each of the Funds listed below paid total brokerage
commission indicated below.
Brokerage Commissions Paid During Most Recent Fiscal Year
1996 1995
Northstar Growth Fund $32,066 $8,327
Northstar Income and Growth Fund $20,592 $8,469
Northstar Multi-Sector Bond Fund $ - $ 375
Northstar High Yield Bond Fund $ 204 $ -
PORTFOLIO TURNOVER. A change in securities held in the portfolio of a Fund is
known as "Portfolio Turnover" and may involve the payment by a Fund of dealer
mark-ups or brokerage or underwriting commissions and other transaction costs on
the sale of securities, as well as on the reinvestment of the proceeds in other
securities. Portfolio turnover rate for a fiscal year is the percentage
determined by dividing the lesser of the cost of purchases or proceeds from
sales of portfolio securities by the average of the value of portfolio
securities during such year, all excluding securities whose maturities at
acquisition were one year or less. A Fund cannot accurately predict its
turnover rate, however the rate will be higher when a Fund finds it necessary to
significantly change its portfolio to adopt a temporary defensive position or
respond to economic or market events. A high turnover rate would increase
commission expenses and may involve realization of gains. The ability of a Fund
to make purchases and sales of securities and to engage in options and futures
transactions will be limited by certain requirements of the Internal Revenue
Code, including a requirement that less than 30% of the Fund's annual gross
income be derived from gains on the sale of securities and certain other assets
held for less than three months.
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<PAGE>
SERVICES OF THE ADVISER AND ADMINISTRATOR. Pursuant to an Investment Advisory
Agreement with the Funds, Northstar Investment Management Corporation acts as
the investment adviser to each Fund. In this capacity, the Adviser, subject to
the authority of the Trustees, and subject to certain responsibilities being
delegated to the Subadviser for the Growth Fund and the Subadviser for the
Income and Growth Fund, is responsible for furnishing continuous investment
supervision to the Funds and is responsible for the management of the Funds'
portfolios.
The Adviser is an indirect, majority owned subsidiary of ReliaStar Financial
Corporation ("ReliaStar"). Combined minority interests held by members of
senior management currently equal 20%. ReliaStar is a publicly traded holding
company whose subsidiaries specialize in the insurance business. Through the
Affiliated Insurance Companies and other subsidiaries, ReliaStar issues and
distributes individual life insurance and annuities, employee benefit contracts,
retirement contracts and life and health reinsurance, and mutual funds and
provides related investment management services. The address of the Adviser is
Two Pickwick Plaza, Greenwich, CT 06830. The address of ReliaStar is 20
Washington Avenue South, Minneapolis, MN 55401.
The Adviser charges a fee at the annual rate of .75% on the first $250,000,000
of aggregate average daily net assets of each Fund, .70% on the next
$250,000,000 of such assets, .65% on the next $250,000,000 of such assets; .60%
on the next $250,000,000 of such assets, and .55% on the remaining aggregate
daily net assets of each Fund in excess of $1 billion.
Northstar Administrators Corporation ("Administrator") serves as administrator
for the Funds pursuant to an Administrative Services Agreement with the Funds.
The Administrator is an affiliate of the Adviser. The address of the
Administrator is Two Pickwick Plaza, Greenwich, Connecticut 06830. Subject to
the supervision of the Board of Trustees, the Administrator provides the overall
business management and administrative services necessary to the proper conduct
of the Funds' business, except for those services performed by the Funds'
Adviser under the Investment Advisory Agreement, and the custodian and
accounting agent for the Funds under the Custodian Agreement.
The Administrator acts as liaison among these service providers to the Funds.
The Administrator is also responsible for ensuring that the Funds operate in
compliance with applicable legal requirements and for monitoring the Adviser for
compliance with requirements under applicable law and with the investment
policies and restrictions of the Funds.
The Administrator's fee is accrued daily against the value of each Fund's net
assets and is payable by each Fund monthly. The fee is computed daily and
payable monthly, at an annual rate of .10% of each Fund's average daily net
assets.
The Investment Advisory Agreement was approved by the Trustees of the Trust on
January 26, 1994, and by the sole Shareholder of each Fund on April 15, 1994.
The Investment Advisory Agreement became effective on May 2, 1994 and continued
in effect for a period of two years and was renewed by the Trustees for one year
on April 25, 1996. Thereafter, the Investment Advisory Agreement will continue
in effect from year to year if specifically approved annually by (a) the
Trustees, acting separately on behalf of each Fund, including a majority of the
Disinterested Trustees, or (b) a majority of the outstanding voting securities
of each class of each Fund as defined in the 1940 Act.
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<PAGE>
The Investment Advisory Agreement may be terminated without penalty at any time
by a similar vote upon 60 days' notice or by the Adviser upon 60 days' written
notice and will automatically terminate in the event of its assignment as
defined in Section 2(a)(4) of the 1940 Act.
The Administrative Services Agreement was approved by the Trustees of the Trust
on January 26, 1994. The Administrative Services Agreement became effective on
May 2, 1994 and continued in effect for a period of two years and was renewed by
the Trustees for one year on April 25, 1996, and from year to year thereafter,
provided such continuance is approved annually by a majority of the Trustees of
the Trust.
During the fiscal years ended December 31, 1996, 1995 and 1994, the Funds paid
the Adviser and Administrator the following investment advisory and
administrative fees, respectively:
<TABLE>
<CAPTION>
Advisory Fees Administrative Fees
--------------------------- ----------------------
1996 1995 1994 1996 1995 1994
------ ------- ------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund (1) $57,245 23,854 18,145 $ 7,633 $ 3,180 1,753
Income and Growth Fund (2) $75,425 40,195 13,661 $10,057 $ 5,359 1,822
Multi-Sector Fund (3) $37,217 23,984 12,911 $ 4,962 $ 3,198 1,724
High Yield Fund (4) $38,770 27,922 12,580 $ 5,169 $ 3,723 1,677
</TABLE>
(1) Does not reflect expense reimbursements, respectively,
of $68,758, 39,351 and 25,423.
(2) Does not reflect expense reimbursements, respectively,
of $60,664, 50,661 and 25,973.
(3) Does not reflect expense reimbursements, respectively,
of $43,785, 40,437 and 24,275.
(4) Does not reflect expense reimbursements, respectively,
of $48,170, 48,482 and 25,975.
SERVICES OF THE SUBADVISERS. Pursuant to a Subadvisory Agreement between the
Adviser and Navellier Fund Management, effective February 1, 1996, Navellier
Fund Management, Inc. serves as subadviser to the Growth Fund. In this capacity,
Navellier, subject to the supervision and control of the Adviser and the
Trustees of the Growth Fund, will manage the Growth Fund's portfolio
investments, consistently with such Fund's investment objective, and will
execute any of the Growth Fund's investment policies that it deems appropriate
to utilize from time to time. Fees payable under the Subadvisory Agreement will
accrue daily and be paid monthly by the Adviser. As compensation for its
services, the Adviser will pay the Subadviser at the annual rate of 0.48 of 1%
of the average daily net assets of the Growth Fund.
The Subadviser is wholly owned and controlled by its sole stockholder, Louis G.
Navellier. The Subadviser's address is 1 East Liberty, Third Floor, Reno, NV
89301. The Subadvisory Agreement was approved by the Trustees of the Fund on
December 1, 1995, and by vote of shareholders of the Fund on January 31, 1996.
The Subadvisory Agreement may be terminated without payment of any penalty by
the Adviser, the Subadviser, the Trustees of the Fund or the shareholders on not
more than 60 nor less than 30 days' prior written notice. Otherwise, the
Subadvisory Agreement will remain in effect for two years and will, thereafter,
continue in effect
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from year to year, subject to the annual approval of the Trustees of the Growth
Fund, or the vote of a majority of the outstanding voting securities of the
Growth Fund, and the vote, cast in person at a meeting duly called and held, of
a majority of the Trustees of Growth Fund who are not parties to the Subadvisory
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party.
Pursuant to a Subadvisory Agreement between the Adviser and Wilson/Bennett
Capital Management, Inc., effective August 1, 1996, Wilson/Bennett Capital
Management, Inc. ("Wilson/Bennett") serves as subadviser to the Income and
Growth Fund. In this capacity, Wilson/Bennett, subject to the supervision and
control of the Adviser and the Trustees of the Income and Growth Fund, will
manage the Income and Growth Fund's portfolio investments, consistently with
such Fund's investment objective, and will execute any of the Income and Growth
Fund's investment policies that it deems appropriate to utilize from time to
time. Fees payable under the Subadvisory Agreement will accrue daily and be paid
monthly by the Adviser. Wilson/Bennett has agreed to waive all advisory fees
until the net assets of the Fund exceed $50 million. After and so long as the
Fund's net assets exceed $50 million, Wilson/Bennett will be paid an annual fee
equal to 0.20 of 1% of the first $125 million of average daily net asset value
of the assets of the Fund managed by Wilson/Bennett, increasing to 0.25% of 1%
for the next $125 million, and up to 0.30% of 1% for the net assets managed by
Wilson/Bennett in excess of $250 million. This fee is calculated and accrued
daily and paid to the Subadviser monthly.
Wilson/Bennett's address is 8260 Greensboro Drive, Suite 250, McLean, Virginia
22102. The Subadvisory Agreement was approved by the Trustees of the Fund on
April 25, 1996, and by vote of shareholders of the Fund on July 15, 1996. The
Subadvisory Agreement may be terminated without payment of any penalty by the
Adviser, the Subadviser, the Trustees of the Fund or the shareholders on not
more than 60 nor less than 30 days' prior written notice. Otherwise, the
Subadvisory Agreement will remain in effect for two years and will, thereafter,
continue in effect
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from year to year, subject to the annual approval of the Trustees of the Income
and Growth Fund, or the vote of a majority of the outstanding voting securities
of the Income and Growth Fund, and the vote, cast in person at a meeting duly
called and held, of a majority of the Trustees of Income and Growth Fund who are
not parties to the Subadvisory Agreement or "interested persons" (as defined in
the 1940 Act) of any such party.
NET ASSET VALUE. The net asset value per share of each Fund will be determined
at the close of the general trading session of the New York Stock Exchange (the
"Exchange"), on each business day the Exchange is open. The Exchange is
scheduled to be closed on New Year's Day, President's Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The net asset value per share of each Fund is computed by dividing the value of
such Fund's securities, plus any cash and other assets (including dividends and
interest accrued but not collected) less all liabilities (including accrued
expenses) by the number of shares of the Fund outstanding. See the Trust's
current Prospectus for more information.
PURCHASES, REDEMPTIONS, AND EXCHANGE TRANSACTIONS. For information on purchases
and redemptions of shares, see "Purchase of Shares" and "Redemption of Shares"
in the Trust's Prospectus. The Trust may suspend the right of redemption of
shares of any Fund and may postpone payment for more than seven days for any
period: (i) during which the New York Stock Exchange is closed other than
customary weekend and holiday closings or during which trading on the New York
Stock Exchange is restricted; (ii) when the Securities and Exchange Commission
determines that a state of emergency exists which may make payment or transfer
not reasonably practicable; (iii) as the Securities and Exchange Commission may
by order permit for the protection of the security holders of the Funds; or (iv)
at any other time when the Funds may, under applicable laws and regulations,
suspend payment on the redemption of their shares.
Shares of any Fund may be exchanged for shares of any other Funds. Exchanges
are treated as a redemption of shares of one Fund and a purchase of shares of
one or more of the other Funds and are effected at the respective net asset
value per share of each Fund on the date of the exchange. The Trust reserves
the right to modify or discontinue its exchange privilege at any time without
notice.
Variable Contract Owners do not deal directly with the Trust with respect to the
purchase, redemption, or exchange of shares of a Fund, and should refer to the
prospectus for the Variable Contract for information on allocation of premiums
and on transfers of account value among divisions of the insurance company
separate account that invest in the Funds.
The Trust reserves the right to discontinue offering shares of one or more Funds
at any time. In the event that a Fund ceases offering its shares, any
investments allocated by the insurance company to such Fund will be invested in
the fixed account portfolio or any successor to such portfolio.
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DIVIDENDS AND DISTRIBUTIONS. Net investment income of the Northstar High Yield
and Multi-Sector Bond Funds is declared as dividends daily and paid quarterly.
For the Northstar Growth, and Income and Growth Funds, net investment income
will be declared and paid quarterly. Any net realized long-term capital gains
(the excess of net long-term capital gains over net short-term capital losses)
for any Fund will be declared and paid at least once annually. Net realized
short-term capital gains may be declared and paid more frequently.
FEDERAL INCOME TAX STATUS. Each Fund intends to qualify each year as a
regulated investment company under Subchapter M of the Code. Accordingly, a
Fund generally expects not to be subject to federal income tax if it meets
certain source of income, diversification of assets, income distribution, and
other requirements, to the extent it distributes its investment company taxable
income and its net capital gains.
Distributions of investment company taxable income (which includes among other
items, interest, dividends, and net realized short-term capital gains in excess
of net realized long-term capital losses) and of net realized capital gains,
whether received in cash or additional shares, are included in the gross income
of the shareholder (Variable Account). Distributions of investment company
taxable income are treated as ordinary income for tax purposes in the hands of a
separate account. Net capital gains designated as capital gain distributions by
a Fund will, to the extent distributed, be treated as long-term capital gains in
the hands of the Variable Account regardless of the length of time the Variable
Account may have held the shares. A distribution will be treated as paid on
December 31 of the calendar year if it is declared by a Fund in October,
November, or December of that year to the shareholder of record on a date in
such a month and paid by the Fund during January of the following calendar year.
Such distributions will be taxable to the Variable Account in the calendar year
in which they are declared, rather than the calendar year in which they are
received. Tax consequences to the Variable Contract Owners are described in the
prospectus for the Variable Account.
If a Fund invests in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), these investments would be subject to special tax rules
designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's
earnings. In the absence of certain elections to report these earnings on a
current basis, regardless of whether the Fund actually receives any
distributions from the PFIC, investors in the Fund would be required to report
certain "excess distributions" from, and any gain 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.
Certain requirements relating to the qualification of a Fund as a regulated
investment company under the Code may limit the extent to which a Fund will be
able to engage in transactions in
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options, futures contracts, or forward contracts. In addition, certain Fund
investments may generate income for tax purposes which must be distributed even
though cash representing such income is not received until a later period. To
timely meet its distribution requirements, the Fund may in those circumstances
be forced to raise cash by other means, including borrowing or disposing of
assets at a time when it may not otherwise be advantageous to do so.
To comply with regulations under Section 817(h) of the Code, each Fund generally
will be required to diversify its investments, so that on the last day of each
quarter of a calendar year, no more than 55% of the value of its assets is
represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. For this purpose,
securities of a single issuer are treated as one investment and each U.S.
Government agency or instrumentality is treated as a separate issuer. Any
security issued, guaranteed, or insured (to the extent so guaranteed or insured)
by the U.S. or an agency or instrumentality of the U.S. is treated as a security
issued by the U.S. Government or its agency or instrumentality, whichever is
applicable. These regulations will limit the ability of a Fund to invest more
than 55% of its assets in direct obligations of the U.S. Treasury or in
obligations which are deemed to be issued by a particular agency or
instrumentality of the U.S. Government. If a Fund fails to meet the
diversification requirements under Code Section 817(h), income with respect to
Variable Contracts invested in the Fund at any time during the calendar quarter
in which the failure occurred could become currently taxable to the owners of
such Variable Contracts and income for prior periods with respect to such
Contracts also would be taxable, most likely in the year of the failure to
achieve the required diversification. Other adverse tax consequences also could
ensue.
In connection with the issuance of the regulations governing diversification
under Section 817(h) of the Code, the Treasury Department announced that it
would issue future regulations or rulings addressing the circumstances in which
a Variable Contract owner's control of the investments of a separate account may
cause the contract owner, rather than the insurance company, to be treated as
the owner of the assets held by a separate account. If the Variable Contract
Owner is considered the owner of the securities underlying a separate account,
income and gains produced by those securities would be included currently in the
Variable Contract owner's gross income. Although it is not known what standards
will be incorporated in future regulations or other pronouncements, the Treasury
staff has indicated informally that it is concerned that there may be too much
contract owner control where the Fund underlying a separate account invests
solely in securities issued by companies in a specific industry. Similarly, the
ability of a contract owner to select a Fund representing a specific economic
risk may also be prescribed. These future rules and regulations proscribing
investment control may adversely affect the ability of the Funds to operate as
described in this Prospectus. There is, however, no certainty as to what
standard, if any, Treasury will ultimately adopt, and there can be no certainty
that the future rules and regulations will not be given retroactive application.
In the event that unfavorable rules or regulations are adopted, there can be no
assurance that these or other Funds will be able to operate as currently
described in the Prospectus, or that a Fund will not have to change its
investment objectives, investment policies, or investment restrictions. While a
Fund's investment objective is fundamental and may be changed only by a vote of
a majority of its outstanding shares, the Trustees have reserved the right to
modify the investment policies of a Fund as
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necessary to prevent any such prospective rules and regulations from causing the
Variable Contract Owners to be considered the owners of the Funds underlying the
Variable Account.
Reference is made to the prospectus of the Variable Account for information
regarding the federal income tax treatment of distributions to the Variable
Account.
TRUSTEES AND OFFICERS. The Trustees and principal Officers of the Fund and
their business affiliations for the past five years are set forth below. Unless
otherwise noted, the mailing address of the Trustees and Officers of the Fund is
c/o Northstar Investment Management Corporation, Two Pickwick Plaza, Greenwich,
CT 06830. "A" signifies a member of the Audit Committee, and "V" signifies a
member of the Valuation Committee, of the Board.
JOHN TURNER * -- TRUSTEE AND CHAIRMAN. Chairman and Chief Executive Officer of
ReliaStar Financial Corp. and ReliaStar Life Insurance Co. ("ReliaStar Life")
since May 1993, and Chairman of other ReliaStar affiliated insurance companies
since 1995. Prior to May 1993, President and Chief Executive Officer of
ReliaStar Financial Corp. and ReliaStar Life. Director of Northstar and
affiliates and Trustee and Chairman of other Northstar affiliated investment
companies.
MARK L. LIPSON * -- TRUSTEE AND PRESIDENT. Director, Chairman and Chief
Executive Officer of Northstar Investment Management Corporation and Northstar,
Inc. Director and President of Northstar Administrators Corporation and
Director, Chairman, Chief Executive Officer of Northstar Distributors, Inc.
Trustee and President of other Northstar affiliated investment companies. 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.
PAUL S. DOHERTY -- TRUSTEE. (A). President, Doherty, Wallace, Pillsbury and
Murphy, P.C., Director, Tambrands, Inc. Trustee of other Northstar affiliated
investment companies.
ROBERT B. GOODE, JR. -- TRUSTEE. (V). 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. Trustee of other Northstar
affiliated investment companies.
ALAN R. GOSULE. -- TRUSTEE. (A). Partner, Rogers & Wells. Director, F.L.
Putnam Investment Management Company.
WALTER H. MAY, JR. -- TRUSTEE. (A). Retired. Former Marketing Director for
Piper Jaffray, Inc.
DAVID W.C. PUTNAM. -- TRUSTEE (v). President and Director of F.L. Putnam
Securities Company F.L. Putnam Investment Management Co., Interstate Power Co.,
Trust Realty Corp. and Bow Ridge Mining Co; Director of Anchor Investment
Management Corp; 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. (A). President (since 1991) of New England
Fiduciary Company; Chairman (since 1987) Massachusetts Educational Financing
Authority; Vice Chairman of Massachusetts Health and Education Authority, and
former Financial Vice President of Boston College (1970-1991).
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DAVID W. WALLACE -- TRUSTEE. (A)(V). Chairman of FECO Engineered Systems, Inc.,
Lone Star Industries and Putnam Trust Company. 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, and Chairman and Director/Trustee of the National Affiliated
Investment Companies. Trustee of other Northstar affiliated investment
companies.
THOMAS OLE DIAL -- VICE PRESIDENT. Executive Vice President and Chief
Investment Officer- Fixed Income of Northstar Investment Management Corporation.
From 1989 to August 1993, Executive Vice President and Chief Investment Officer-
Fixed Income of National Securities & Research Corporation. From 1988 to 1989,
President, Dial Capital Management. Vice President of other Northstar affiliated
investment companies.
GEOFFREY WADSWORTH -- VICE PRESIDENT. Vice President of Northstar Investment
Management Corporation and Portfolio Manager. Former Vice President and
Portfolio Manager of National Securities & Research Corp. Vice President of
other Northstar affiliated investment companies.
AGNES MULLADY -- VICE PRESIDENT AND TREASURER. Senior Vice President and Chief
Financial Officer of NIMC, Senior Vice President and Treasurer of Northstar
Administrators Corporation, and Vice President and Treasurer of Northstar
Distributors, Inc. From 1987 to 1993 Treasurer and Vice President of National
Securities & Research Corporation. Vice President and Treasurer of other
Northstar affiliated investment companies.
* Messrs. Turner and Lipson are each deemed to be an "interested person" within
the meaning of the 1940 Act.
NIMC and Northstar Administrators Corporation makes their personnel available to
serve as Officers and "Interested Trustees" of the Fund. All Officers and
Interested Trustees of the Fund
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are compensated by NIMC or Northstar Administrators Corporation. Trustees who
are not "interested persons" of the adviser are paid an annual retainer fee of
$500, which fee is allocated evenly among the Funds. No meeting or committee
fees will be paid until combined assets in the Funds reach $50 million; however
the Funds reimburse Trustees for all expenses incurred by them in connection
with such meetings. The Funds currently have an Audit Committee (members noted
by (a), a Valuation Committee (members noted by (v), and a Nominating Committee
consisting of all of the Independent Trustees. On March 31, 1995, no Officer or
Trustee of the Funds, owned beneficially or of record or had an interest in
shares of any Fund.
OTHER INFORMATION
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P. has been selected as the
independent accountants for the Trust. Coopers & Lybrand L.L.P. will audit the
Trust's annual financial statements and express an opinion thereon.
CUSTODIAN/ACCOUNTING SERVICES AGENT. State Street Bank and Trust Company acts
as custodian of the Fund's assets and performs fund accounting services.
REPORTS TO SHAREHOLDERS. The fiscal year of the Trust ends on December 31. Each
Fund will send financial statements to its shareholders at least semi-annually.
An annual report containing financial statements audited by the independent
accountants will be sent to shareholders each year.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY. Shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. The risk of a shareholder incurring
any financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of the Trust and provides that notice of the disclaimer
must be given in each agreement, obligation or instrument entered into or
executed by the Trust or Trustees. The Declaration of Trust provides for
indemnification of any shareholder held personally liable for the obligations of
the Trust and also provides for the Trust to reimburse the shareholder for all
legal and other expenses reasonably incurred in connection with any such claim
or liability.
Under the Declaration of Trust, the trustees or officers are not liable for
actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Trust
provides indemnification to its trustees and officers as authorized by the 1940
Act and the rules and regulations thereunder.
FINANCIAL STATEMENTS. The Northstar Variable Trust's audited financial
statements dated December 31, 1996 and the report of the independent
accountants, Coopers & Lybrand, L.L.P. with respect to such financial
statements, are hereby incorporated by reference to the Annual Report to
Shareholders of the Northstar Variable Trust for the fiscal year ended December
31, 1996.
REGISTRATION STATEMENT. A registration statement has been filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act. The
Prospectus and this Statement of Additional Information do not contain all
information set forth in the registration statement, its amendments and exhibits
thereto that the Trust has filed with the Securities and Exchange Commission,
Washington, D.C., to all of which reference is hereby made.
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<PAGE>
PERFORMANCE INFORMATION. Each Fund may, from time to time, include its total
return and the Northstar Multi-Sector Bond and Northstar High Yield Bond Funds
may include their yields in advertisements or reports to shareholders or
prospective investors. Performance information for the Funds will not be
advertised or included in sales literature unless accompanied by comparable
performance information for a Separate Account to which the Funds offer their
shares.
A. TOTAL RETURN. Standardized quotations of average annual total return for
a Fund will be expressed in terms of the average annual compounded rate of
return for a hypothetical investment in the Fund over periods of 1,5 and 10
years (or up to the life of the Fund), calculated 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
Fund expenses (on an annual basis), and assume that all dividends and
distributions on shares are reinvested when paid.
The total return for each Fund, so calculated, for the period since inception of
each Fund (May 6, 1994) and for the one year period ended December 31, 1996 is
set forth below:
Growth Fund Income and Growth Multi-Sector High Yield
Since Inception 18.99% 13.65% 10.75% 12.23%
One Year 22.99% 13.80% 12.53% 15.75%
Performance information for the Funds may be compared in reports and promotional
literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones
Industrial Average ("DJIA"), or other unmanaged indices so that investors may
compare each Fund's results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(ii) other groups of mutual funds tracked by Lipper Analytical Services, Inc., a
widely used independent research firm which ranks mutual funds by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in the Fund; (iv) well known
monitoring sources of CD performance rates such as Salomon Brothers, Federal
Reserve Bulletin, American Bankers, Tower Data/The Wall Street Journal.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
The Fund also may quote annual, average annual and annualized total return and
aggregate total return performance data, both as a percentage and as a dollar
amount based on a hypothetical $10,000 investment for various periods other than
those noted below. Such data will be
25
<PAGE>
computed as described above, except that the rates of return calculated will not
be average annual rates, but rather, actual annual, annualized or aggregate
rates of return.
B. YIELD. Yield is the net annualized yield based on a specified 30-day (or
one month) period assuming a semiannual compounding of income. Yield is computed
by dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
Yield = 2[(a-b + 1)6 -1]
cd
Where:
a = dividends and interest earned during the period, including the
amortization of market premium or accretion of market discount
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
To calculate interest earned (for the purpose of "a" above) on debt obligations,
each Fund computes the yield to maturity of each obligation held by the Fund
based on the market value of the obligation (including actual accrued interest)
at the close of the last business day of the month, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest). The yield to maturity is then divided by 360 and the quotient is
multiplied by the market value of the obligation (including actual accrued
interest) to determine the interest income on the obligation for each day of the
subsequent month that the obligation is in the Fund's portfolio.
Solely for the purpose of computing yield, the Funds recognize dividend income
by accruing 1/360 of the stated dividend rate of a security in the portfolio.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price.
Undeclared earned income is the net investment income which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected to
be declared as a dividend shortly thereafter.
The yield for each of the Northstar Growth Fund, Northstar Income and Growth
Fund, Northstar Multi-Sector Bond Fund and Northstar High Yield Bond Fund,
calculated, for the one month period ended December 31, 1996 was 1.01%, 5.29%,
8.39% and 9.29%, respectively.
Quotations of yield or total return for the Funds will not take into account
charges and deductions against the Variable Account to which the Funds' shares
are sold or charges and deductions against the Variable Contracts issued by
Northwestern National or its affiliates. The Funds' yield and total return
should not be compared with mutual funds that sell their shares
26
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directly to the public since the figures provided do not reflect charges against
the Variable Account or the Variable Contracts. Performance information for any
Fund reflects only the performance of a hypothetical investment in the Fund
during the particular time period in which the calculations are based.
Performance information should be considered in light of the Funds' investment
objectives and policies, characteristics and quality of the portfolios and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future.
27
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A: Financial Highlights for a share outstanding throughout
the period May 6, 1994 (commencement of operations) through December 31,
1996.
Included in Part B: The Audited Financial Statements as of December 31,
1996 for the fiscal year ended December 31, 1996, and the report of the
Independent Accountants, including the following:
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Portfolio of Investments
Notes to Financial Statements
are incorporated in the Statement of Additional Information for the
Trust by reference to the Annual Report to Shareholders for the Trust
for the fiscal year ended December 31, 1996.
(b) EXHIBITS - NORTHSTAR VARIABLE TRUST
(1)(a) Form of Amendment to Declaration of Trust
(5) Form of Subadvisory Agreement for Northstar Income and
Growth Fund
(10) Opinion of Counsel
(11) Consent of Independent Public Accountants
(12) Annual Report to Shareholders
(16) Performance Information
(27) Financial Data Schedule (Ex-27)
- ----------------------------
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
ReliaStar Life Insurance Company (formerly "Northwestern National Life Insurance
Company") and Northern Life Insurance Company, and ReliaStar Bankers Security
Life Insurance Co., which are affiliated through a common parent company,
ReliaStar Financial Corp., on behalf of their respective separate accounts,
together own a majority of the outstanding shares of the Trust. These
insurance companies will vote shares of the Trust in accordance with
instructions of contract owners having interests in these separate accounts.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 31, 1996, the Trust had three security holders.
ITEM 27. INDEMNIFICATION
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-
type inquiry) by (x) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter) or (y) written opinion of
independent legal counsel.
<PAGE>
(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.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Funds" in the Prospectus and Services of the Adviser and
Administrator" Services of the Subadvisers, and "Trustees and Officers" in the
Statement of Additional Information, each of which is included in the
Registration Statement.
<PAGE>
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 July 31, 1994.
<TABLE>
<CAPTION>
Position with Other Substantial
Investment Business, Profession
Name Adviser Vocation or Employment
- ----------------------------------------------------------------------------
<S> <C>
John Turner Director Chairman and CEO, ReliaStar Financial
Corp; Director of Northstar Affiliates;
Trustee and Chairman, Northstar
Affiliated Investment Companies.
<PAGE>
John Flittie Director President, ReliaStar Financial Corp.
Director, Northstar Affiliates.
Mark L. Lipson Chairman/CEO Director and Officer of Northstar
Director Distributors, Inc., Northstar Administrators
Corp. and Northstar, Inc. Trustee
and President, Northstar Affiliated
Investment Companies.
Robert J. Adler Executive Vice President, Northstar Distributors, Inc.
President, Sales
& Marketing
Thomas Ole Dial Executive Vice Vice President, Northstar Affiliated
President - Chief Investment Companies, and Principal, TD
Investment Officer, Associates Inc.
Fixed Income
Geoffrey Wadsworth Vice President/ Vice President - Northstar Affiliated
Investments and Investment Companies.
Portfolio Manager
Peter Bakst Vice President- Vice President - Northstar Affiliated
Investments Investment Companies and Portfolio
Manager, Director - High Yield Debt
Group for CS First Boston Corp.,
President of Presidio Capital
Management and Managing Director at
BT Securities Corp.
Ryan Johanson Vice President- Vice President - Northstar Affiliated
Investments Investment Companies and Portfolio
Manager, Director of Global Market
Risk Management, and Senior Manager
of Banque Indosuez.
Jeffrey Aurigemma Vice President - Vice President - Northstar Affiliated
Investments Investment Companies and Portfolio
Manager.
Michael Graves Vice President Vice President - Northstar Affiliated
Investments Investment Companies and Portfolio
Manager.
Agnes Mullady Sr. Vice President Vice President & Treasurer of Northstar
and CFO Affiliates and the Northstar Affiliated
Investment Companies.
Gertrude Purus Vice President Vice President Northstar Distributors and
Operations Northstar Administrators Corp.
<PAGE>
Stephen Vondrak Vice President Vice President - Northstar Distributors, Inc.
Sales/Marketing Former Regional Marketing
Manager with Roger Engemann
and Associates from 1991-1994.
Mark Sfarra Vice President - Vice President - Northstar Distributors, Inc.
Marketing
</TABLE>
Set forth below is a list of each officer and director of the subadvisers
indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since
December 31, 1993.
<TABLE>
<CAPTION>
Name and
Principal
Business Address Principal Occupations During Past Two Years
- ---------------- --------------------------------------------
<S> <C>
Jack Fisher President and Portfolio Manager for Wilson/Bennett Capital
8260 Greensboro Drive, Management, Inc.
Suite 250
McLean, VA 22102
Louis Navellier Principal, Director and President of Navellier Fund
1 East Liberty, Management, Inc. Mr. Navellier is and has been the CEO
Third Floor and President of Navellier & Associates Incorporated, an
Reno, NV 89501 investment management company since 1988, and has been publisher
and editor of MPT Review from August 1987 to the present, and
was publisher and editor of the predecessor investment advisory
newsletter OTC Insight, which he began in 1980 and wrote through
July 1987. Mr. Navellier is also Trustee, President, and Treasurer
of the Navellier Series Fund and CEO, President, Treasurer, and
Secretary of Navellier Management Inc., the Investment Adviser to
the Navellier Series Fund. Mr. Navellier is also CEO, President,
Secretary, and Treasurer of Navellier & Associates, Inc.,
Navellier Publications, Inc., MPT Review Inc., and Navellier
International Management Inc.
</TABLE>
<PAGE>
ITEM 29 . PRINCIPAL UNDERWRITER
There is no principal underwriter for Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
State Street Bank and Trust Co., located at 225 Franklin Street, Boston, MA
02110-2804 maintains such records as Custodian, Transfer Agent and Fund
Accounting Agent, for the Trust and each Series:
(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) Shareholder Records
All other records required by item 30(a) are maintained at the office of the
Administrator, Two Pickwick Plaza, Greenwich, CT 06830.
ITEM 31. Management Services
Not Applicable
<PAGE>
ITEM 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees when
requested in writing to do so by the holders of at least 10% of the Trusts'
outstanding shares of beneficial interest and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
(b) Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certified that it
meets all the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities
Act of 1933, and the Registrant has duly caused this Post-Effective Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Greenwich and the State of
Connecticut on the 16th day of April, 1997.
REGISTRANT
By: MARK L. LIPSON
--------------------------------------
Mark L. Lipson, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
SIGNATURES TITLE DATE
JOHN G. TURNER Chairman and April 16, 1997
John G. Turner* Trustee
MARK L. LIPSON President and April 16, 1997
Mark L. Lipson* Trustee
JOHN R. SMITH Trustee April 16, 1997
John R. Smith*
PAUL S. DOHERTY Trustee April 16, 1997
Paul S. Doherty*
DAVID W. WALLACE Trustee April 16, 1997
David W. Wallace*
ROBERT B. GOODE, JR. Trustee April 16, 1997
Robert B. Goode, Jr.*
WALTER MAY Trustee April 16, 1997
Walter May*
<PAGE>
ALAN L. GOSULE Trustee April 16, 1997
Alan L. Gosule*
DAVID W.C. PUTNAM Trustee April 16, 1997
David W.C. Putnam*
AGNES MULLADY Principal Financial April 16, 1997
Agnes Mullady and Accounting
Officer
By: /s/ AGNES MULLADY*
Agnes Mullady
Attorney-in-fact
*Executed pursuant to powers of attorney filed with PEA No. 4.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Under
Part C of Form N-1A Name of Exhibit Page Number Herein
------------------- --------------- ------------------
1 Form of Declaration of Trust (1)
(a) Form of Amendment to Declaration of Trust*
2 Form of By-Laws (1)
5(a) Form of Advisory Agreement (1)
(b) Form of Subadvisory Agreement for Northstar Growth
Fund (1)
(c) Form of Subadvisory Agreement for Northstar
Income and Growth Fund*
8 Form of Custody Agreement (1)
9 Form of Administrative Services
Agreement (1)
10 Opinion of Counsel*
11 Consent of Independent Accountants*
12 Annual Report to Shareholders*
16 Schedule for Computation of Performance
Information*
17 Powers of Attorney (1)
27 Financial Data Schedule (EX-27)*
(1) Filed as part of PEA No. 4 and incorporated herein by reference.
* Filed herewith.
<PAGE>
NORTHSTAR/NWNL TRUST
CERTIFICATE OF AMENDMENT OF DECLARATION OF TRUST
AND REDESIGNATION OF SERIES
The undersigned being all of the trustees of Northstar/NWNL Trust, a
Massachusetts business trust (the "Trust"), acting pursuant to Section 8.3 of
the Trust's Declaration of Trust dated December 17, 1993, as amended (the
"Declaration of Trust"), hereby amend the Declaration of Trust to change the
name of the Trust set forth in Section 1.1 thereof as follows;
1. Section 1.1. of the Declaration of Trust, executed on December 17,
1993, as amended, is hereby amended to read in its entirety as follows:
"Section 1.1 Name. The name of the Trust created hereby is "NORTHSTAR VARIABLE
TRUST".
IN WITNESS WHEREOF, the undersigned have this day signed this Certificate of
Amendment of Declaration of Trust.
Dated: August 1, 1996
-------------------- --------------------
John G. Turner Mark L. Lipson
-------------------- --------------------
Paul S. Doherty Robert B. Goode, Jr.
-------------------- --------------------
David W. Wallace Walter May
-------------------- --------------------
David W.C. Putnam Alan L. Gosule, Esq.
--------------------
John R. Smith
<PAGE>
NORTHSTAR/NWNL TRUST
NORTHSTAR INCOME AND GROWTH FUND
SUBADVISORY AGREEMENT
AGREEMENT made this day of August, 1996 by and between Northstar Investment
Management Corporation, a Delaware Corporation (hereinafter the "Adviser"),
investment adviser for the Northstar Income and Growth Fund, a series of the
Northstar NWNL Trust (the "Trust") (hereinafter the "Fund") and Wilson/Bennett
Capital Management, Inc., a Virginia corporation (hereinafter the "Subadviser").
WHEREAS, the Adviser has been retained by the Trust, 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 May 2, 1994 (the
"Investment Advisory Agreement"); and
WHEREAS, the Trustees of the Trust, 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 those assets of
the Fund which are designated by the Adviser for investment in common stocks
(the "Assets"), with power on behalf of and in the name of the Fund at
Subadviser's discretion; subject at all time to the supervision of the Adviser
and the Trustees of the Trust:
(a) to direct the purchase, subscription or other acquisition of
investments and to direct the sale, redemption, and exchange of the Assets,
subject to the duty to render to the Trustees of the Trust, the Adviser and the
Custodian such written reports regarding the Assets as often as the Trustees or
the Adviser of the Fund shall reasonably require; provided however that all
investment decisions and orders shall be communicated to the Adviser, who shall
select brokers and dealers to execute such purchase and sell orders.
(b) to make all decisions relating to the timing of investment
transactions relating to the Assets, and to engage such consultants, analysts
and experts in connection therewith as may be considered necessary or
appropriate;
(c) to take all such other actions as may be considered necessary or
appropriate to discharge its duties thereunder;
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 herein, override the
general authority given by this provision.
<PAGE>
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) coordinate with the Adviser to (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 Prospectus and Statement of Additional Information for the
Fund, and with any applicable procedures adopted by the Trustees in writing and
made available to Subadviser; (ii) manage the Assets in accordance with the
investment requirements for regulated investment companies under Subchapter M of
the Code and regulations issued thereunder; and (iii) review on a daily basis
and confirm as accurate the valuations of the securities comprising the Assets.
(b) furnish to the Trust whatever non-proprietary reports it may
reasonably request with respect to the Assets or contemplated investments. In
addition, the Subadviser will keep the Trust and the Trustees informed of
developments materially affecting the Assets and shall, on the Subadviser's own
initiative, furnish to the Trust 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 Trust, promptly
upon their request, such copies of its investment records and ledgers with
respect to the Assets as may be required to assist the Adviser, the
Administrator and the Trust 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 Trust 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 Trust and the Adviser immediately of
any material fact known to the Subadviser respecting or relating to the
Subadviser that is not contained in the Trust'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 Trust, the Fund, Adviser, Administrator and their affiliates shall
likewise immediately notify the Subadviser if any of them become 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.
4. Compensation. The Subadvisor agrees to waive all compensation until the
Fund's net assets exceed $50 million. After the Fund's net assets exceed $50
million, 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
first $125 million of the average daily net asset value of the Assets; 0.25 of
1% of the net asset value of the Assets exceeding $125 million up to $250
million; and 0.30 of 1% of the average daily net asset value of the Assets
exceeding $250 million as compensation for the advisory services provided by the
Subadviser under this Agreement. 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
<PAGE>
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 Trust and 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 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 Trust and will be
surrendered promptly to the Trust 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 and reasonable care 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 Trust or 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 Trust or 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. It is understood that the services of the Subadviser
are not exclusive, and that nothing in this Subadvisory Agreement shall prevent
the Subadviser, its affiliates or its or their officers, directors and employees
from providing similar services to other clients or from engaging in other
investment advisory activities; provided however, that the Subadviser agrees
that it shall not provide investment advisory services to any other investment
company clients (whether or not the investment objective and policies are
similar to those of the Fund). The Subadviser is not required to recommend to
the Fund the same investments it recommends to its other clients. In connection
with purchases or sales of portfolio securities for the account of the Fund,
neither the Subadviser nor any of its directors, officers or employees shall act
as a principal or agent or receive any commission. If the Subadviser provides
any advice to its clients concerning the shares of the Fund, the Subadviser
shall act solely as investment counsel for such clients and not in any way on
behalf of the Fund.
8. Duration and Termination. This Subadvisory Agreement shall continue in effect
for a period of two years unless sooner terminated as provided herein.
Notwithstanding the foregoing, this Subadvisory Agreement may be terminated: (a)
at any time without penalty by the Fund or Adviser upon the vote of a majority
of the Trustees or by vote of the majority of the Fund's outstanding voting
securities, upon sixty (60) days' written notice to the Subadviser, or (b) by
the Subadviser without cause at any time without penalty, upon (60) days'
written notice to the Trust or Adviser. This Subadvisory Agreement will also
terminate automatically in the event of its assignment (as defined in the 1940
Act) or the assignment or termination of the Investment Advisory Agreement.
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
<PAGE>
outstanding voting securities of the Fund, and (ii) a majority of the Trustees
of the Trust, 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
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 Subadviser failing to meet the standard of
care required hereunder 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 Trust,
governmental or regulatory agency, or any other person; claims arising from any
wrongful act by the Trust or the Fund or any of their trustees, officers,
employees, or representatives, or by the Adviser, its officers, employees or
representatives, or from any actions by any representative of the Trust or 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 Trust on behalf of 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, the Trust 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)
failure to perform its duties and assume its obligations hereunder, or from any
wrongful act of Subadviser or its failure to act in performing this Agreement,
including any action or claim against the Adviser based on any alleged untrue
statement or misstatement of a material fact made or provided by and with the
consent of Subadviser contained in any registration statement, prospectus,
shareholder report or other information or materials relating to the Trust or
the Fund and shares issued by the Trust or the failure or alleged failure to
state a material fact therein required to be stated in order that the statement
therein is 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
<PAGE>
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 Trust
or the Fund in any way or otherwise be deemed to be an agent of the Trust or the
Fund. Likewise, the Trust, the Fund, the 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 Trust, on behalf of the Fund, and the Fund may, subject
to sub-clause (b) below, use the name, "Wilson/Bennett Capital Management, Inc."
or any component, abbreviation or other name derived therefrom 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
Trust or Fund during the term hereof of the name of the Subadviser or any of its
principals, or any derivative thereof, 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 Trust or
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 and/or any derivatives 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, 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 Massachusetts, 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 Massachusetts located in Boston, Massachusetts.
(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
<PAGE>
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. Attorney's Fees. In
the event of a material breach of this Agreement by any party hereto, the
prevailing party, as determined by the trier of fact, shall be entitled to
reasonable attorneys' fees and costs as determined by the court in such action,
in addition to any other damages awarded.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the date and year set forth
above.
NORTHSTAR INVESTMENT MANAGEMENT WILSON/BENNETT CAPITAL MANAGEMENT, INC.
By:_______________________________ By:_______________________________
Mark L. Lipson John W. Fisher
Chairman and CEO President
<PAGE>
[LETTERHEAD]
LAW OFFICES OF
DECHERT PRICE & RHOADS
1500 K STREET, N.W.
WASHINGTON, DC 20005-1206
February 28, 1997
Northstar Variable Trust
Two Pickwick Plaza
Greenwich, Connecticut 06830
Ladies and Gentlemen:
As counsel to the Northstar Variable Trust (the "Fund"), we are familiar
with the Fund's registration under the Investment Company Act of 1940 and with
the registration statement relating to its shares of beneficial interest under
the Securities Act of 1933 (File No. 33-73140) (the "Registration Statement").
We have also examined such other corporate records, agreements, documents and
instruments as we deemed appropriate.
On the basis of the foregoing, we are of the opinion that the shares of
beneficial interest of the Fund being registered under the Securities Act of
1933 in the Registration Statement will be legally and validly issued, fully
paid and non-assessable by the Fund.
We hereby consent to the filing of this opinion with and as part of the
Registration Statement.
Very truly yours,
/s/ Dechert Price & Rhoads
(Coopers & Lybrand letterhead appears here)
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 6 to the Registration Statement of Northstar Variable Trust on Form N-1A
(File No. 33-73140) of our report dated January 31, 1997, on our audit of the
financial statements and financial highlights of Northstar Variable Trust, which
report is included in the Annual Report to Shareholders for the year ended
December 31, 1996, which is also incorporated by reference in this Post-Effect-
ive Amendment to the Registration Statement.
We also consent to the references to our firm under the certain "Financial
Highlights" in the Prospectus and under the captions "Other Information" and
"Financial Statements" in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
New York, New York
April 17, 1997
NORTHSTAR VARIABLE TRUST
NORTHSTAR GROWTH FUND
NORTHSTAR INCOME AND GROWTH FUND
NORTHSTAR MULTI-SECTOR BOND FUND
NORTHSTAR HIGH YIELD BOND FUND
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1996
<PAGE>
NORTHSTAR FUNDS
ANNUAL REPORT,
December 31, 1996
Dear Shareholders:
We are pleased to provide you with the annual report of the Northstar Funds for
the year ended December 31, 1996. We are gratified with your decision to entrust
your assets to the Northstar Funds and are confident that we can assist you in
reaching your financial objectives. Our goal is to provide you with consistent,
superior investment results through fundamental research, analysis, and
traditional investment disciplines. Following this letter is a summary of the
results of each Fund by their respective portfolio manager. We hope you will
find it informative.
During the past twelve months the U.S. financial markets have been strongly
supported by moderate growth in the economy, higher corporate profits, and
subdued inflation. Concerns that a slowdown late in 1995 would turn into a
recession in 1996 were dispelled as spending for housing and autos remained
strong bolstered by favorable interest rates, mortgage refinancing, increased
consumer borrowing, and tax refunds. The stock market began to reflect this in
February, rising sharply and broadening out to include small capitalization
stocks, not just the short list of blue chips that dominated late 1995 and early
1996. Likewise, the high yield bond market benefited from narrowing yield
spreads over U.S. Treasuries and rising confidence resulting in excellent
relative performance. A mid-year correction occurred, brought on by strong
second quarter growth igniting fears of inflation and profit margin pressure. It
proved short lived as the third quarter returned to a slower growth path with
subdued inflation. Also, the national election results preserved the political
balance reassuring the financial markets that neither extreme tax cuts nor
spending increases would derail progress towards balancing the budget.
Now in January, the Dow and S&P 500 are at record highs and long term
government bond yields have backed up slightly to 6.8%. Recent economic
indicators have been stronger than expected and initial December quarter
earnings reports have been good. The strength in equities since mid-year was
again centered on large-cap blue chips. Looking into 1997 the investment
environment continues to be favorable. There do not appear to be the type of
excesses present which would necessitate either a recession or an overheated
inflationary condition. The political situation suggests further progress
on the federal deficit, restrained spending, and possibly some tax cuts.
Personal incomes are rising and consumer sentiment is favorable. U.S.
trading partners are expected to see faster growth in 1997. Monetary policy
is neutral and could be eased if necessary.
In closing, we reiterate once again that attempts to "time" the market often
prove counterproductive. Investors are strongly urged to focus on the long term.
Consistent disciplined investing is the proven method of achieving attractive
returns and meeting your financial objectives. We continue to support this
philosophy and look forward to serving your investment needs in the future.
Sincerely,
Mark L. Lipson
President
January 1997
<PAGE>
NORTHSTAR GROWTH FUND
GROWTH OF $10,000 INVESTED IN NORTHSTAR GROWTH FUND
FROM INCEPTION THROUGH THE FUND'S FISCAL YEAR END.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Growth Fund from May 6, 1994 (inception of the Fund) through December
31, 1996, assuming the reinvestment of dividends and capital gains at net asset
value, compared to the S&P 500 Index for the same period. All performance data
shown represents past performance, and should not be considered indicative of
future performance.
Northstar Growth Fund
GROWTH
S&P 500 GROWTH
10,000 10,000
05/31/94 10,124 10,200
06/30/94 9,928 9,989
07/31/94 10,241 10,301
08/31/94 10,626 10,662
09/30/94 10,413 10,590
10/31/94 10,631 10,671
11/30/94 10,211 10,398
12/31/94 10,412 10,347
01/31/95 10,665 10,223
02/28/95 11,049 10,429
03/31/95 11,422 10,689
04/30/95 11,742 11,062
05/31/95 12,168 11,581
06/30/95 12,509 12,117
07/31/95 12,907 12,408
08/31/95 12,903 12,606
09/30/95 13,500 12,875
10/31/95 13,433 12,582
11/30/95 13,984 12,937
12/31/95 14,310 12,911
01/31/96 14,777 12,833
02/28/96 14,880 13,223
03/31/96 15,078 13,825
04/30/96 15,280 15,528
05/31/96 15,629 16,705
06/30/96 15,753 15,761
07/31/96 15,032 14,459
08/31/96 15,315 15,031
09/30/96 16,236 16,139
10/31/96 16,660 15,588
11/30/96 17,882 15,869
12/31/96 17,587 15,879
Average Annual Total Return
1-Year 15.99%
Since Inception 17.56%
PROXY RESULTS (UNAUDITED)
During the year ended December 31, 1996, Growth Fund shareholders
voted on the following proposal. The proposal was approved at approved at a
special meeting of shareholders on January 30, 1996.
Shares Shares
Voted For Voted Against Abstentions
- --------------------------------------------------------------------------------
To approve the Sub-Advisory agreement
between Northstar Investment Management
Corp., adviser to the Fund, and
Navellier Fund Management, Inc. 277,193 6,872 45,913
<PAGE>
NORTHSTAR GROWTH FUND
THE MARKETS
o During 1996 the S&P 500 rose 22.94%, Russell 2000 gained 16.54% and the
Dow Industrials was up 28.89%.
o The small cap sector led the way in the first two quarters of 1996. Wall
Street responded very positively to the earnings estimates and reports
posted by the small to mid cap stocks until the end of June. Analysts
were quite pleased with the economic environment until July, when
inflation fears led to a spike in interest rates. This prompted a rapid
selloff in most NASDAQ stocks. Technology and healthcare sectors,
normally the darlings of the small caps were punished and the more common
sectors like financial and energy stocks held their own. Most of the
NASDAQ Composite never recovered from this selloff. The strong returns
posted by the indexes for the year were driven by a relatively small
number of large cap stocks. According to a Bloomberg report, if you
removed the top 100 stocks from the NASDAQ Composite (5,500 issues), it
would have actually declined 2% on the year. Under these conditions,
the strength of the market was seen to be very narrow. We are
optimistic that the market will start to reward strong
earnings and begin to rotate back into growth stocks in 1997.
THE FUNDS
o From 12/31/95 to 12/31/96, the total return for the Fund was 22.99%
compared to 17.50% for the Lipper Growth Fund Index and 22.71%
for the NASDAQ Composite.
o The Fund's performance for the year was led by stocks like
Iomega, PairGain Technologies, Global Marine, Herman Miller,
Inc. and Chesapeake Energy.
CURRENT STRATEGY
o We expect a strong "January Effect" to help boost our stocks as fourth
quarter earnings are released. It is likely that many institutions will
take profits and rotate out of the large cap sector and into small to mid
cap stocks. We anticipate the current favorable economic environment to
continue through the year. It appears that the President is quite
interested in working with Congress to produce a balanced budget
amendment. This would certainly add some confidence to the market and lend
itself to interest rate stability. Although absolute gains for the market
for 1997 may not be higher than 1996, relative gains for growth portfolios
should be much better.
o Currently, our models are favoring the earnings surprise type screens,
such as standardized unexpected earnings (SUE). We are optimistic that
many of our NASDAQ stocks will release very strong earnings that will
drive their prices dramatically higher. We believe that the stocks we are
currently holding in our portfolios have superior fundamental
characteristics relative to the overall market.
<TABLE>
<CAPTION>
FUND INFORMATION (ALL DATA IS AS OF 12/31/96) TOTAL NET ASSETS: $15,563,732
TOP 10 HOLDINGS TOP 5 INDUSTRIES SEC AVERAGE ANNUAL RATES OF RETURN
NAME %FUND (by percentage of net asset) (at maximum applicable sales charges)
-------------------------------------
<S> <C>
(1) Jefferson-Pilot Corp. 2.3% Banks Inception 1 year
--------- ------
(2) Tubos de Acero de Mexico 2.0 17.56% 15.99%
(3) PanEnergy Corp. 2.0 Oil & Gas Exploration
(4) BMC Software, Inc. 1.7 [Bar Graph appears here] CUMULATIVE TOTAL RETURNS
(5) Bristol-Myers Squibb Co. 1.7 Oil (do not reflect sales charge)
(6) Plum Creek Timber Co. 1.7 Inception 1 year
(7) Paychex, Inc. 1.7 Insurance --------- ------
(8) Synetic, Inc. 1.7 58.79% 22.99%
(9) Commerce Bancshares, Inc. 1.6 Pharmaceuticals
(10) Herman Miller, Inc. 1.6
-----
18.0%
=====
</TABLE>
<PAGE>
Northstar Growth Fund
Portfolio of Investments
December 31, 1996
Security Shares Value
- -----------------------------------------------------------------------
COMMON STOCKS - 94.12%
Advanced Medical Devices - 1.71%
Synetic, Inc. @ 5,500 $ 266,750
----------
Aerospace & Defense - 1.87%
AlliedSignal, Inc. 3,200 214,400
Oregon Metallurgical Corp. @ 2,400 77,400
----------
291,800
-----------
Agricultural - 1.16%
Grupo Industrial Maseca SA de CV** 9,400 179,775
----------
Apparel/Fabric - 3.75%
Fruit of the Loom, Inc. @ 5,900 223,462
Jones Apparel Group, Inc. @ 5,900 220,512
St. John Knits, Inc. 3,200 139,200
----------
583,174
----------
Banks - 7.68%
Cal Fed Bancorp, Inc. @ 8,900 218,050
Commerce Bancshares, Inc. 5,415 250,444
Federal Home Loan Mortgage Corp. 2,000 220,250
First of America Bank Corp. 3,800 228,475
Northern Trust Corp. 2,800 101,500
Zions Bancorp. 1,700 176,800
----------
1,195,519
----------
Beverages - 0.82%
Anheuser-Busch Cos., Inc. 3,200 128,000
----------
Chemicals - 1.25%
Cytec Industries, Inc. @ 4,800 195,000
----------
Computer Software - 3.38%
BMC Software, Inc. @ 6,500 268,937
Paychex, Inc. 5,000 257,187
----------
526,124
----------
Data Communication/Networking - 0.60%
Ascend Communications, Inc. @ 1,500 93,188
----------
Diversified Technology - 1.75%
Diebold, Inc. 2,300 144,612
Zoltek Cos., Inc. @ 3,500 127,313
----------
271,925
----------
Education - 0.85%
Apollo Group, Inc. @ 3,950 132,078
----------
Electronics - 1.28%
Hubbell, Inc. 4,600 198,950
----------
<PAGE>
Northstar Growth Fund
Portfolio of Investments
December 31, 1996
Security Shares Value
- -----------------------------------------------------------------------
Financial Services - 2.09%
Alliance Capital Management L.P. 6,600 $ 175,725
Student Loan Marketing Association 1,600 149,000
----------
324,725
----------
Food - 4.23%
Campbell Soup Co. 2,100 168,525
Hershey Foods Corp. 4,500 196,875
Safeway, Inc. @ 2,800 119,700
Vons Cos., Inc. @ 2,900 173,638
----------
658,738
----------
Forest Products - 1.67%
Plum Creek Timber Co. 10,000 260,000
----------
Funeral/Cemetary Services - 0.24%
Stewart Enterprises, Inc. 1,100 37,400
-----------
Heavy Machinery/Construction - 1.02%
Smith International, Inc. @ 3,500 157,063
----------
Household Products - 1.01%
Fort Howard Corp. @ 5,700 157,819
----------
Industrial and Commercial Services - 3.28%
Southdown, Inc. 6,500 202,313
Tubos de Acero de Mexico SA @ ** 19,400 307,975
----------
510,288
----------
Insurance - 6.55%
Allstate Corp. 4,000 231,500
Conseco, Inc. 3,400 216,750
Jefferson-Pilot Corp. 6,400 362,400
Progressive Corp. 3,100 208,862
----------
1,019,512
----------
Lodging - 1.79%
HFS, Inc. @ 2,000 119,500
Prime Hospitality Corp. @ 9,900 159,638
---------
279,138
--------
Media - 0.73%
Infinity Broadcasting Corp. @ 3,400 114,325
---------
Natural Gas - 4.49%
Noble Affiliates, Inc. 3,900 186,712
PanEnergy Corp. 6,800 306,000
Transocean Offshore, Inc. 3,300 206,663
----------
699,375
----------
<PAGE>
Northstar Growth Fund
Portfolio of Investments
December 31, 1996
Security Shares Value
- -----------------------------------------------------------------------
Office Equipment/Supplies - 2.69% 4,800 $ 169,800
Avery Dennison Corp. 4,400 249,150
Herman Miller, Inc. ----------
418,950
----------
Oil - 7.07%
Atlantic Richfield Co. 1,700 225,250
British Petroleum Co. PLC ** 1,600 226,200
ENSCO International, Inc. @ 1,900 92,150
Murphy Oil Corp. 4,000 222,500
Santa Fe Energy Resources, Inc. @ 11,200 155,400
Snyder Oil Corp. 10,300 178,963
----------
1,100,463
----------
Oil & Gas Exploration - 7.62%
Camco International, Inc. 5,300 244,462
Global Marine, Inc. @ 7,700 158,812
Marine Drilling Cos., Inc. @ 5,400 106,313
Nabors Industries, Inc. @ 12,200 234,850
Reading & Bates Corp. @ 7,600 201,400
Tuboscope Vetco International Corp. @ 7,800 120,900
United Meridian Corp. @ 2,300 119,025
----------
1,185,762
----------
Pharmaceutical - 5.87%
American Home Products Corp. 2,600 152,425
Bristol-Myers Squibb Co. 2,400 261,000
Cardinal Health, Inc. 3,700 215,525
Jones Medical Industries, Inc. 5,000 183,125
Rhone-Poulenc Rorer, Inc. 1,300 101,563
-----------
913,638
-----------
Publishing - 1.38%
Houghton Mifflin Co. 3,800 215,175
-----------
Railroad - 1.34%
Conrail, Inc. 2,100 209,212
-----------
Real Estate Investment Trust - 1.43%
General Growth Properties 6,900 225,525
-----------
Recreation Products - 2.29%
Callaway Golf Co. 4,500 129,375
Nike, Inc. 3,800 227,050
-----------
356,425
-----------
Retailers - 1.16%
Nautica Enterprises, Inc. @ 5,200 131,300
Wet Seal, Inc. @ 2,300 49,163
-----------
180,463
-----------
<PAGE>
Northstar Growth Fund
Portfolio of Investments
December 31, 1996
Security Shares/ Value
Principal amount
- -----------------------------------------------------------------------
Semiconductor - 0.79%
Vitesse Semiconductor Corp. @ 2,700 $ 122,850
----------
Tobacco - 1.51%
Universal Corp. 7,300 234,512
----------
Telecommunications - 3.16%
Cascade Communications Corp. @ 2,200 121,275
Compania de Telecomunicaciones de Chile SA ** 2,100 212,362
PairGain Technologies, Inc. @ 5,200 158,275
----------
491,912
----------
Telephone Systems - 1.47%
Cincinnati Bell, Inc. 3,700 228,012
----------
Toys - 0.36%
Galoob Toys, Inc. @ 4,000 56,000
----------
Vehicle Parts & Equipment -1.63%
Gentex Corp. @ 3,500 70,438
Lancaster Colony Corp. 4,000 184,000
----------
254,438
----------
Water Companies - 1.15%
United Water Resources, Inc. 11,500 178,250
----------
Total Common Stocks
(cost $13,475,738) 14,649,253
----------
Total Investment Securities - 94.12%
(cost 13,475,738) 14,649,253
Repurchase Agreement - 7.80%
Agreement with State Street Bank and
Trust bearing interest at 5.10% dated
12/31/96 to be repurchased 1/02/97 in
the amount of $1,214,344 and
collateralized by $1,190,000 U.S.
Treasury Notes, 7.25% due 2/15/98,
value $1,242,063 (cost $1,214,000) $1,214,000 1,214,000
Liabilities in excess of other assets - (1.92)% (299,521)
----------
Net Assets - 100.00% $ 15,563,732
==========
@ Non-income producing security.
** American Depository Receipts.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NORTHSTAR INCOME AND GROWTH FUND
GROWTH OF $10,000 INVESTED IN NORTHSTAR INCOME AND GROWTH FUND
FROM INCEPTION THROUGH THE FUND'S FISCAL YEAR END.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Income and Growth Fund from May 6, 1994 (inception of the Fund)
through December 31, 1996, assuming the reinvestment of dividends and capital
gains at net asset value, compared to the S&P 500 Index and the Lehman Brothers'
Government/Corporate Bond Index for the same period. All performance data shown
represents past performance, and should not be considered indicative of future
performance.
Northstar Income and Growth Fund
INCOME & GROWTH
LEHMAN INCOME &
S&P 500 GOVT/CORP GROWTH
10,000 10,000 10,000
05/31/94 10,124 9,982 10,170
06/30/94 9,928 9,959 10,033
07/31/94 10,241 10,158 10,314
08/31/94 10,626 10,162 10,545
09/30/94 10,413 10,009 10,436
10/31/94 10,631 9,998 10,456
11/30/94 10,211 9,980 10,233
12/31/94 10,412 10,046 10,202
01/31/95 10,665 10,239 10,140
02/28/95 11,049 10,476 10,336
03/31/95 11,422 10,546 10,500
04/30/95 11,742 10,693 10,728
05/31/95 12,168 11,141 11,152
06/30/95 12,509 11,230 11,595
07/31/95 12,907 11,186 11,615
08/31/95 12,903 11,329 11,751
09/30/95 13,500 11,445 11,989
10/31/95 13,433 11,613 11,894
11/30/95 13,984 11,805 12,220
12/31/95 14,310 11,978 12,371
01/31/96 14,777 12,081 12,437
02/28/96 14,880 11,940 12,372
03/31/96 15,078 11,879 12,462
04/30/96 15,280 11,838 12,604
05/31/96 15,629 11,828 12,801
06/30/96 15,753 11,953 12,834
07/31/96 15,032 11,989 12,459
08/31/96 15,315 11,999 12,735
09/30/96 16,236 12,166 13,097
10/31/96 16,660 12,381 13,453
11/30/96 17,882 12,544 14,031
12/31/96 17,587 12,464 14,055
Average Annual Total Return
1-Year 6.61%
Since Inception 12.12%
PROXY RESULTS (UNAUDITED)
During the year ended December 31, 1996, Income and Growth Fund
shareholders voted on the following proposal. The proposal was approved at
approved at a special meeting of shareholders on July 31 1996.
Shares Shares
Voted For Voted Against Abstentions
- --------------------------------------------------------------------------------
To approve the Sub-Advisory agreement
between Northstar Investment Management
Corp., adviser to the Fund, and
Wilson/Bennett Capital Management, Inc. 796,011 6,979 48,071
<PAGE>
NORTHSTAR INCOME AND GROWTH FUND
THE MARKETS
o During 1996 the equity market returns were much stronger than most
forecasters had expected. The Dow Industrials rose 28.89%, the S&P 500
gained 22.94%, and the Russell 2000 was up 16.54%.
o Stock prices benefited from solid growth in the economy, good corporate
earnings increases, and very modest inflation and interest rate increases.
Demand remained strong all year due to mutual fund inflows, corporate buy
backs and some pick up in foreign buying.
o As the economy grew and employment rose, it caused persistent fears of
accelerating inflation. As a result, 10 and 30 year U.S. Treasury bonds
declined somewhat as rates ended the year 70 to 80 basis points higher at
6.42% and 6.64%, respectively. This kept the total return on most bonds
below 4% for the year. Corporate bonds continued to trade at very narrow
spreads versus treasuries offering relatively small incentives for higher
risk.
THE FUND
o For the year, the portfolio had an investment return of 13.80% which
compares favorably with most other balanced funds. For example, the
Lipper Balanced Fund Index was up 13.01%.
o The good performance was paced by over half the portfolio being invested
in equities. Numerous individual holdings were up over 20% for the year.
Examples include: Boeing, Mellon Bank, Philip Morris, Bristol-Myers, and
Merck. This was especially true during the second half of the year, after
the 10% market correction in June and July. Holdings were increasingly
concentrated in high quality, large cap, dividend paying stocks such as
those found in the Dow Industrials.
o Overall, the convertibles returned less than the equities and were
somewhat better than the straight bonds.
CURRENT STRATEGY
o We continue to view the outlook for the financial markets as favorable
going into 1997. While 4th quarter GDP growth may have been close to 4%,
we think it will moderate in 1997 extending the prospects of 2-3% growth
with 3 to 3.5% inflation and no recession.
o The number of equity holdings is being reduced and increasingly
concentrated in high quality blue chips with above average yields and good
earnings potential from international growth, restructuring, cost
reductions, and share buy backs.
o Also, the less liquid convertible preferreds and convertible bonds are
being reduced in favor of higher quality investment grade straight bonds.
This should help the yield somewhat but more importantly reduce the
potential risk that would exist during an economic downturn or equity
market correction.
o The target in early January is 60% large cap dividend paying stocks, 12%
investment grade convertible, and 28% investment grade bonds.
<TABLE>
<CAPTION>
FUND INFORMATION (ALL DATA IS AS OF 12/31/96) TOTAL NET ASSETS: $12,579,155
TOP 10 HOLDINGS SECTOR ALLOCATION SEC AVERAGE ANNUAL RATES OF RETURN
NAME %FUND (by percentage of net asset) (at maximum applicable sales charges)
-------------------------------------
<S> <C>
(1) GNMA 6.50%, 2/15/26 11.9% Equities Inception 1 year
(2) Philip Morris Cos., Inc. 4.6 --------- ------
(3) General Electric Co. 4.4 Convertibles 12.12% 6.61%
(4) Minnesota, Mining & Mfg. 4.3
(5) J.P. Morgan & Co., Inc. 3.8 Bonds [Bar Graph appears here] CUMULATIVE TOTAL RETURNS
(6) Eastman Kodak Co. 3.3 (do not reflect sales charge)
(7) Mobil Corp. 3.2 Cash ---------------------------------
(8) Finova, Inc. 3.1 Inception 1 year
(9) Texaco, Inc. 2.8 --------- ------
(10) Exxon Corp. 2.7 40.55% 13.80%
-----
44.1%
=====
</TABLE>
<PAGE>
NORTHSTAR INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Security Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 55.02%
Aerospace - 1.10%
Boeing Co. 1,300 $ 138,288
----------
Automotive - 3.64%
Chrysler Corp. 4,000 132,000
Ford Motor Co. 4,000 127,500
General Motors Corp. 3,550 197,912
----------
457,412
----------
Banking - 7.55%
Bankers Trust New York Corp. 3,100 267,375
Citicorp 500 51,500
J.P. Morgan & Co., Inc. 4,900 478,362
Mellon Bank Corp. 1,200 85,200
NationsBank Corp. 700 68,425
----------
950,862
----------
Chemical - 4.65%
Dow Chemical Co. 1,200 94,050
du Pont (E.I.) De Nemours & Co. 3,410 321,819
Eastman Chemical Co. 3,050 168,512
----------
584,381
----------
Consumer Products - 11.25%
Imation Corp. @ 395 11,109
Kimberly-Clark Corp. 1,790 170,497
Minnesota, Mining & Manufacturing Co. 6,450 534,544
Philip Morris Cos., Inc. 5,100 574,388
RJR Nabisco Holdings Corp. 3,650 124,100
----------
1,414,638
----------
Electrical Equipment - 4.40%
General Electric Co. 5,600 553,700
----------
Healthcare/Pharmaceutical - 2.09%
Bristol-Myers Squibb Co. 1,400 152,250
Merck & Co., Inc. 1,400 110,950
----------
263,200
----------
Oil & Gas - 10.98%
Chevron Corp. 4,400 286,000
Exxon Corp. 3,500 343,000
Mobil Corp. 3,300 403,425
Texaco, Inc. 3,550 348,344
----------
1,380,769
----------
Paper & Forest Products - 1.92%
International Paper Co. 4,575 184,716
Weyerhaeuser Co. 1,200 56,850
----------
241,566
----------
<PAGE>
NORTHSTAR INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Security Shares Value
- --------------------------------------------------------------------------------
Photography - 3.32%
Eastman Kodak Co. 5,200 $ 417,300
----------
Retail - 0.99%
Sears, Roebuck & Co. 2,700 124,538
----------
Technology - 0.66%
Lucent Technologies, Inc. 1,798 83,158
----------
Telecommunications - 2.47%
AT&T Corp. 7,150 311,025
----------
Total Common Stocks
(cost $6,037,548) 6,920,837
----------
CONVERTIBLE PREFERRED STOCKS - 16.74%
Broadcasting/Cable TV - 5.32%
Cablevision Systems Corp., 8.50% 5,000 102,500
Merrill Lynch Co. ("Cox Broadcasting"),
6.00%, due 6/01/99 (1) 15,000 333,750
SFX Broadcasting, Inc., 6.50% # 5,000 233,125
----------
669,375
----------
Energy - 5.69%
Enron Corp., 6.25% (2) 2,000 48,000
MCN Corp., 8.75% (3) 10,000 276,250
Noram Financing I, 6.25% 2,000 127,000
Occidental Petroleum Corp., 3.875% # 4,500 264,312
----------
715,562
----------
Finance - 3.13%
Finova, Inc., 5.50% 7,500 393,750
----------
Hotels & Lodging - 2.60%
Host Marriott Corp. Financial Trust,
6.75% # 6,000 326,982
----------
Total Convertible Preferred Stocks
(cost $2,086,643) 2,105,669
----------
EXCHANGEABLE NOTES - 0.68%
Chemicals - 0.68%
Atlantic Richfield Co.
9.00%, Exchangeable Shares, 9/15/97 (4) 4,000 86,000
----------
Total Exchangeable Notes
(cost $111,449) 86,000
----------
<PAGE>
NORTHSTAR INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Security Principal Amount Value
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS - 5.60%
Aerospace - 2.25%
Hexcel Corp.
7.00%, Debentures, 8/01/11 $ 300,000 $ 282,750
----------
Electrical Equipment - 1.11%
Protection One, Inc.
6.75%, Sr. Subordinated Notes, 9/15/03 150,000 139,660
----------
Health Services - 0.58%
Sierra Health Services, Inc.
7.50%, Debentures, 9/15/01 80,000 72,900
----------
Real Estate Investment Trust - 0.87%
Meditrust
7.50%, Debentures, 3/01/01 100,000 109,308
----------
Technology - 0.79%
Apple Computers, Inc.
6.00%, Subordinated Notes, 6/01/01 # 100,000 99,611
----------
Total Convertible Bonds
(cost $705,657) 704,229
----------
CORPORATE BONDS & NOTES - 2.27%
Insurance - 1.03%
Leucadia National Corp.
8.25%, Sr. Subordinated Notes, 6/15/05 125,000 129,550
----------
Transportation - 1.24%
Continental Airlines, Inc.
7.82%, Pass-Thru Certificates, 4/15/15 150,000 155,995
----------
Total Corporate Bonds
(cost $277,509) 285,545
----------
U.S. GOVERNMENT SECURITIES - 11.94%
GNMA, 6.50%, 2/15/26 1,571,561 1,502,145
----------
Total U.S. Government Securities
(cost $1,564,220) 1,502,145
----------
Total Investment Securities - 92.25%
(cost $10,783,026) 11,604,425
<PAGE>
NORTHSTAR INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Security Principal Amount Value
- --------------------------------------------------------------------------------
Repurchase Agreements - 8.49%
Agreement with State Street Bank and
Trust bearing interest at 5.10% dated
12/31/96, to be repurchased 1/02/97
in the amount of $1,068,303 and
collateralized by $995,000 U.S.
Treasury Notes, 7.25% due 8/15/22,
value $1,091,080 (cost $1,068,000) $1,068,000 $ 1,068,000
Liabilities in excess of other
assets - (0.74)% (93,270)
-----------
NET ASSETS - 100.00% $12,579,155
===========
# Sale restricted to qualified institutional investors.
(1) STRYPES - Structured yield product exchangeable for stock.
(2) Mandatory conversion on 12/13/98 into shares of Enron Oil & Gas
common stock.
(3) Mandatory conversion on 4/30/99 into shares of MCN Corp. common stock.
(4) Mandatory conversion on 9/15/97 into shares of Lyondell Petroleum
Co. common stock.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NORTHSTAR MULTI-SECTOR BOND FUND
GROWTH OF $10,000 INVESTED IN NORTHSTAR MULTI-SECTOR BOND FUND
FROM INCEPTION THROUGH THE FUND'S FISCAL YEAR END.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Multi-Sector Bond Fund from May 6, 1994 (inception of the Fund)
through December 31, 1996, assuming the reinvestment of dividends and capital
gains at net asset value, compared to the Lehman Brothers' Government/Corporate
Bond Index for the same period. All performance data shown represents past
performance, and should not be considered indicative of future performance.
Northstar Multi-Sector Bond Fund
MULTI-SECTOR
LEHMAN MULTI-
GOVT/CORP SECTOR
10,000 10,000
05/31/94 9,982 10,020
06/30/94 9,959 10,009
07/31/94 10,158 10,009
08/31/94 10,162 10,050
09/30/94 10,009 10,116
10/31/94 9,998 10,075
11/30/94 9,980 9,952
12/31/94 10,046 10,141
01/31/95 10,239 10,183
02/28/95 10,476 10,350
03/31/95 10,546 10,572
04/30/95 10,693 10,721
05/31/95 11,141 10,934
06/30/95 11,230 11,157
07/31/95 11,186 11,048
08/31/95 11,329 11,026
09/30/95 11,445 11,331
10/31/95 11,613 11,265
11/30/95 11,805 11,309
12/31/95 11,978 11,659
01/31/96 12,081 11,864
02/28/96 11,940 11,728
03/31/96 11,879 11,866
04/30/96 11,838 11,889
05/31/96 11,828 11,982
06/30/96 11,953 12,247
07/31/96 11,989 12,200
08/31/96 11,999 12,200
09/30/96 12,166 12,615
10/31/96 12,381 12,687
11/30/96 12,544 12,880
12/31/96 12,464 13,120
Average Annual Total Return
1-Year 5.53%
Since Inception 9.14%
<PAGE>
NORTHSTAR MULTI-SECTOR BOND FUND
THE MARKETS
o Moderate market interest rates and a federal funds rate that stayed at
5.25% all year helped the U.S. economy maintain both GDP growth and
inflation at about 3% in 1996. However, persistent fears of higher
inflation, caused 10 and 30 year Treasury bond rates to end 1996 at 6.42%
and 6.64%, respectively, 70-80 basis points higher than where they
started. That kept total returns on most bonds below 4%. In contrast,
sustained growth in the U.S. economy and in corporate profits sent stock
prices to record levels throughout 1996; all the major stock averages
returned 18% or more. Rising securities prices here also boosted the value
of the U.S. dollar.
o Total returns for domestic and foreign high yield bonds were very high
last year, exceeding 12% and 28%, respectively. Both of those groups
benefited from broader institutional demand. Emerging market bond prices
also reflected continued economic progress by the issuers. Since the
credit profile of domestic high yield bonds improves with the amount of
equity below them, those bonds' prices were boosted by higher stock
valuations.
o There is a weakening consensus that the U.S. economy will maintain
annual GDP growth and CPI inflation rates below 3%. The short-run
outlook for U.S. debt and equity markets nonetheless remains positive for
1997. The strong U.S. dollar limits the safe harbors among foreign
issuers; even those pursuing economic reforms.
THE FUND
o From 12/31/95 to 12/31/96, the total return of the Fund's shares was
12.53%, the Morningstar average was 3.14%. The Fund's outstanding
performance promoted sales that led its net assets to increase 66% in
1996, from $3.8 million to over $6.3 million.
o The Fund's performance was enhanced by changes in portfolio allocations.
We reduced U.S. Government securities and increased the Fund's holdings of
foreign investment grade and high yield securities, which improved the
Fund's yield, total return and quality simultaneously.
o Bonds issued by foreign companies and governments with improving credit
profiles contributed significantly to the Fund's high returns (e.g., APP,
CE Casecnan, Grupo Durango, Italy, New Zealand and Poland).
CURRENT STRATEGY
o Continue above-average exposure in non-cyclicals. Reduce holdings in cash.
Limit volatility by keeping the Fund's duration between 4 and 6 years.
o Target portfolio allocations for favorable mix of risks and rewards: 50%
high yield; 20% U.S. government; 30% investment grade (especially
high-quality foreign issues with above-average spreads and yields).
<TABLE>
<CAPTION>
FUND INFORMATION (ALL DATA IS AS OF 12/31/96) TOTAL NET ASSETS: $6,276,797
- ------------------------------------------------------------------------------------------------------------------------------------
TOP 10 HOLDINGS SECTOR ALLOCATIONS SEC AVERAGE ANNUAL RATES OF RETURN
NAME %FUND (by percentage of net asset) (at maximum applicable sales charges)
-----------------------------------
<S> <C>
(1) U.S. Treasury Notes 14.6% High Yield Securities Inception 1 year
(2) Globo Comm. e Part. Ltda. 3.2 --------- ------
(3) Trump Altlantic City 3.2 U.S. Gov't & Agencies 9.14% 5.53%
(4) PDV America, Inc. 3.1
(5) Republic of Italy 3.1 Investment Grade Sec. [Bar Graph appears here] CUMULATIVE TOTAL RETURNS
(6) GNMA 3.0 (do not reflect sales charge)
(7) Multicanal Participacoes SA 3.0 Cash -----------------------------
(8) Bar Technologies Ltd. 2.9 Inception 1 year
(9) APP Int'l Finance Co. 2.6 Equities --------- ------
(10) Republic of Poland 2.5 31.20% 12.53%
-----
41.2%
=====
</TABLE>
<PAGE>
NORTHSTAR MULTI-SECTOR BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Security Principal Amount Value
- --------------------------------------------------------------------------------
DOMESTIC INVESTMENT GRADE SECURITIES - 7.26%
Container - 0.89%
Owens-Illinois, Inc.
11.00%, Sr. Debentures, 12/01/03 $ 50,000 $ 55,875
--------
Entertainment - 1.54%
Paramount Communications, Inc.
8.25%, Sr. Debentures, 8/01/22 100,000 96,505
--------
Oil & Gas - 3.14%
PDV America, Inc.
7.875%, Sr. Notes, 8/1/03 200,000 197,420
--------
Utility - 1.69%
Boston Edison Co.
9.375%, Debentures, 8/15/21 100,000 106,013
--------
Total Domestic Investment Grade Securities
(cost $440,918) 455,813
--------
FOREIGN INVESTMENT GRADE SECURITIES - 10.49%
Food and Beverage - 2.44%
Panamerican Beverages, Inc.
8.125%, Sr. Notes, 4/01/03 150,000 153,160
--------
Foreign Government - 8.05%
Republic of Indonesia, 7.75%, due 8/01/06 150,000 152,175
Republic of Italy, 12.00%, due 5/01/02 (1) 245,000,000 196,549
Republic of Poland, 3.25/5.00%, due 10/27/24 $ 250,000 156,875
--------
505,599
--------
Total Foreign Investment Grade Securities
(cost $613,422) 658,759
--------
DOMESTIC HIGH YIELD SECURITIES - 29.24%
Broadcasting - 4.11%
Commodore Media, Inc.
7.50/13.25%, Sr. Subordinated Notes, 5/01/03 $ 100,000 106,000
EchoStar Satellite Broadcasting Corp.
0/13.125%, Sr. Secured Discount Notes, 3/15/04 $ 200,000 152,000
--------
258,000
--------
Finance - 3.83%
Central Rents, Inc.
12.875%, Sr. Notes, 12/15/03 100,000 104,500
Ocwen Financial Corp.
11.875%, Notes, 10/01/03 125,000 135,625
--------
240,125
--------
<PAGE>
NORTHSTAR MULTI-SECTOR BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Security Principal Amount Value
- --------------------------------------------------------------------------------
Grocery - 1.56%
Dairy Mart Convenience Stores, Inc.
10.25%, Sr. Subordinated Notes, 3/15/04 $100,000 $ 98,000
----------
Hotel & Gaming - 3.17%
Trump Atlantic City Funding, Inc.
11.25%, 1st Mortgage Notes, 5/01/06 200,000 199,000
----------
Insurance - 1.59%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 100,000 100,000
----------
Oil & Gas - 2.10%
TransTexas Gas Corp.
0/13.25%, Sr. Discount Notes, 12/31/03 $ 237,000 131,535
----------
Steel - 2.86%
Bar Technologies Ltd.
13.50%, Company Guarantee, 4/01/01 175,000 179,813
----------
Telecommunications - 10.02%
Adelphia Communications Corp.
12.50%, Sr. Notes, 5/15/02 100,000 102,875
GST USA, Inc.
0/13.875%, Sr. Discount Notes, 12/15/05 $ 225,000 134,437
Hyperion Telecommunications, Inc.
0/13.00%, Sr. Discount Notes, 4/15/03 $ 150,000 85,875
ICG Holdings, Inc.
0/12.50%, Sr. Discount Notes, 5/01/06 $ 100,000 66,938
Intercel, Inc.
0/12.00%, Sr. Discount Notes, 5/01/06 $ 150,000 93,750
Pagemart Nationwide, Inc.
0/15.00%, Sr. Discount Notes, 2/01/05 $ 120,000 83,400
WinStar Communications, Inc.
0/14.00%, Sr. Discount Notes, 10/15/05 $ 100,000 61,624
----------
628,899
----------
Total Domestic High Yield Securities
(cost $1,759,346) 1,835,372
----------
FOREIGN HIGH YIELD SECURITIES - 15.88%
Entertainment - 3.21%
Globo Communicacoes e Participacoes Ltda.
10.50%, Compan Guarantee, 12/20/06 # 200,000 201,750
----------
Paper - 3.88%
APP International Finance Co.
11.75%, Guaranteed Secured Notes, 10/01/05 150,000 162,375
Grupo Industrial Durango SA
12.00%, Notes, 7/15/01 75,000 80,625
----------
243,000
----------
<PAGE>
NORTHSTAR MULTI-SECTOR BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Principal Amount/
Security Units/Shares Value
- --------------------------------------------------------------------------------
Telecommunications - 6.91%
Clearnet Communications, Inc.
0/14.75%, Sr. Discount Notes, 12/15/05 $ $200,000 $125,250
Colt Telecommunications, Inc.
0/12.00%, Units, 12/15/06 $(2) 200 119,500
Multicanal Participacoes SA
12.625%, Sr. Notes, 6/18/04 # 175,000 189,000
--------
433,750
--------
Utilities - 1.88%
CE Casecnan Water and Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 100,000 118,250
--------
Total Foreign High Yield Securities
(cost $941,458) 996,750
--------
CONVERTIBLE BONDS - 2.45%
Telecommunications - 2.45%
SA Telecommunications, Inc.
10.00%, Notes, 8/15/06 # 125,000 119,375
WinStar Communications, Inc.
0/14.00%, Sr. Discount Notes, 10/15/05 $# 50,000 34,188
--------
Total Convertible Bonds
(Cost $158,875) 153,563
--------
PREFERRED STOCKS - 3.12%
Broadcasting - 2.27%
Paxson Communications Corp., 12.50% & 1,500 142,500
--------
Oil & Gas - 0.85%
Enron Capital Resources L.P., 9.00% 2,000 53,250
--------
Total Preferred Stocks
(cost $200,000) 195,750
--------
WARRANTS - 0.17% @
Consumer Products - 0.02%
Chattem, Inc. (expires 6/17/99) 50 1,013
--------
Grocery - 0%
Dairy Mart Convenience Stores, Inc.
(expires 12/01/01) 666 0
--------
Steel - 0.03%
Sheffield Steel Corp. (expires 11/01/01) 500 1,625
--------
<PAGE>
NORTHSTAR MULTI-SECTOR BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Shares/
Security Principal Amount Value
- --------------------------------------------------------------------------------
Telecommunications - 0.12%
Clearnet Communications, Inc.
(expires 9/15/05) 660 $ 4,785
Hyperion Telecommunications, Inc.
(expires 4/15/01) 150 3,000
----------
7,785
----------
Total Warrants
(cost $2,000) 10,423
----------
U.S. GOVERNMENT & AGENCIES - 18.32%
GNMA, 7.00%, 2/15/26 $194,098 189,851
Resolution Trust Corp.,
8.00%, 6/25/26 45,424 44,371
U.S. Treasury Notes, 6.75%, 5/31/99 900,000 916,002
----------
Total U.S. Government & Agencies
(cost $1,136,398) 1,150,224
----------
Total Investment Securities - 86.93%
(cost $5,252,417) 5,456,654
Repurchase Agreements - 12.43%
Agreement with State Street Bank and Trust
bearing interest at 5.10% dated 12/31/96,
to be repurchased 1/02/97 in the amount of
$780,221 and collateralized by $730,000
U.S. Treasury Notes, 7.25% due 8/15/22,
value $800,491 (cost $780,000) 780,000 780,000
Other assets less liabilities - 0.64% 40,143
----------
NET ASSETS - 100.00% $6,276,797
==========
$ Step Bond.
# Sale restricted to qualified institutional investors.
@ Non-income producing security.
& Payment-in-kind.
(1) The principal amount is shown in the respective country's currency.
(2) A unit consists of $1,000 par value 12.00%, Sr. Discount Notes,
12/15/06 and 1 warrant.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NORTHSTAR HIGH YIELD BOND FUND
GROWTH OF $10,000 INVESTED IN NORTHSTAR HIGH YIELD BOND FUND
FROM INCEPTION THROUGH THE FUND'S FISCAL YEAR END.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar High Yield Bond Fund from May 6, 1994 (inception of the Fund) through
December 31, 1996, assuming the reinvestment of dividends and capital gains at
net asset value, compared to the Lehman Brothers' Government/Corporate Bond
Index for the same period. All performance data shown represents past
performance, and should not be considered indicative of future performance.
Northstar High Yield Bond Fund
HIGH YIELD
LEHMAN HIGH
GOVT/CORP YIELD
10,000 10,000
05/31/94 9,982 10,040
06/30/94 9,959 10,026
07/31/94 10,158 9,905
08/31/94 10,162 9,905
09/30/94 10,009 9,991
10/31/94 9,998 9,909
11/30/94 9,980 9,683
12/31/94 10,046 9,905
01/31/95 10,239 9,905
02/28/95 10,476 10,074
03/31/95 10,546 10,426
04/30/95 10,693 10,621
05/31/95 11,141 10,750
06/30/95 11,230 10,870
07/31/95 11,186 11,025
08/31/95 11,329 10,981
09/30/95 11,445 11,279
10/31/95 11,613 11,143
11/30/95 11,805 11,256
12/31/95 11,978 11,743
01/31/96 12,081 12,022
02/28/96 11,940 11,999
03/31/96 11,879 12,222
04/30/96 11,838 12,365
05/31/96 11,828 12,580
06/30/96 11,953 12,731
07/31/96 11,989 12,584
08/31/96 11,999 12,584
09/30/96 12,166 13,155
10/31/96 12,381 13,130
11/30/96 12,544 13,255
12/31/96 12,464 13,592
Average Annual Total Return
1-Year 8.75%
Since Inception 10.66%
<PAGE>
NORTHSTAR HIGH YIELD BOND FUND
THE MARKETS
o Moderate market interest rates and a federal funds rate that stayed at
5.25% all year helped the U.S. economy maintain both GDP growth and
inflation at about 3% in 1996. However, persistent fears of higher
inflation caused 10 and 30 year Treasury bond rates to end 1996 at 6.42%
and 6.64%, respectively, 70-80 basis points higher than where they
started. That kept total returns on most bonds below 4%. In contrast,
sustained growth in the U.S. economy and in corporate profits sent stock
prices to record levels throughout 1996; all the major stock averages
returned 18% or more. Rising securities prices here also boosted the value
of the U.S. dollar.
o Total returns for domestic and foreign high yield bonds were very high
last year, exceeding 12% and 28%, respectively. Both of those groups
benefited from broader institutional demand. Emerging market bond prices
also reflected continued economic progress by the issuers. Since the
credit profile of domestic high yield bonds improves with the amount of
equity below them, those bonds' prices were boosted by higher stock
valuations.
o There is a weakening consensus that the U.S. economy will maintain
annual GDP growth and CPI inflation rates below 3%. The short-run
outlook for U.S. debt and equity markets nonetheless remains positive for
1997. The strong U.S. dollar limits the safe harbors among foreign
issuers; even those pursuing economic reforms.
THE FUND
o From 12/31/95 to 12/31/96, the total return of the Fund was 15.75%, the
Morningstar average was 12.92%. The Fund's outstanding performance
promoted sales that led its net assets to increase 38% in 1996, from $4.8
million to over $6.6 million.
o The Fund's performance was enhanced by changes in portfolio allocations.
We underweighted investments in cyclical industries (e.g., steel,
chemicals and paper) and cut holdings of zero-coupon bonds. We increased
returns by increasing investments in the telecommunications, broadcasting,
healthcare and misc. service industries and in high-quality emerging
market corporate bonds. We raised cash to avoid year-end losses.
o Bonds issued by companies with improving credit profiles contributed
significantly to the Fund's high returns (e.g., APP, Benton Oil,
Chancellor Broadcasting, EchoStar, Grupo Durango, La Petite and Ocwen).
CURRENT STRATEGY
o Continue to focus on spreads among individual securities with different
risk profiles/ratings, to invest in securities with the best relative
values, to sell securities which reach our objectives and to maintain
above-average exposure in non-cyclical industries.
<TABLE>
<CAPTION>
FUND INFORMATION (ALL DATA IS AS OF 12/31/96) TOTAL NET ASSETS: $6,619,298
- ------------------------------------------------------------------------------------------------------------------
TOP 10 HOLDINGS TOP 5 INDUSTRIES SEC AVERAGE ANNUAL RATES OF RETURN
NAME %FUND (by percentage of net asset) (at maximum applicable sales charges)
-------------------------------------
<S> <C>
(1) Multicanal Participacoes 3.3% Telecommunications Inception 1 year
(2) Intracel Corp. 3.1 --------- ------
(3) Paging Network, Inc. 3.1 Broadcasting 10.66% 8.75%
(4) APP Int'l Finance Co. 2.5
(5) Celestica Int'l, Inc. 2.4 Healthcare [Bar Graph appears here] CUMULATIVE TOTAL RETURNS
(6) U.S. Can Corp. 2.4 (do not reflect sales charge)
(7) EchoStar Satellite Broad. 2.3 Miscellaneous Services --------------------------------
(8) Trump Atlantic City 2.3 Inception 1 year
(9) Ocwen Financial Corp. 2.0 Paper --------- ------
(10) Clearnet Comm. 1.9 35.92% 15.75%
-----
25.3%
=====
</TABLE>
<PAGE>
NORTHSTAR HIGH YIELD BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Security Principal Amount Value
- --------------------------------------------------------------------------------
DOMESTIC CORPORATE BONDS & NOTES - 48.51%
BROADCASTING - 5.31%
Commodore Media, Inc.
7.50/13.25%, Sr. Subordinated Notes, 5/01/03 $ $100,000 $106,000
EchoStar Satellite Broadcasting Corp.
0/13.125%, Sr. Secured Discount Notes, 3/15/04 $ 200,000 152,000
PanAmSat L.P.
0/11.375%, Sr. Subordinated Notes, 8/01/03 $ 100,000 93,250
--------
351,250
--------
CABLE - 1.13%
Heartland Wireless Communications, Inc.
13.00%, Sr. Notes, 4/15/03 75,000 74,625
--------
CONGLOMERATE - 0.76%
Great Dane Holdings, Inc.
12.75%, Sr. Subordinated Debentures, 8/01/01 50,000 50,375
--------
CONSUMER PRODUCTS - 1.57%
Rayovac Corp.
10.25%, Sr. Subordinated Notes, 11/01/06 # 100,000 103,875
--------
ENTERTAINMENT - 1.46%
Paramount Communications, Inc.
8.25%, Sr. Debentures, 8/01/22 100,000 96,505
--------
ENVIRONMENTAL CONTROL - 1.59%
Allied Waste North America, Inc.
10.25%, Sr. Subordinated Notes, 12/01/06 # 100,000 105,250
--------
FINANCE - 3.63%
Central Rents, Inc.
12.875%, Sr. Notes, 12/15/03 100,000 104,500
Ocwen Financial Corp.
11.875%, Notes, 10/01/03 125,000 135,625
--------
240,125
--------
GROCERY - 1.48%
Dairy Mart Convenience Stores, Inc.
10.25%, Sr. Subordinated Notes, 3/15/04 100,000 98,000
--------
HEALTHCARE - 3.19%
Dade International, Inc.
11.125%, Sr. Subordinated Notes, 5/01/06 100,000 108,750
Imed Corp.
9.75%, Sr. Subordinated Notes, 12/01/06 # 100,000 102,125
--------
210,875
--------
HOTELS & GAMING - 2.25%
Trump Atlantic City Funding, Inc.
11.25%, 1st Mortgage Notes, 5/01/06 150,000 149,250
--------
<PAGE>
NORTHSTAR HIGH YIELD BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
INSURANCE - 1.51%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 $100,000 $ 100,000
---------
MANUFACTURING - 2.38%
U.S. Can Corp.
10.125%, Sr. Subordinated Notes, 10/15/06 # 150,000 157,875
---------
MISCELLANEOUS SERVICES - 4.30%
Coinstar, Inc.
0/13.00%, Units, 10/01/06 $#(1) 150 106,050
La Petite Holdings Corp.
9.625%, Sr. Secured Notes, 8/01/01 100,000 100,250
Real Time Data, Inc.
0/13.50%, Units, 8/15/06 $#(2) 143 78,650
---------
284,950
---------
OIL & GAS - 1.67%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 # 100,000 110,500
---------
RETAIL & WHOLESALE - 1.27%
Waban, Inc.
11.00%, Sr. Subordinated Notes, 5/15/04 75,000 84,375
---------
STEEL - 1.54%
WCI Steel, Inc.
10.00%, Sr. Notes, 12/01/04 # 100,000 102,250
---------
TELECOMMUNICATIONS - 13.43%
Geotek Communications, Inc.
0/15.00%, Sr. Discount Notes, 7/15/05 $ 100,000 63,500
Hyperion Communications, Inc.
0/13.00%, Sr. Discount Notes, 4/15/03 $ 150,000 85,875
ICG Holdings, Inc.
0/12.50%, Sr. Discount Notes, 5/01/06 $ 100,000 66,938
Intercel, Inc.
0/12.00%, Sr. Discount Notes, 5/01/06 $ 150,000 93,750
Pagemart Nationwide, Inc.
0/15.00%, Sr. Discount Notes, 2/01/05 $ 150,000 104,250
Paging Network, Inc.
10.00%, Sr. Subordinated Notes, 10/15/08 # 200,000 203,250
PriCellular Wireless Corp.
10.75%, Sr. Notes, 11/01/04 # 100,000 104,625
Western Wireless Corp.
10.50%, Sr. Subordinated Notes, 6/01/06 100,000 104,875
WinStar Communications, Inc.
0/14.00%, Sr. Discount Notes, 10/15/05 $ 100,000 61,625
---------
888,688
---------
<PAGE>
NORTHSTAR HIGH YIELD BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Security Principal Amount Value
- --------------------------------------------------------------------------------
TRANSPORTATION - 0.04%
Burlington Motor Holdings, Inc.
11.50%, Sr. Subordinated Notes, 11/01/03 * $100,000 $ 2,375
---------
TOTAL DOMESTIC CORPORATE BONDS & NOTES
(cost $3,147,019) 3,211,143
---------
FOREIGN BONDS & NOTES - 25.45%
CABLE - 3.26%
Multicanal Participacoes SA
12.625%, Company Guarantee, 6/18/04 200,000 216,000
---------
CHEMICALS - 1.49%
Acetex Corp.
9.75%, Sr. Secured Notes, 10/01/03 100,000 98,750
---------
COMPUTER SERVICE - 2.39%
Celestica International, Inc.
10.50%, Sr. Subordinated Notes, 12/31/06 # 150,000 157,875
---------
CONSUMER PRODUCTS - 0.99%
International Semi-Tech Corp.
0/11.50%, Sr. Secured Discount Notes, 8/15/03 $ 100,000 65,250
---------
ENTERTAINMENT - 1.51%
Global Communicacoes e Participacoes Ltda.
9.875%, Company Guarantee, 12/20/04 # 100,000 100,000
---------
MISCELLANEOUS SERVICES - 1.58%
Intertek Finance PLC
10.25%, Sr. Subordinated Notes, 11/01/06 # 100,000 104,500
---------
OIL & GAS - 1.24%
Invergas SA
12.50%, Notes, 12/16/99 # 75,000 82,125
---------
PAPER PRODUCTS - 5.50%
APP International Finance Co.
11.75% Guaranteed Secured Notes, 10/01/05 150,000 162,375
Grupo Industrial Durango SA
12.00% Notes, 7/15/01 75,000 80,625
Indah Kiat International Finance Corp.
12.50%, Guaranteed Secured Notes, 6/15/06 50,000 55,625
Malette, Inc.
12.25%, Sr. Secured Notes, 7/15/04 61,000 65,270
---------
363,895
---------
PRINTING & PUBLISHING - 1.55%
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 # 100,000 103,000
---------
<PAGE>
NORTHSTAR HIGH YIELD BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Principal Amount/
Security Units/Shares Value
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - 4.15%
Clearnet Communications, Inc.
0/14.75%, Sr. Discount Notes, 12/15/05 $ $200,000 $ 125,250
Colt Telecom Group PLC
0/12.00%, Units, 12/15/06 $ (3) 100 59,750
Occidente Y Caribe Celular SA
0/14.00%, Sr. Discount Notes, 3/15/04 $# 150,000 90,000
---------
275,000
---------
UTILITIES - 1.79%
CE Casecnan Water and Energy Co.
11.95% Sr. Secured Notes, 11/15/10 100,000 118,250
---------
TOTAL FOREIGN BONDS & NOTES
(cost $1,602,321) 1,684,645
---------
CONVERTIBLE BONDS - 2.32%
TELECOMMUNICATIONS - 2.32%
SA Telecommunications, Inc.
10.00%, Notes, 8/15/06 # 125,000 119,375
WinStar Communications, Inc.
0/14.00%, Sr. Discount Notes, 10/15/05 $ # 50,000 34,187
---------
TOTAL CONVERTIBLE BONDS
(cost $157,411) 153,562
---------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 3.07% @
HEALTHCARE - 3.07%
Intracel Corp., 8.00% (4) 13,560 203,400
---------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $100,000) 203,400
---------
DOMESTIC PREFERRED STOCKS - 7.36%
BROADCASTING - 4.68%
Benedek Communications Corp., 15.00% # 1,000 102,750
Chancellor Broadcasting Co., 12.25% # & 1,000 112,000
Paxson Communications Corp., 12.50% & 1,000 95,000
---------
309,750
---------
HEALTHCARE - 1.55%
Fresenius Medical Care Capital Trust, 9.00% 100 102,250
---------
MISCELLANEOUS SERVICES - 1.13%
La Petite Holdings Corp., 12.125% 2,000 75,000
---------
TOTAL DOMESTIC PREFERRED STOCKS
(cost $459,000) 487,000
---------
<PAGE>
NORTHSTAR HIGH YIELD BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Security Shares Value
- --------------------------------------------------------------------------------
DOMESTIC COMMON STOCKS - 0.20% @
BROADCASTING - 0.20%
EchoStar Communications Corp. 450 $ 9,900
Pegasus Media & Communications, Inc. # 10 3,000
---------
TOTAL DOMESTIC COMMON STOCKS
(cost $7,322) 12,900
---------
DOMESTIC WARRANTS - 1.16% @
BROADCASTING/CABLE - 0.36%
Benedek Communications Corp. (expires 7/01/07) 1,000 3,250
Spanish Broadcasting Systems, Inc. (expires 6/30/99) 100 20,500
---------
23,750
---------
CABLE - 0.01%
Heartland Wireless Communication, Inc. (expires 4/15/00) 450 675
---------
CONSUMER PRODUCTS - 0.02%
Chattem, Inc. (expires 6/17/99) 50 1,013
---------
FINANCE - 0.09%
Central Rents, Inc. (expiration 2003) 100 6,000
---------
GROCERY - 0%
Dairy Mart Convenience Stores, Inc. (expires 12/12/01) 666 0
---------
PAPER - 0.48%
SDW Holdings Corp. (expires 1/01/00) # 6,400 32,000
---------
STEEL - 0.02%
Sheffield Steel Corp. (expires 11/01/01) 500 1,625
---------
TELECOMMUNICATIONS - 0.18%
Geotek Communications, Inc. (expiration 2000) 3,000 9,000
Hyperion Communications, Inc. (expires 4/15/01) 150 3,000
---------
12,000
---------
TOTAL DOMESTIC WARRANTS
(cost $62,500) 77,063
---------
FOREIGN WARRANTS - 0.07% @
TELECOMMUNICATIONS - 0.07%
Clearnet Communications, Inc. (expires 9/15/05) 660 4,785
Occidente Y Caribe Celular SA 600 6
---------
TOTAL FOREIGN WARRANTS
(cost $0) 4,791
---------
TOTAL INVESTMENT SECURITIES - 88.14%
(cost $5,535,573) 5,834,504
<PAGE>
Security Principal Amount Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 11.21%
Agreement with State Street Bank and Trust
bearing interest at 5.10% dated 12/31/96,
to be repurchased 1/02/97 in the amount of
$742,210 and collateralized by $730,000 U.S.
Treasury Notes, 7.25% due 2/15/98, value
$761,938 (cost $742,000) $742,000 $ 742,000
OTHER ASSETS LESS LIABILITIES - 0.65% 42,794
---------
NET ASSETS - 100.00% $6,619,298
$ Step bond.
# Sale restricted to qualified institutional investors.
* Defaulted Security.
@ Non-income producing security.
& Payment-in-kind security.
(1) A unit consists of $1,000 par value 13.00%, Sr. Subordinated Notes, 10/01/06
and 1 warrant.
(2) A unit consists of $1,000 par value 13.50%, Subordinated Notes, 8/15/06 and
1 warrant.
(3) A unit consists of $1,000 par value 12.00%, Sr. Discount Notes, 12/15/06 and
1 warrant.
(4) Private placement.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NORTHSTAR VARIABLE TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NORTHSTAR NORTHSTAR NORTHSTAR
NORTHSTAR INCOME AND MULTI-SECTOR HIGH YIELD
GROWTH FUND GROWTH FUND BOND FUND BOND FUND
------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities at value (cost $13,475,738,
$10,783,026, $5,252,417 and $5,535,573, respectively)...... $14,649,253 $11,604,425 $5,456,654 $5,834,504
Repurchase agreements...................................... 1,214,000 1,068,000 780,000 742,000
Cash....................................................... 173 504 610 486
Receivable for shares of beneficial interest sold.......... 399,862 19,972 12,837 0
Dividends and interest receivable.......................... 9,110 64,474 66,814 70,521
Prepaid expenses........................................... 1,463 1,557 1,465 1,480
Receivable for investments sold............................ 0 188,896 0 0
------------------------------------------------------------
Total Assets..................................... 16,273,861 12,947,828 6,318,380 6,648,991
============================================================
LIABILITIES:
Payable for investments purchased.......................... 681,638 25,584 0 0
Custodian and fund accounting fees payable................. 9,688 9,168 7,370 7,903
Management fees payable.................................... 8,850 8,046 3,814 4,075
Audit fees payable......................................... 5,925 5,763 5,804 5,860
Administrative services fees payable ...................... 1,180 1,073 509 543
Payable for fund shares repurchased........................ 18 315,386 17,635 106
Income distribution payable................................ 0 0 4,446 8,934
Other liabilities.......................................... 2,830 3,653 2,005 2,272
------------------------------------------------------------
Total Liabilities................................ 710,129 368,673 41,583 29,693
============================================================
NET ASSETS $15,563,732 $12,579,155 $6,276,797 $6,619,298
============================================================
NET ASSETS WERE COMPOSED OF:
Capital paid in for shares of beneficial interest, $.01 par
value outstanding (unlimited shares authorized)............ $14,341,240 $11,710,202 $6,072,471 $6,325,285
Undistributed (overdistributed) net investment income...... 7,314 0 0 0
Accumulated net realized gain (loss) on investments........ 41,663 47,554 89 (4,918)
Net unrealized appreciation of investments................. 1,173,515 821,399 204,237 298,931
------------------------------------------------------------
NET ASSETS....................................... $15,563,732 $12,579,155 $6,276,797 $6,619,298
============================================================
Net Asset Value Per Share ($15,563,732/1,105,209 shares
$12,579,155/1,073,680 shares, $6,276,797/1,195,865
shares, and $6,619,298/1,255,771 shares, respectively)..... $14.08 $11.72 $5.25 $5.27
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NORTHSTAR VARIABLE TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NORTHSTAR NORTHSTAR NORTHSTAR
NORTHSTAR INCOME AND MULTI-SECTOR HIGH YIELD
GROWTH FUND GROWTH FUND BOND FUND BOND FUND
----------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $57, $455, $0, and $0,
respectively).............................................. $ 68,144 $ 218,768 $ 5,937 $ 1,438
Interest (net of withholding tax of ($0, $0, $549, $(1,055),
respectively).............................................. 42,609 230,613 449,430 490,488
==========================================================
Total investment income.................................... 110,753 449,381 455,367 491,926
==========================================================
EXPENSES:
Investment advisory and management fees.................... 57,245 75,425 37,217 38,770
Custodian and fund accounting fees......................... 34,984 37,275 27,763 31,567
Audit fees................................................. 13,733 9,975 10,016 10,094
Proxy expense.............................................. 11,143 2,146 0 0
Administrative services fees............................... 7,633 10,057 4,962 5,169
Printing expense........................................... 3,854 4,754 2,309 2,892
Insurance expense.......................................... 211 452 216 281
Trustee fees and expenses.................................. 76 199 176 88
Miscellaneous expenses..................................... 930 785 649 648
==========================================================
129,809 141,068 83,308 89,509
Less expenses reimbursed by investment advisor............. 68,758 60,664 43,785 48,170
==========================================================
Total expenses................................... 61,051 80,404 39,523 41,339
----------------------------------------------------------
Net investment income...................................... 49,702 368,977 415,844 450,587
----------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments........................... 46,193 875,927 125,074 141,662
Net change in unrealized appreciation of investments....... 824,112 211,159 97,621 177,347
----------------------------------------------------------
Net realized and unrealized gain of investments.. 870,305 1,087,086 222,695 319,009
----------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $920,007 $1,456,063 $638,539 $769,596
==========================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NORTHSTAR VARIABLE TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NORTHSTAR NORTHSTAR NORTHSTAR
NORTHSTAR INCOME AND MULTI-SECTOR HIGH YIELD
GROWTH FUND GROWTH FUND BOND FUND BOND FUND
-------------------------------------------------------------
<S> <C>
FROM OPERATIONS:
Net investment income................................... $ 49,702 $ 368,977 $ 415,844 $ 450,587
Net realized gain on investments........................ 46,193 875,927 125,074 141,662
Net change in unrealized appreciation of investments.... 824,112 211,159 97,621 177,347
-------------------------------------------------------------
Increase in net assets resulting from operations..... 920,007 1,456,063 638,539 769,596
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income................................... (53,026) (375,181) (418,626) (454,312)
Net realized gain on investments........................ (42,112) (827,993) (111,901) (103,694)
-------------------------------------------------------------
(95,138) (1,203,174) (530,527) (558,006)
-------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares........................ 13,457,465 5,570,265 3,341,543 2,731,211
Net asset value of shares issued to
shareholders in reinvestment of dividends............ 95,138 1,203,174 526,080 549,072
-------------------------------------------------------------
13,552,603 6,773,439 3,867,623 3,280,283
Cost of shares redeemed................................. (2,627,034) (1,857,666) (1,464,570) (1,646,044)
-------------------------------------------------------------
Net increase in net assets derived from capital
share transactions................................... 10,925,569 4,915,773 2,403,053 1,634,239
-------------------------------------------------------------
Net increase in net assets................................. 11,750,438 5,168,662 2,511,065 1,845,829
NET ASSETS:
Beginning of year.......................................... 3,813,294 7,410,493 3,765,732 4,773,469
-------------------------------------------------------------
End of year (including undistributed (overdistributed)
net investment income of $7,314, $0, $0, $0
respectively)........................................ $15,563,732 $12,579,155 $6,276,797 $6,619,298
=============================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NORTHSTAR VARIABLE TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NORTHSTAR NORTHSTAR NORTHSTAR
NORTHSTAR INCOME AND MULTI-SECTOR HIGH YIELD
GROWTH FUND GROWTH FUND BOND FUND BOND FUND
--------------------------------------------------------------
<S> <C>
FROM OPERATIONS:
Net investment income................................... $ 56,353 $ 194,756 $ 272,392 $ 393,818
Net realized gain (loss) on investments................. 283,906 170,332 (10,020) (46,687)
Net change in unrealized appreciation of investments.... 338,855 642,622 185,291 281,787
--------------------------------------------------------------
Increase in net assets resulting from operations..... 679,114 1,007,710 447,663 628,918
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income................................... (52,710) (195,505) (269,960) (387,799)
Net realized gain on investments........................ (235,625) (163,759) 0 0
--------------------------------------------------------------
(288,335) (359,264) (269,960) (387,799)
--------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares........................ 468,249 3,826,113 951,319 1,731,908
Net asset value of shares issued to
shareholders in reinvestment of dividends............ 288,334 364,564 271,848 395,812
--------------------------------------------------------------
756,583 4,190,677 1,223,167 2,127,720
Cost of shares redeemed................................. (35,007) (1,023,212) (351,281) (183,528)
--------------------------------------------------------------
Net increase in net assets derived from capital
share transactions................................... 721,576 3,167,465 871,886 1,944,192
--------------------------------------------------------------
Net increase in net assets................................. 1,112,355 3,815,911 1,049,589 2,185,311
NET ASSETS:
Beginning of year.......................................... 2,700,939 3,594,582 2,716,143 2,588,158
--------------------------------------------------------------
End of year (including undistributed (overdistributed)
net investment income of $3,583, $(275), $2,782,
and $3,725,respectively)............................. $3,813,294 $7,410,493 $3,765,732 $4,773,469
==============================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NORTHSTAR VARIABLE TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTION
VALUE, NET & UNREALIZED TOTAL FROM DECLARED FROM DECLARED
BEGINNING OF INVESTMENT GAIN (LOSS) ON INVESTMENT NET INVEST- FROM NET TOTAL
PERIOD ENDED PERIOD INCOME INVESTMENTS OPERATIONS MENT INCOME REALIZED GAINS DISTRIBUTIONS
- ------------ ------------ ---------- -------------- ---------- ------------- -------------- -------------
<S> <C>
NORTHSTAR GROWTH FUND
5/06/94-
12/31/94 $10.00 $0.16 $0.19 $0.35 ($0.16) ($0.15) ($0.31)
12/31/95 10.04 0.20 2.27 2.47 (0.19) (0.76) (0.95)
12/31/96 11.56 0.08 2.57 2.65 (0.09) (0.04) (0.13)
NORTHSTAR INCOME AND GROWTH FUND
5/06/94-
12/31/94 10.00 0.20 (0.01) 0.19 (0.20) (0.07) (0.27)
12/31/95 9.92 0.37 1.73 2.10 (0.37) (0.26) (0.63)
12/31/96 11.39 0.40 1.15 1.55 (0.41) (0.81) (1.22)
NORTHSTAR MULTI-SECTOR BOND FUND
5/06/94-
12/31/94 5.00 0.23 (0.15) 0.08 (0.23) (0.00) (0.23)
12/31/95 4.85 0.42 0.29 0.71 (0.42) (0.00) (0.42)
12/31/96 5.14 0.41 0.21 0.62 (0.41) (0.10) (0.51)
NORTHSTAR HIGH YIELD BOND FUND
5/06/94-
12/31/94 5.00 0.28 (0.31) (0.03) (0.28) (0.00) (0.28)
12/31/95 4.69 0.50 0.34 0.84 (0.49) (0.00) (0.49)
12/31/96 5.04 0.45 0.32 0.77 (0.45) (0.09) (0.54)
</TABLE>
* For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
(1) Annualized
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
RATIO OF
EXPENSE RATIO OF NET
RATIO OF REIMBURSE- INVESTMENT
NET ASSET NET ASSETS, EXPENSES TO MENT TO INCOME TO
VALUE, END END OF PERIOD AVERAGE NET AVERAGE NET AVERAGE NET PORTFOLIO AVERAGE
OF PERIOD TOTAL RETURN (000'S) ASSETS ASSETS ASSETS TURNOVER COMMISSIONS*
- ---------- ------------ ------------- ----------- ----------- ------------ --------- -----------
<S> <C>
$10.04 3.47% $2,701 1.00%(1) 1.45%(1) 2.31%(1) 61% N/A
11.56 24.78 3,813 0.80 1.24 1.77 123 N/A
14.08 22.99 15,564 0.80 0.90 0.65 161 $0.0414
9.92 2.02 3,595 1.00 (1) 1.43 (1) 3.11 (1) 45 N/A
11.39 21.39 7,410 0.80 0.94 3.63 74 N/A
11.72 13.80 12,579 0.80 0.60 3.67 129 0.0401
4.85 1.41 2,716 1.00 (1) 1.41 (1) 7.03 (1) 29 N/A
5.14 14.97 3,766 0.80 1.26 8.52 83 N/A
5.25 12.53 6,277 0.80 0.88 8.38 121 0.00
4.69 (0.95) 2,588 1.00 (1) 1.55 (1) 8.62 (1) 62 N/A
5.04 18.55 4,773 0.80 1.31 10.61 157 N/A
5.27 15.75 6,619 0.80 0.93 8.72 159 0.0547
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NORTHSTAR VARIABLE TRUST
Notes to Financial Statements - December 31, 1996
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. The Northstar Variable Trust, (formerly Northstar/NWNL Trust), is
a business trust organized under the laws of the Commonwealth of Massachusetts
on December 17, 1993. The names of the four investment series which comprise the
Trust (the "Funds") and their respective investment objectives are set forth
below. Each Fund commenced offering shares on May 6, 1994.
NORTHSTAR GROWTH FUND ("GROWTH FUND") is a diversified portfolio
with an investment objective of long-term growth of capital through
investments in common stocks and convertible securities that the
Adviser believes provide above average potential for capital
appreciation.
NORTHSTAR INCOME AND GROWTH FUND ("INCOME AND GROWTH FUND") is a
diversified portfolio with the investment objective of current
income balanced with the objective of achieving capital
appreciation. The Fund will seek to achieve its objective through
investments in a diversified group of securities selected for their
prospects of current yield and capital appreciation.
NORTHSTAR MULTI-SECTOR BOND FUND ("MULTI-SECTOR FUND") is a
diversified portfolio whose investment objective is to maximize
current income. The Fund seeks to achieve its objective by investing
in U.S. Government Bonds, Foreign Government Bonds, Investment Grade
Bonds and High Yield Bonds, each as defined in the Prospectus for
the Trust.
NORTHSTAR HIGH YIELD BOND FUND ("HIGH YIELD FUND") is a diversified
portfolio whose investment objective is to seek high income. The
Fund invests primarily in a diversified group of high yield, high
risk fixed income securities, convertible securities, securities
issued by U.S. companies in foreign currencies, and securities
issued by foreign governments and companies.
SECURITY VALUATION. Equity securities are valued at closing sales prices
reported on recognized securities exchanges or lacking any sales, at the last
available bid price. Prices of long-term debt securities are valued on the basis
of last reported sales price, or if no sales are reported, the value is
determined based upon the mean of representative quoted bid or asked prices for
such securities, or if such prices are not available, at prices provided by
market makers, or at prices for securities of comparable maturity, quality and
type. Short-term debt instruments with remaining maturities of less than 60 days
are valued at amortized cost, unless the Trustees determine that amortized cost
does not reflect the fair value of such obligations. Securities for which market
quotations are not readily available are valued at fair value determined in good
faith by or under direction of the Trustees of the Trust. The books and records
of the Funds are maintained in U.S. dollars. Securities quoted in foreign
currencies are translated into U.S. dollars based on the prevailing exchange
rates on that day. The Adviser uses independent pricing services to price the
Funds' securities.
SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTION TO
SHAREHOLDERS. Security transactions are recorded on the trade date. Realized
gains or losses on sales of investments are calculated on the identified cost
basis. Interest income is recorded on the accrual basis except when collection
is not expected; discounts are accrued, and premiums amortized to par at
maturity; dividend income is recorded on the ex-dividend dates. Dividends from
net investment income were declared and paid quarterly by the Funds.
Distributions of net realized capital gains, if any, are declared annually;
however, to the extent that a net realized capital gain can be reduced by a
capital loss carryover, such gain will not be distributed. Distributions to
shareholders from net investment income and net realized gain from security
transactions are reinvested at net asset value by each Fund on the ex-dividend
date. The funds may periodically make reclassifications among certain of their
capital accounts as a result of the timing and characterization of certain
income and capital gains distributions determined annually in accordance with
federal tax regulations which may differ from generally accepted accounting
principles. As of December 31, 1996, the following amounts have been
reclassified:
<TABLE>
<CAPTION>
Undistributed Accumulated Net
Net Investment Income Realized Gain on Investment Paid-in-Capital
--------------------- --------------------------- ---------------
<S> <C>
Growth Fund 7,055 (7,055) 0
Income and Growth Fund 6,479 (388) (6,091)
High Yield Bond Fund 0 5,095 (5,095)
</TABLE>
These reclassifications did not affect net investment income, net realized gain
on investments, or net assets for the year ended December 31, 1996.
<PAGE>
REPURCHASE AGREEMENTS. The Funds' custodian takes possession of collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a marked-to-market basis to assure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default on the obligation to repurchase, the Funds have the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. If the
seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Funds may be delayed or limited.
FEDERAL INCOME TAXES. The Trust intends to comply with the special provisions of
the Internal Revenue Code available to investment companies and to distribute
all of the taxable net income to respective shareholders. Therefore, no Federal
income tax provision is required.
ORGANIZATION COSTS. Costs incurred by the Trust in connection with its
organization of each Fund have been deferred and are being amortized over a
period of five years from the date the Funds commenced operations.
NOTE 2. INVESTMENT ADVISER AND ADMINISTRATOR.
Northstar Investment Management Corporation (the "Adviser") serves as each
Fund's investment adviser. Each Fund pays the Adviser an investment advisory fee
calculated at an annual rate of 0.75% of average daily net assets. For the year
ended December 31, 1996, the Adviser earned $208,657 in investment advisory
fees. Northstar Administrators Corporation (the "Administrator"), an affiliate
of the Adviser, serves as each Fund's administrator. Each Fund pays the
Administrator a fee calculated at an annual rate of 0.10% of average daily net
assets. For the fiscal year ended December 31, 1996, the Administrator earned
$27,821 in administrative fees. The Adviser has agreed that if a Fund's total
operating expenses exceed 0.80% annually, the Adviser will reimburse the Fund
for amounts in excess of such limit. For the year ended December 31, 1996, the
Adviser has reimbursed the Growth Fund $68,758, the Income and Growth Fund
$60,664, the Multi-Sector Fund $43,785 and the High Yield Fund $48,170.
Navellier Fund Management, Inc. ("Navellier"), a registered investment adviser,
serves as subadvisor to the Growth Fund pursuant to a Subadvisory Agreement
dated February 1, 1996, between the Adviser and Navellier. For its services,
Navellier receives an annual fee from the advisor equal to 0.48% of the average
daily net assets of the Fund. For the period February 1, 1996 through December
31, 1996, Navellier received $16,648 in subadvisory fees from the Adviser.
NOTE 3. PURCHASES AND SALE OF INVESTMENT SECURITIES
The aggregate cost of purchases, and proceeds from sales of investments
(excluding short-term investments) for the twelve months ended December 31, 1996
were as follows:
<TABLE>
<CAPTION>
INCOME AND
GROWTH FUND GROWTH FUND MULTI-SECTOR FUND HIGH YIELD FUND
----------- ----------- ----------------- ---------------
<S> <C>
Aggregate Purchases $21,746,287 $15,655,775 $7,004,009 $8,042,616
Aggregate Sales 11,419,253 11,934,716 5,426,095 7,204,585
U.S. Government Securities included above were as follows:
Aggregate Purchases $0 $2,226,299 $2,293,840 $493,554
Aggregate Sales 0 2,752,861 1,335,985 500,000
</TABLE>
NOTE 4. PORTFOLIO SECURITIES (TAX BASIS) The cost of securities for federal
income tax purposes and the aggregate appreciation and depreciation of
securities at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
INCOME AND
GROWTH FUND GROWTH FUND MULTI-SECTOR FUND HIGH YIELD FUND
----------- ----------- ----------------- ---------------
<S> <C>
Cost (tax basis) $13,475,738 $10,783,026 $5,252,417 $5,535,573
----------- ----------- ---------- ----------
Appreciated Securities 1,416,764 1,061,703 249,853 437,044
Depreciated Securities (243,249) (240,304) (45,616) (138,113)
----------- ----------- ---------- ----------
Net Unrealized Appreciation $ 1,173,515 $ 821,399 $ 204,237 $ 298,931
----------- ----------- ---------- ----------
</TABLE>
<PAGE>
NOTE 5. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of each Fund for the year ended December 31, 1996
were as follows:
<TABLE>
<CAPTION>
INCOME AND
GROWTH FUND GROWTH FUND MULTI-SECTOR FUND HIGH YIELD FUND
----------- ----------- ----------------- ---------------
<S> <C>
Shares Sold 968,805 476,604 641,205 519,989
Reinvested Dividends 6,917 102,180 100,988 105,109
Shares Repurchased (200,241) (155,956) (278,987) (315,859)
--------- ---------- ----------- ----------
Net Increase 775,481 422,828 463,206 309,239
--------- ---------- ----------- ----------
</TABLE>
Transactions in capital shares of each Fund for the year ended December 31, 1995
were as follows:
<TABLE>
<CAPTION>
INCOME AND
GROWTH FUND GROWTH FUND MULTI-SECTOR FUND HIGH YIELD FUND
----------- ----------- ----------------- ---------------
<S> <C>
Shares Sold 38,726 354,306 189,321 351,466
Reinvested Dividends 25,089 32,124 53,452 79,938
Shares Repurchased (2,987) (97,818) (70,223) (37,102)
---------- ---------- ----------- ----------
Net Increase 60,828 288,612 172,550 394,302
---------- ---------- ----------- ----------
</TABLE>
NOTE 6. CREDIT RISK AND DEFAULTED SECURITIES
Although the Funds have a diversified portfolio, the High Yield Bond Fund had
76.28% of its portfolio invested in lower rated and comparable quality unrated
high yield securities. Investments in higher yield securities are accompanied by
a greater degree of credit risk and such lower rated securities tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities, because such securities are generally unsecured and
are often subordinated to other creditors of the issuer. At December 31, 1996,
the High Yield Bond Fund held Burlington Motor Holdings, Inc. a security in
default. The value of this security represented $2,375 or 0.036% of the High
Yield Bond Fund's net assets. For financial reporting purposes, it is each
Fund's accounting practice to discontinue accrual of income and provide an
estimate for probable losses due to unpaid interest income on defaulted bonds
for the current reporting period.
NOTE 7. MANAGEMENT'S USE OF ESTIMATES. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date(s) of financial statements and the reported amounts of
income and expenses during the reporting period(s). Actual results could differ
from those estimates.
<PAGE>
NORTHSTAR VARIABLE TRUST
Report of Independent Accountants
To The Shareholders and Trustees
of Northstar Variable Trust:
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of the Northstar Variable Trust (formerly
Northstar/NWNL Trust), comprising Northstar Growth Fund, Northstar Income and
Growth Fund, Northstar Multi-Sector Bond Fund, and Northstar High Yield Bond
Fund, as of December 31, 1996, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each period
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Northstar Variable Trust as of December
31, 1996, the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods referred to above, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
January 31, 1997
<TABLE>
<CAPTION>
TOTAL RETURN CALCULATION - NO SALES CHARGE INCLUDED
----------------------------------------------------------
NORTHSTAR GROWTH V/A
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Value Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ----- ------ ---------- --------- --------- ---------- ---------- ------------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/ 1/96 1,000.00 11.5600 86.505 86.505 1,000.00
3/26/96 12.1500 86.777 0.038 3.30 0.000 0.00 0.272 1,054.34
6/25/96 13.9100 86.950 0.028 2.40 0.000 0.00 0.173 1,209.47
9/25/96 14.1400 86.988 0.006 0.54 0.000 0.00 0.038 1,230.01
12/27/96 14.0800 87.353 0.020 1.70 0.040 3.44 0.365 1,229.93
12/31/96 14.0800 87.353 1,229.93
</TABLE>
FORMULA -- Average Annual Total Return: ERV = P(1+T) ^n
Overall Total Return: ERV/P -1
<TABLE>
<CAPTION>
<S> <C>
Where: P = Initial Investment $1,000.00 T = Average Annual Total Return 22.99%
ERV = Ending Redeemable Value $1,229.93 Overall Total Return 22.99%
n = Number of Time Periods 1.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN CALCULATION - NO SALES CHARGE INCLUDED
-------------------------------------------------------------
NORTHSTAR GROWTH V/A
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Value Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ----- ------ --------- ----------- -------- ---------- ------------ ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/ 6/94 1,000.00 10.0000 100.000 100.000 1,000.00
6/24/94 9.9100 100.396 0.039 3.92 0.000 0.00 0.396 994.92
9/26/94 10.3300 101.246 0.087 8.78 0.000 0.00 0.850 1,045.87
12/23/94 9.9800 103.056 0.031 3.11 0.148 14.95 1.810 1,028.50
12/31/94 10.0400 103.056 1,034.68
3/23/95 10.2300 103.675 0.061 6.33 0.000 0.00 0.619 1,060.60
6/26/95 11.6400 104.096 0.047 4.90 0.000 0.00 0.421 1,211.68
9/26/95 12.2300 104.417 0.038 3.92 0.000 0.00 0.321 1,277.02
12/29/95 11.5500 111.685 0.040 4.20 0.764 79.75 7.268 1,289.96
12/31/95 11.5600 111.685 1,291.08
3/26/96 12.1500 112.036 0.038 4.27 0.000 0.00 0.351 1,361.24
6/25/96 13.9100 112.259 0.028 3.10 0.000 0.00 0.223 1,561.52
9/25/96 14.1400 112.308 0.006 0.69 0.000 0.00 0.049 1,588.04
12/27/96 14.0800 112.780 0.020 2.20 0.040 4.44 0.472 1,587.94
12/31/96 14.0800 112.780 1,587.94
</TABLE>
FORMULA -- Average Annual Total Return: ERV = P(1+T) ^n
Overall Total Return: ERV/P -1
<TABLE>
<CAPTION>
<S> <C>
Where: P = Initial Investment $1,000.00 T = Average Annual Total Return 18.99%
ERV = Ending Redeemable Value $1,587.94 Overall Total Return 58.79%
n = Number of Time Periods 2.66
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN CALCULATION - NO SALES CHARGE INCLUDED
-------------------------------------------------------------
NORTHSTAR INCOME & GROWTH V/A
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Value Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ------- ------- --------- --------- --------- --------- ---------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/ 1/96 1,000.00 11.3900 87.796 87.796 1,000.00
3/26/96 11.4600 88.436 0.084 7.33 0.000 0.00 0.640 1,013.48
6/25/96 11.6400 89.119 0.090 7.95 0.000 0.00 0.683 1,037.35
9/25/96 11.7500 89.865 0.098 8.77 0.000 0.00 0.746 1,055.91
12/27/96 11.8100 97.099 0.137 12.29 0.814 73.14 7.234 1,146.74
12/31/96 11.7000 97.099 1,136.06
</TABLE>
FORMULA -- Average Annual Total Return: ERV = P (1+T) ^n
Overall Total Return: ERV/P -1
<TABLE>
<CAPTION>
<S> <C>
Where: P = Initial Investment $1,000.00 T = Average Annual Total Return 13.61%
ERV = Ending Redeemable Value $1,136.06 Overall Total Return 13.61%
n = Number of Time Periods 1.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN CALCULATION - NO SALES CHARGE INCLUDED
---------------------------------------------------------------
NORTHSTAR INCOME & GROWTH V/A
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Value Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ----- ------ -------- --------- ---------- ---------- ----------- ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/ 6/94 1,000.00 10.0000 100.000 100.000 1,000.00
6/24/94 9.9600 100.428 0.043 4.26 0.000 0.00 0.428 1,000.26
9/26/94 10.1900 101.513 0.110 11.06 0.000 0.00 1.085 1,034.42
12/23/94 9.8800 102.740 0.045 4.61 0.074 7.51 1.227 1,015.07
12/31/94 9.9200 102.740 1,019.18
3/23/95 10.0900 103.547 0.079 8.14 0.000 0.00 0.807 1,044.79
6/26/95 11.0000 104.463 0.097 10.08 0.000 0.00 0.916 1,149.09
9/26/95 11.3000 105.264 0.087 9.05 0.000 0.00 0.801 1,189.48
12/29/95 11.3900 108.621 0.104 10.91 0.260 27.33 3.357 1,237.19
12/31/95 11.3900 108.621 1,237.19
3/26/96 11.4600 109.412 0.084 9.07 0.000 0.00 0.791 1,253.86
6/25/96 11.6400 110.257 0.090 9.83 0.000 0.00 0.845 1,283.39
9/25/96 11.7500 111.180 0.098 10.85 0.000 0.00 0.923 1,306.37
12/27/96 11.8100 120.130 0.137 15.21 0.814 90.49 8.950 1,418.74
12/31/96 11.7000 120.130 1,405.52
</TABLE>
FORMULA -- Average Annual Total Return: ERV = P (1+T) ^n
Overall Total Return: ERV/P -1
<TABLE>
<CAPTION>
<S> <C>
Where: P = Initial Investment $1,000.00 T = Average Annual Total Return 13.65%
ERV = Ending Redeemable Value $1,405.52 Overall Total Return 40.55%
n = Number of Time Periods 2.66
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN CALCULATION - NO SALES CHARGE INCLUDED
---------------------------------------------------------------
NORTHSTAR MULTI-SECTOR BOND V/A
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Value Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ----- ------- ---------- --------- ---------- --------- ---------- ------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/ 1/96 1,000.00 5.1400 194.553 194.553 1,000.00
3/26/96 5.1500 198.388 0.012 19.75 0.000 0.00 3.835 1,021.70
6/25/96 5.1600 202.778 0.114 22.65 0.000 0.00 4.390 1,046.33
9/25/96 5.2200 206.483 0.095 19.34 0.000 0.00 3.705 1,077.84
12/27/96 5.2500 214.340 0.102 21.09 0.098 20.16 7.857 1,125.29
12/31/96 5.2500 214.340 1,125.29
</TABLE>
FORMULA -- Average Annual Total Return: ERV = P (1+T) ^n
Overall Total Return: ERV/P -1
<TABLE>
<CAPTION>
<S> <C>
Where: P = Initial Investment $1,000.00 T = Average Annual Total Return 12.53%
ERV = Ending Redeemable Value $1,125.29 Overall Total Return 12.53%
n = Number of Time Periods 1.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN CALCULATION - NO SALES CHARGE INCLUDED
---------------------------------------------------------------
NORTHSTAR MULTI-SECTOR BOND V/A
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Value Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ----- ------- ---------- --------- ---------- --------- ---------- ------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/ 6/94 1,000.00 5.0000 200.000 200.000 1,000.00
6/24/94 4.9900 201.395 0.035 6.96 0.000 0.00 1.395 1,004.96
9/26/94 4.9600 204.772 0.083 16.75 0.000 0.00 3.377 1,015.67
12/23/94 4.8500 209.098 0.102 20.98 0.000 0.00 4.326 1,014.13
12/31/94 4.8500 209.098 1,014.13
3/23/95 4.9500 213.146 0.096 20.04 0.000 0.00 4.048 1,055.07
6/26/95 5.1400 217.057 0.094 20.10 0.000 0.00 3.911 1,115.67
9/26/95 5.0900 222.185 0.120 26.10 0.000 0.00 5.128 1,130.92
12/29/95 5.1400 226.839 0.108 23.92 0.000 0.00 4.654 1,165.95
12/31/95 5.1400 226.839 1,165.95
3/26/96 5.1500 231.309 0.102 23.02 0.000 0.00 4.470 1,191.24
6/25/96 5.1600 236.427 0.114 26.41 0.000 0.00 5.118 1,219.96
9/25/96 5.2200 240.747 0.095 22.55 0.000 0.00 4.320 1,256.70
12/27/96 5.2500 249.905 0.102 24.58 0.098 23.50 9.158 1,312.00
12/31/96 5.2500 249.905 1,312.00
</TABLE>
FORMULA -- Average Annual Total Return: ERV = P (1+T) ^n
Overall Total Return: ERV/P -1
<TABLE>
<CAPTION>
<S> <C>
Where: P = Initial Investment $1,000.00 T = Average Annual Total Return 10.75%
ERV = Ending Redeemable Value $1,312.00 Overall Total Return 31.20%
n = Number of Time Periods 2.66
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN CALCULATION - NO SALES CHARGE INCLUDED
---------------------------------------------------------------
NORTHSTAR HIGH YIELD BOND V/A
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Value Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ----- ------- ---------- --------- ---------- --------- ---------- ------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/ 1/96 1,000.00 5.0400 198.413 198.413 1,000.00
3/26/96 5.1400 203.288 0.126 25.06 0.000 0.00 4.875 1,044.90
6/25/96 5.2100 208.100 0.123 25.07 0.000 0.00 4.812 1,084.20
9/25/96 5.2300 212.184 0.103 21.36 0.000 0.00 4.084 1,109.72
12/27/96 5.2700 219.639 0.100 21.26 0.085 18.03 7.455 1,157.50
12/31/96 5.2700 219.639 1,157.50
</TABLE>
FORMULA -- Average Annual Total Return: ERV = P (1+T) ^n
Overall Total Return: ERV/P -1
<TABLE>
<CAPTION>
<S> <C>
Where: P = Initial Investment $1,000.00 T = Average Annual Total Return 15.75%
ERV = Ending Redeemable Value $1,157.50 Overall Total Return 15.75%
n = Number of Time Periods 1.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN CALCULATION - NO SALES CHARGE INCLUDED
---------------------------------------------------------------
NORTHSTAR HIGH YIELD BOND V/A
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Value Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ----- ------- ---------- --------- ---------- --------- ---------- ------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/ 6/94 1,000.00 5.0000 200.000 200.000 1,000.00
6/24/94 5.0000 201.318 0.033 6.59 0.000 0.00 1.318 1,006.59
9/26/94 4.8900 205.148 0.093 18.73 0.000 0.00 3.830 1,003.17
12/23/94 4.6900 211.189 0.138 28.33 0.000 0.00 6.041 990.48
12/31/94 4.6900 211.189 990.48
3/23/95 4.7900 216.304 0.116 24.50 0.000 0.00 5.115 1,036.10
6/26/95 4.9200 220.944 0.106 22.83 0.000 0.00 4.640 1,087.04
9/26/95 4.9700 226.940 0.135 29.80 0.000 0.00 5.996 1,127.89
12/29/95 5.0400 232.986 0.134 30.47 0.000 0.00 6.046 1,174.25
12/31/95 5.0400 232.986 1,174.25
3/26/96 5.1400 238.712 0.126 29.43 0.000 0.00 5.726 1,226.98
6/25/96 5.2100 244.361 0.123 29.43 0.000 0.00 5.649 1,273.12
9/25/96 5.2300 249.156 0.103 25.08 0.000 0.00 4.795 1,303.09
12/27/96 5.2700 257.911 0.100 24.97 0.085 21.17 8.755 1,359.19
12/31/96 5.2700 257.911 1,359.19
</TABLE>
FORMULA -- Average Annual Total Return: ERV = P (1+T) ^n
Overall Total Return: ERV/P -1
<TABLE>
<CAPTION>
<S> <C>
Where: P = Initial Investment $1,000.00 T = Average Annual Total Return 12.23%
ERV = Ending Redeemable Value $1,359.19 Overall Total Return 35.92%
n = Number of Time Periods 2.66
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000916403
<NAME> NORTHSTAR VARIABLE TRUST
<SERIES>
<NUMBER> 1
<NAME> NORTHSTAR GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 13475738
<INVESTMENTS-AT-VALUE> 14649253
<RECEIVABLES> 408972
<ASSETS-OTHER> 1214173
<OTHER-ITEMS-ASSETS> 1463
<TOTAL-ASSETS> 16273861
<PAYABLE-FOR-SECURITIES> 681638
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28491
<TOTAL-LIABILITIES> 710129
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14341240
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7314
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 41663
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1173515
<NET-ASSETS> 15563732
<DIVIDEND-INCOME> 68144
<INTEREST-INCOME> 42609
<OTHER-INCOME> 0
<EXPENSES-NET> 61051
<NET-INVESTMENT-INCOME> 49702
<REALIZED-GAINS-CURRENT> 46193
<APPREC-INCREASE-CURRENT> 824112
<NET-CHANGE-FROM-OPS> 920007
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (53026)
<DISTRIBUTIONS-OF-GAINS> (42112)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13457465
<NUMBER-OF-SHARES-REDEEMED> (2627034)
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