Northstar Variable Trust
NORTHSTAR GROWTH FUND
NORTHSTAR INCOME AND GROWTH FUND
NORTHSTAR MULTI-SECTOR BOND FUND
NORTHSTAR HIGH YIELD BOND FUND
SEMI-ANNUAL REPORT TO SHAREHOLDERS
June 30, 1997
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<PAGE>
Northstar Variable Trust
Semi-Annual Report,
June 30, 1997
Dear Shareholders:
We are pleased to provide you with the semi-annual report of the Northstar
Variable Trust for the six months ending June 30, 1997. We are gratified with
your decision to entrust your assets to the Northstar Variable Trust 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 its respective
portfolio manager. We hope you will find these informative.
During the past six months the U.S. financial markets have been supported by
strong growth in the economy, above average corporate profit gains, and
surprisingly subdued inflation.
Concerns last fall were centered in the belief that a perfect environment
(moderate growth and low inflation) must be maintained for the stock market to
continue to do well. Valuations seemed high as well as profit margins. With
unemployment declining, wages rising and inflation trending up during most of
1996, any acceleration of these trends was viewed as a problem for both bond and
stock prices. In fact, as the economic strength of the December and the March
quarters became evident a market correction of 9.5% for the S&P 500 ensued and
long term interest rates backed up to over 7%. This, however, proved short lived
as inflation was actually trending down rather than accelerating. Productivity
gains more than offset wage increases allowing corporate profit margins to
remain high and consumer prices low. Global growth in industrialized countries
outside the U.S. has also been slower than expected allowing capacity to keep up
with demand. The strong growth has not only allowed profit increases to remain
high but also employment and personal income gains. This resulted in unforeseen
tax revenues significantly reducing the Federal deficit which in turn is
facilitating political compromise on budget issues. The U.S. dollar remained
strong helping inflation. While the Federal Reserve has raised short term rates
slightly, monetary policy has not become restrictive and longer term rates are
about the same as six months ago. In short, the environment has been
exceptionally good. Looking to the balance of the year, most of the same earlier
questions persist but the current outlook remains favorable. Real incomes are
rising, there are few signs of increased inflation and growth appears to have
moderated recently. There do not appear to be the type of excesses present which
would necessitate either a recession or an overheated inflationary condition.
In closing, we reiterate 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,
/s/ Mark L. Lipson
- -------------------------
Mark L. Lipson
President
July 1997
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<PAGE>
NORTHSTAR GROWTH FUND
THE MARKETS
o During the first half of 1997 the S&P 500 rose 19.49%, the NASDAQ
Composite was up 11.70%, and the Dow Industrials were up 18.99%.
o The stock market was unusually strong during the past few months, primarily
because long term bond yields fell and trading volume continued to swell.
After lagging in the first quarter, small and mid capitalization stocks
began to catch up with the large capitalization stocks during the second
quarter. NASDAQ trading volume surged toward the end of the period, lending
greater relative strength to the small caps. Fundamentally, small caps
remained more attractive than the large caps as evidenced by the relatively
high price/earnings ratios of the S&P 500 and Dow Industrials. Investor
optimism became even more bullish during the second quarter due to the
excellent economic environment. The U.S. economy has cooled off
dramatically from its torrid pace in the first quarter (5.9% annual GNP
growth) and deflation may now be at hand. During the last five months,
wholesale prices have fallen dramatically, their largest decrease in 45
years. Retail sales have fallen for three consecutive months lending
further support to the widespread opinion that the Federal Reserve Board
will not raise interest rates in the near future.
THE FUNDS
o The Fund was up 6.25% in the first six months of 1997 compared to the
Lipper Growth Fund Index which was up 15.44%.
o The top performing stocks for the quarter included: Manugistics,
Mail-Well Inc., Camco International, Bristol Myers and Smith
International. Amongst the underperformers were: United Meridian,
Zoltek, Russell Corp., Eagle USA Airfreight and Wellsford Residential.
CURRENT STRATEGY
o We see a more selective stock market environment developing over the
upcoming months characterized by decelerating earnings momentum,
particularly among the more vulnerable large capitalization stocks. The
slower pace of economic growth combined with eroding profit margin expansion
may manifest itself when second quarter earnings are announced in July. Most
small cap companies will continue to perform well during the second quarter
earnings announcements, since they have predominately low to moderate
price earnings ratios. The Growth Fund currently has an allocation that is
46% small cap , 30% mid cap, and a 24% large cap. The Fund's portfolio was
recently adjusted to give greater emphasis to small capitalization
stocks. Our screens have been emphasizing more earnings surprises since Wall
Street continues to be obsessed with upward analysts' earnings revisions
and stocks with consistent earnings growth. We believe that we can still
outperform the market in a narrow stock picking environment, since we
remain focused on stocks with superior fundamentals relative to the S&P 500.
<TABLE>
<CAPTION>
Fund Information (All data is as of 6/30/97) Total Net Assets: $26,136,673
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) Dean Foods Co. 2.8% Banks 7.7% Inception 1 year
--------- ------
(2) Camco International, Inc. 2.6 17.04% 0.33%
(3) Dallas Semiconductor Corp. 2.3 Real Estate Investment 6.0%
Trust
(4) Manugistics Group, Inc. 2.2 Cumulative Total Returns
(5) PACCAR, Inc. 1.8 Retail 5.9% (do not reflect sales charge)
------------------------------------
(6) Synder Oil Corp. 1.8 Inception 1 year
--------- ------
(7) Cali Realty Corp. 1.7 Oil & Gas Exploration 4.2% 69.17% 7.33%
(8) Mail-Well, Inc. 1.7
(9) Bowne & Co., Inc. 1.6 Semiconductor 3.8%
(10) Smith International, Inc. 1.6
----
20.1%
====
</TABLE>
2
<PAGE>
Northstar Growth Fund
Portfolio of Investments (Unaudited)
June 30, 1997
Security Shares Value
- -------------------------------------------------------------------------------
COMMON STOCKS - 92.23%
Advertising/Marketing - 1.39%
Valassis Communications, Inc. @ 15,100 $ 362,400
------------
Aerospace & Defense - 1.19%
Coltec Industries, Inc. @ 15,900 310,050
------------
Air Freight/Couriers - 0.78%
Expeditors International of Washington, Inc. 7,200 204,300
------------
Apparel/Fabric - 2.25%
Jones Apparel Group, Inc. @ 7,000 334,250
Wolverine World Wide, Inc. 8,400 255,150
------------
589,400
------------
Auto/Truck Manufacturers - 1.78%
PACCAR, Inc. 10,000 464,375
------------
Banks - 7.67%
BankAmerica Corp. 4,800 309,900
Commerce Bancshares, Inc. 5,415 245,029
First of America Bank Corp. 5,700 260,775
Northern Trust Corp. 6,000 290,250
ONBANCorp, Inc. 7,000 357,000
Riggs National Corp. 13,800 284,625
Zions Bancorp. 6,800 255,850
------------
2,003,429
------------
Banking - 1.33%
U.S. Trust Corp. 7,400 348,725
------------
Biotechnology - 0.77%
Bio-Technology General Corp. @ 15,000 202,500
------------
Building Materials - 1.08%
Southdown, Inc. 6,500 283,563
------------
Chemicals - 1.21%
Rhone-Poulenc SA ** 7,600 316,350
------------
Computer Hardware - 0.76%
Quantum Corp. @ 9,800 199,063
------------
Computer Services - 1.49%
Keane, Inc. @ 7,500 390,000
------------
Computer Software - 3.46%
Manugistics Group, Inc. @ 13,200 587,400
Microsoft Corp. @ 2,500 315,937
------------
903,337
------------
3
<PAGE>
Northstar Growth Fund
Portfolio of Investments (Unaudited)
June 30, 1997
Security Shares Value
- ----------------------------------------------------------------------
Consumer Products - 2.25%
Samsonite Corp. @ 7,400 $ 326,525
The Scotts Co. @ 9,000 261,000
------------
587,525
------------
Containers and Packaging - 1.29%
Owens-Illinois, Inc. @ 10,900 337,900
------------
Electrical Equipment - 1.52%
Hubbell, Inc. 9,000 396,000
------------
Environmental Control - 0.64%
Barringer Technologies, Inc. @ 11,200 168,000
------------
Financial Services - 1.46%
Student Loan Marketing Association 3,000 381,000
------------
Food - 5.38%
Campbell Soup Co. 5,400 270,000
Dean Foods Co. 18,000 726,750
Suiza Foods Corp. @ 10,000 410,000
------------
1,406,750
------------
Gas & Pipeline Utilities - 2.78%
Columbia Gas System, Inc. 5,900 384,975
Duke Power Corp. 7,101 340,404
------------
725,379
------------
Home Furnishings - 1.44%
O'Sullivan Industries Holdings, Inc. @ 22,800 377,625
------------
Industrial Manufacturing - 1.38%
Tyco International Ltd. 5,200 361,725
------------
Insurance - 2.96%
Allstate Corp. 4,000 292,000
Conseco, Inc. 5,700 210,900
Progressive Corp. 3,100 269,700
------------
772,600
------------
Metals & Mining - 0.86%
Zeigler Coal Holding Co. 9,600 224,400
------------
Office Equipment/Supplies - 2.08%
Herman Miller, Inc. 8,800 316,800
Interface, Inc. 10,200 225,675
------------
542,475
------------
Oil - 2.25%
British Petroleum Co. PLC ** 3,250 243,344
Exxon Corp. 5,600 344,400
------------
587,744
------------
4
<PAGE>
Northstar Growth Fund
Portfolio of Investments (Unaudited)
June 30, 1997
Security Shares Value
- -------------------------------------------------------------------------
Oil & Gas - 3.39%
Forcenergy, Inc. @ 5,300 $ 160,987
Saba Petroleum Co. @ 19,000 266,000
Snyder Oil Corp. 25,000 459,375
------------
886,362
------------
Oil & Gas Drilling - 2.10%
Global Marine, Inc. @ 15,200 353,400
Marine Drilling Cos., Inc. @ 10,000 196,250
------------
549,650
------------
Oil & Gas Exploration - 4.23%
Camco International, Inc. 12,450 681,637
Smith International, Inc. @ 7,000 425,250
------------
1,106,887
------------
Pharmaceutical - 1.49%
Bristol-Myers Squibb Co. 4,800 388,800
------------
Publishing - 1.28%
Houghton Mifflin Co. 5,000 333,750
------------
Printing - 3.28%
Bowne & Co., Inc. 11,800 411,525
Mail-Well, Inc. @ 15,600 444,600
------------
856,125
------------
Real Estate Investment Trust - 6.02%
BRE Properties, Inc. 7,900 198,488
Cali Realty Corp. 12,700 431,800
Equity Residential Properties Trust 6,625 314,687
First Industrial Realty Trust, Inc. 7,900 231,075
General Growth Properties, Inc. 11,000 368,500
Wellsford Real Properties, Inc. 2,650 29,150
------------
1,573,700
------------
Retail - 5.87%
Burlington Coat Factory Warehouse, Corp. @ 12,200 237,900
Costco Cos., Inc. @ 12,500 410,937
Funco, Inc. @ 18,000 333,000
Stein Mart, Inc. @ 7,500 225,000
The Gap, Inc. 8,400 326,550
------------
1,533,387
------------
Retail - Discount - 3.60%
Family Dollar Stores, Inc. 14,000 381,500
Mac Frugals Bargains Close-Outs, Inc. @ 11,500 313,375
ShopKo Stores, Inc. 9,700 247,350
------------
942,225
------------
5
<PAGE>
Northstar Growth Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Shares/
Security Principal Amount Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Savings & Loan - 2.21%
First Financial Corp. 9,700 $ 284,938
RCSB Financial, Inc. 6,100 292,037
------------
576,975
------------
Semiconductor - 3.77%
Dallas Semiconductor Corp. 15,000 588,750
Intel Corp. 2,800 397,075
------------
985,825
------------
Steel - 1.37%
Tubos de Acero de Mexico SA @ ** 19,400 357,688
------------
Telecommunications - 0.82%
Compania de Telecomunicaciones de Chile SA ** 6,525 215,325
------------
Transportation - 1.24%
Swift Transportation Co., Inc. @ 11,000 324,500
------------
Water Companies - 0.11%
United Water Resources, Inc. 1,500 29,063
------------
Total Common Stocks
(cost $20,637,801) 24,106,877
------------
Total Investment Securities - 92.23%
(cost $20,637,801) 24,106,877
Repurchase Agreement - 11.55%
Agreement with State Street Bank and Trust bearing interest at 5.65% dated
6/30/97, to be repurchased 7/01/97 in the amount of $3,019,474 and
collateralized by $3,020,000 U.S. Treasury Notes, 6.00% due 8/31/97, value
$3,080,400
(cost $3,019,000) $ 3,019,000 3,019,000
Liabilities in excess of other assets - (3.78%) (989,204)
------------
Net Assets - 100.00% $ 26,136,673
============
</TABLE>
@ Non-income producing security.
** American Depositary Receipts.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NORTHSTAR INCOME AND GROWTH FUND
THE MARKETS
o The Dow Industrials and S&P 500 posted strong gains for the first half of
1997, up 18.99% and 19.49%, respectively. Large-cap blue chips continued to be
leaders with increasing emphasis on those with consistent growth. The relative
performance of small and mid cap stocks improved during the second quarter but
still lagged the large caps. The Russell 2000 was up 9.3% and the NASDAQ
Composite was up 11.70% for the six month period.
o The interest rate for 30 year treasuries at 6.79% was 14 basis points higher
at the end of June than at the beginning of the year but was trending down
during the second quarter. Mortgages, corporates, and junk bond yields moved
closer to the treasury yields.
o Fears of an overheated economy peaked in early April ending a 9.5% correction
in the S&P 500 from its February high. Since then the yield on the 30 year
treasury has declined from 7.2% to under 6.5% and the S&P 500 has risen over
25% through mid July. Profits have been strong, economic growth moderated, and
despite a tightening labor market, inflation actually declined rather than
accelerated.
THE FUNDS
o For the period ended June 30, 1997, the Fund's return was 9.09%. This brought
the trailing 12 months performance for the Fund to 19.48%.
o The performance benefited from an asset allocation that remained fairly
optimistic targeting between 60% and 65% in equities and the balance in fixed
income. New investments in corporate bonds during the period were primarily in
10 year maturities which performed well relative to the rest of the yield
curve.
o The return from equity holdings was about 15% and accounted for a large share
of the Fund's total return. Increasingly, during the second quarter the market
averages were driven by consistent growth stocks rather than more cyclical,
higher yielding value stocks. G.E., Bristol Myers, Merck, and Dupont were all
up more than 30%, however, holdings in oils, banks, autos, and tobacco lagged.
CURRENT STRATEGY
o The U.S. and global economies will likely accelerate somewhat from the recent
lull. While corporate profit margins are high, productivity gains have been
strong and the outlook remains favorable. Earnings growth will continue to
bolster stock prices making a significant decline unlikely without a
definitive reversal in the trend of interest rates.
o Re-acceleration of growth is likely to arrest further declines in interest
rates but not cause a major reversal without building a larger body of
inflationary evidence that now exists.
o The Fund's asset allocation is currently targeted at 61% in large-cap stocks
with an average dividend yield of 2.7% (about 1% above average). Fixed income
is 39% of assets and has an average maturity of 9.7 years, yield of 6.9%, and
rating of AA-.
<TABLE>
<CAPTION>
Fund Information (All data is as of 6/30/97) Total Net Assets: $18,279,037
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) Minnesota, Mining, & Mfg. 4.9% U.S. Government 22.7% Inception 1 year
--------- ------
(2) Eastman Kodak Co. 4.0 13.33% 12.48%
(3) General Electric Co. 4.0 Financial 13.1%
(4) Philip Morris Cos., Inc. 4.0 Cumulative Total Returns
(do not reflect sales charge)
(5) du Pont(E.I.) De Nemours 3.7 Basic Materials 11.5% --------------------------------------
Inception 1 year
(6) Texaco, Inc. 3.4 --------- ------
53.33% 19.48%
(7) J.P. Morgan & Co., Inc. 3.1 Energy 11.4%
(8) Exxon Corp. 2.9
(9) Chevron Corp. 2.5 Healthcare 7.1%
(10) Mobil Corp. 2.5
----
35.0%
====
</TABLE>
7
<PAGE>
Northstar Income and Growth Fund
Portfolio of Investments (Unaudited)
June 30, 1997
Security Shares Value
- -------------------------------------------------------------------
COMMON STOCKS - 55.18%
Aerospace & Defense - 1.39%
Boeing Co. 4,800 $ 254,700
------------
Automotive - 3.70%
Chrysler Corp. 4,000 131,250
Ford Motor Co. 6,060 228,765
General Motors Corp. 5,690 316,862
------------
676,877
------------
Capital Goods Manufacturing - 4.01%
General Electric Co. 11,200 732,200
------------
Chemicals - 4.75%
du Pont (E.I.) De Nemours & Co. 10,745 675,592
Eastman Chemical Co. 3,050 193,675
------------
869,267
------------
Consumer Products - 6.93%
Kimberly-Clark Corp. 7,490 372,627
Minnesota, Mining & Manufacturing Co. 8,760 893,520
------------
1,266,147
------------
Finance & Banking - 5.47%
Bankers Trust N.Y. Corp. 5,010 435,870
J. P. Morgan & Co., Inc. 5,405 564,147
------------
1,000,017
------------
Forest & Paper Products - 1.77%
International Paper Co. 6,670 323,912
------------
Oil - 2.89%
Exxon Corp. 8,600 528,900
------------
Oil & Gas - 8.43%
Chevron Corp. 6,235 461,000
Mobil Corp. 6,600 461,175
Texaco, Inc. 5,685 618,244
------------
1,540,419
------------
Pharmaceutical - 3.17%
Bristol-Myers Squibb Co. 2,800 226,800
Merck & Co., Inc. 3,400 351,900
------------
578,700
------------
Photography - 4.01%
Eastman Kodak Co. 9,550 732,963
------------
Retail - 0.79%
Sears, Roebuck & Co. 2,700 145,125
------------
8
<PAGE>
Northstar Income and Growth Fund
Portfolio of Investments (Unaudited)
June 30, 1997
Shares/
Security Principal Amount Value
- -----------------------------------------------------------------------------
Technology - 0.71%
Lucent Technologies, Inc. 1,798 $ 129,568
-----------
Telecommunications - 2.27%
AT&T Corp. 11,820 414,439
-----------
Tobacco - 4.89%
Philip Morris Cos., Inc. 16,350 725,531
RJR Nabisco Holdings Corp. 5,100 168,300
-----------
893,831
-----------
Total Common Stocks
(cost $8,220,320) 10,087,065
-----------
CONVERTIBLE PREFERRED STOCKS - 2.36%
Finance & Banking - 2.36%
Finova Group, Inc., 5.50% 7,500 431,250
-----------
Total Convertible Preferred Stocks
(cost $376,875) 431,250
-----------
CORPORATE BONDS - 13.17%
Airlines - 0.83%
Continental Airlines, Inc.
7.82%, Pass-Thru Certificates, 4/15/15 $ 147,059 151,579
-----------
Broadcasting & Media - 1.64%
A.H. Belo Corp.
7.125%, Sr. Notes, 6/01/07 300,000 299,901
-----------
Finance & Banking - 4.60%
Chase Manhattan Corp.
7.25%, Subordinated Notes, 6/01/07 300,000 302,325
First Union Corp.
7.50%, Subordinated Notes, 7/15/06 400,000 409,028
Leucadia National Corp.
8.25%, Sr. Subordinated Notes, 6/15/05 125,000 129,048
-----------
840,401
-----------
Pharmaceutical - 1.74%
American Home Products Corp.
7.90%, Notes, 2/15/05 300,000 317,265
-----------
Specialty Services - 2.17%
Columbia/HCA Healthcare Corp.
7.00%, Notes, 7/01/07 400,000 396,400
-----------
U.S. Government Agency - 2.19%
Fannie Mae
7.33%, Debenture, 6/19/07 400,000 401,048
-----------
9
<PAGE>
Northstar Income and Growth Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Total Corporate Bonds
(cost $2,378,432) $ 2,406,594
------------
CONVERTIBLE BONDS - 0.62%
Finance & Banking - 0.62%
Meditrust
7.50%, Debentures, 3/01/01 $ 100,000 113,367
------------
Total Convertible Bonds
(cost $99,306) 113,367
------------
U.S. GOVERNMENT AND AGENCIES - 20.49%
GNMA, 6.50%, due 2/15/26 1,562,920 1,499,263
U.S. Treasury Notes, 6.50%, due 5/31/01 500,000 502,845
U.S. Treasury Notes, 6.50%, due 10/15/06 1,750,000 1,743,297
------------
Total U.S. Government and Agencies
(cost $3,801,128) 3,745,405
------------
Total Investment Securities - 91.82%
(cost $14,876,061) 16,783,681
Repurchase Agreement - 6.62%
Agreement with State Street Bank and Trust bearing interest at 5.65% dated
6/30/97, to be repurchased 7/01/97 in the amount of $1,210,190 and
collateralized by $1,210,000 U.S. Treasury Notes, 6.00% due 8/31/97, value
1,234,200
(cost $1,210,000) 1,210,000 1,210,000
Other assets less liabilities - 1.56% 285,356
------------
Net Assets - 100.00% $ 18,279,037
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
NORTHSTAR MULTI-SECTOR BOND FUND
THE MARKETS
o The first 3 months of the year were characterized by high GDP growth and
inflation worries. After the Fed increased the fed funds rate in March, the
economy began to cool. GDP growth fell from an annual rate of 5.6% to below
3%. In the first 6 months of 1997 (1H97), the yields on both the 10- and
30-year Treasury bonds traded in a 70 basis points range, but their rates
rose only 8 and 12 basis points to 6.50% and 6.79%, respectively. Low
interest rates and continued growth helped stock prices to again rise to
all-time highs. Small cap stocks grew at half the big cap rate of 20%, but
that still helped the creditworthiness and prices of high yield bonds.
o High yield bond returns in 1H97(80% of which came in the last 3 months of
1H97) were 5.82% compared to 3.09% for all domestic bonds. These returns
were due to strong demand for high coupons and rising stock valuations
underlying high yield bonds. Among high yield bonds, lower-rated bonds
outperformed more interest-rate sensitive higher-rated bonds. Like
government bonds, domestic investment grade corporates' yields rose in 1H97.
Emerging market bonds, especially Russian and Brady bonds, outperformed
again, increasing 10.47%, due to improving political and economic
fundamentals and the ongoing hunt for yield.
o Expected Fed policies paved the way for the U.S. economy to maintain annual
GDP growth and CPI inflation rates below 3%. The outlook for U.S. debt and
equity markets therefore remains positive for full-year 1997.
o The strong U. S. dollar continues to limit the probability of profitably
investing in foreign currency securities, but countries pursuing economic
reforms offer some opportunities (e.g., Australia, Brazil, Canada,
Ecuador, Egypt, Italy, New Zealand, Spain, the U.K., and Venezuela).
THE FUNDS
o From January through June 1997, the total return of the Fund's shares was
3.52%. Net assets nonetheless rose 42%, from $6.6MM to $9.4MM, during 1H97.
o We significantly increased BB-rated exposure and raised some cash as a
defensive tactic that turned out to be premature. At the same time we added
to the hot broadcasting sector in time to benefit from higher bond prices
and made selective additions to telecom names. We cut exposure to
foreign-currency denominated bonds.
o The requirement that the Fund have no more than 50% of its assets in
high-yield bonds and the moves to increase credit quality, restrained but
did not materially hurt total returns in 1H97.
CURRENT STRATEGY
o Continue above-average exposure in non-cyclicals and limit volatility by
keeping duration moderate.
o Move faster toward target portfolio allocations for favorable mix of risks
and rewards: 50% high yield; 15% U.S. government; 35% investment grade
(especially high-quality foreign issues with good spreads/yields).
<TABLE>
<CAPTION>
Fund Information (All data is as of 6/30/97) Total Net Assets: $9,415,578
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) FNMA 8.50% '21 15.4% High Yield 44.2% Inception 1 year
--------- ------
(2) FNMA 8.50% '27 4.1 10.21% 3.90%
(3) U.S. Treasury Notes 4.0 U.S. Government 24.0%
(4) Paxson Communications Corp. 2.9 Cumulative Total Returns
(5) Sinclair Broadcasting Group, Inc. 2.6 Foreign Government 13.4% (do not reflect sales charge)
---------------------------------------
Inception 1 year
(6) Dial Call Comm., Inc. 2.4 --------- ------
(7) Rep. of Argentina 2.4 Investment Grade 5.5% 35.82% 10.90%
(8) APP Finance II Mauritius Ltd. 2.2
(9) Guangdong Ent. Holding Ltd. 2.2
(10) RBS Participacoes 2.2
----
40.4
====
</TABLE>
11
<PAGE>
Northstar Multi-Sector Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- -------------------------------------------------------------------------------------------------
<S> <C>
DOMESTIC INVESTMENT GRADE SECURITIES - 5.46%
Energy - 1.17%
Boston Edison Co.
9.375%, Debentures, 8/15/21 $ 100,000 $ 109,938
------------
Oil & Gas - 2.13%
PDV America, Inc.
7.875%, Sr. Notes, 8/01/03 200,000 200,792
------------
Telecommunications - 2.16%
TCI Communications, Inc.
8.00%, Sr. Notes, 8/01/05 200,000 203,564
------------
Total Domestic Investment Grade Securities
(cost $503,143) 514,294
------------
FOREIGN INVESTMENT GRADE SECURITIES - 13.42%
Foreign Government Securities - 13.42%
Guangdong Enterprises Holding Ltd. #
8.875%, Sr. Notes, 5/22/07 200,000 206,536
New Zealand Government
8.00%, due 11/15/06 275,000 200,211
Republic of Argentina #
11.75%, due 2/12/07 200,000 222,500
Republic of Columbia
7.25%, due 2/23/04 150,000 146,625
Republic of Indonesia
7.75%, due 8/01/06 150,000 151,193
Republic of Italy (1)
12.00%, due 5/01/02 245,000,000 176,300
Republic of Poland $
3.25/5.00%, due 10/27/24 250,000 159,688
------------
Total Foreign Investment Grade Securities
(cost $1,221,379) 1,263,053
------------
DOMESTIC HIGH YIELD SECURITIES - 24.19%
Aerospace & Defense - 1.07%
Sabreliner Corp.
12.50%, Sr. Notes, 4/15/03 96,000 100,320
------------
Broadcasting & Media - 2.59%
Sinclair Broadcast Group, Inc. #
9.00%, Sr. Subordinated Notes, 7/15/07 250,000 243,750
------------
Cable - 2.65%
Adelphia Communications Corp.
12.50%, Sr. Notes, 5/15/02 100,000 106,250
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Discount Notes, 3/15/04 200,000 143,000
------------
249,250
------------
</TABLE>
12
<PAGE>
Northstar Multi-Sector Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Security Principal Amount/Units Value
- ---------------------------------------------------------------------------------------------------
<S> <C>
Diversified Financial Services - 2.24%
Central Rents, Inc.
12.875%, Sr. Notes, 12/15/03 $ 100,000 $ 101,000
Ocwen Financial Corp.
11.875%, Notes, 10/01/03 100,000 109,500
----------------
210,500
----------------
Entertainment - 1.05%
Paramount Communications, Inc.
8.25%, Sr. Debentures, 8/01/22 100,000 99,288
----------------
Hotel & Gaming - 2.16%
California Hotel Finance Corp.
11.00%, Sr. Subordinated Notes, 12/01/02 100,000 105,750
Trump Atlantic City Funding, Inc.
11.25%, Company Guarantee, 5/01/06 100,000 97,750
----------------
203,500
----------------
Insurance - 1.09%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 100,000 102,500
----------------
Oil & Gas - 1.04%
Transamerican Energy Corp. #
11.50%, Sr. Secured Notes, 6/15/02 100,000 98,000
----------------
Telecommunications - 10.30%
Dial Call Communications, Inc. $
0/12.25%, Sr. Discount Notes, 4/15/04 275,000 227,219
GST U.S.A., Inc. $
0/13.875%, Sr. Discount Notes, 12/15/05 225,000 140,625
Hyperion Telecommunications, Inc. $
0/13.00%, Sr. Discount Notes, 4/15/03 150,000 77,235
ICG Holdings, Inc. $
0/12.50%, Sr. Secured Discount Notes, 5/01/06 100,000 68,728
ITC Deltacom, Inc. #
11.00%, Sr. Notes, 6/01/07 200,000 203,000
Unifi Communications, Inc. # (2)
14.00%, Units, 3/01/04 100 99,500
WinStar Communications, Inc. $
0/14.00%, Sr. Discount Notes, 10/15/05 100,000 56,000
WinStar Equipment Corp. # $
0/12.50%, Sr. Secured Notes, 3/15/04 100,000 98,000
----------------
970,307
----------------
Total Domestic High Yield Securities
(cost $2,242,515) 2,277,415
----------------
</TABLE>
13
<PAGE>
Northstar Multi-Sector Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Security Principal Amount/Units Value
- ---------------------------------------------------------------------------------------------------
<S> <C>
FOREIGN HIGH YIELD SECURITIES - 18.72%
Cable - 3.21%
Innova S De R.L. #
12.875%, Sr. Notes, 4/01/07 $ 97,000 $ 101,850
Multicanal Participacoes SA
12.625%, Company Guarantee, 6/18/04 175,000 200,375
----------------
302,225
----------------
Entertainment - 2.23%
RBS Participacoes SA #
11.00%, Company Guarantee, 4/01/07 200,000 210,000
----------------
Metals & Mining - 1.12%
Westmin Resources Ltd.
11.00%, Sr. Secured Notes, 3/15/07 100,000 104,875
----------------
Paper - 4.80%
APP Finance II Mauritius Ltd. # $
12.00/16.00%, Notes, 12/29/49 200,000 204,500
APP International Finance Co.
11.75%, Company Guarantee, 10/01/05 150,000 165,750
Grupo Industrial Durango SA
12.00%, Notes, 7/15/01 75,000 81,937
----------------
452,187
----------------
Steel - 1.13%
Altos Hornos De Mexico SA #
11.375%, Notes, 4/30/02 100,000 106,750
----------------
Telecommunications - 5.01%
Colt Telecom Group PLC $ (3)
0/12.00%, Units, 12/15/06 200 128,000
Ionica PLC $ (4)
15.00%, Units, 5/01/07 290 155,150
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 250,000 188,750
----------------
471,900
----------------
Utilities - 1.22%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 100,000 114,500
----------------
Total Foreign Bonds & Notes
(cost $1,623,545) 1,762,437
----------------
</TABLE>
14
<PAGE>
Northstar Multi-Sector Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Security Principal Amount/Shares Value
- ---------------------------------------------------------------------------------------------------
<S> <C>
CONVERTIBLE BONDS - 1.28%
Telecommunications - 1.28%
SA Telecommunications, Inc. #
10.00%, Notes, 8/15/06 $ 125,000 $ 90,781
WinStar Communications, Inc. # $
0/14.00%, Sr. Discount Notes, 10/15/05 50,000 30,125
---------------
Total Convertible Bonds
(cost $160,937) 120,906
---------------
PREFERRED STOCKS - 4.57%
Broadcasting & Media - 2.91%
Paxson Communications Corp., 12.50% & 2,600 274,300
---------------
Diversified Financial Services - 1.10%
California Federal Preferred Capital Corp., 9.125% 4,000 103,250
---------------
Natural Gas - 0.56%
Enron Capital Resources L.P., 9.00% 2,000 52,626
---------------
Total Preferred Stocks
(cost $404,800) 430,176
---------------
WARRANTS - 0.12% @
Consumer Products - 0.01%
Chattem, Inc., (expires 6/17/99) 50 1,063
---------------
Steel - 0.02%
Sheffield Steel Corp., (expires 11/01/01) 500 1,500
---------------
Supermarkets - 0.01%
Dairy Mart Convenience Stores, Inc., (expires 12/01/01) 666 1,498
---------------
Telecommunications - 0.08%
Clearnet Communications, Inc., (expires 9/15/05) 660 3,300
Hyperion Telecommunications, Inc., (expires 4/15/01) 150 4,500
---------------
7,800
---------------
Total Warrants
(cost $2,000) 11,861
---------------
U.S. GOVERNMENT AND AGENCIES - 24.03%
FNMA, 8.50%, due 4/14/21 - 6/18/27 $ 1,834,821 1,840,977
Resolution Trust Corp., 8.00%, due 6/25/26 44,550 43,195
U. S. Treasury Notes, 6.625%, due 4/30/02 375,000 378,525
---------------
Total U.S. Government and Agencies
(cost $2,245,918) 2,262,697
---------------
</TABLE>
15
<PAGE>
Northstar Multi-Sector Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Security Principal Amount Value
- ---------------------------------------------------------------------------------------------------
<S> <C>
Total Investment Securities - 91.79%
(cost $ 8,404,237) $ 8,642,839
Repurchase Agreement - 9.60%
Agreement with State Street Bank and Trust
bearing interest at 5.65% dated
6/30/97, to be repurchased 7/01/97 in the
amount of $904,142 and collateralized
by $905,000 U.S. Treasury Notes, 6.00% due
8/31/97, value $923,100
(cost $904,000) $ 904,000 904,000
Liabilities in excess of other assets - (1.39%) (131,261)
--------------
Net Assets - 100.00% $ 9,415,578
==============
</TABLE>
# Sale restricted to qualified institutional investors.
$ Step Bond.
& Payment-in-kind.
@ Non-income producing security.
(1) The principal amount is shown in the respective country's currency.
(2) A unit consists of $1,000 par value Sr. Notes, 14.00% due 3/01/04 and 1
warrant.
(3) A unit consists of $1,000 par value Sr. Discount Notes, 12.00% due
12/15/06 and 1 warrant.
(4) A unit consists of $1,000 par value Sr. Discount Notes, 15.00% due
5/01/07 and 1 warrant.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
NORTHSTAR HIGH YIELD BOND FUND
THE MARKETS
o The first 3 months of the year were characterized by high GDP growth and
inflation worries. After the Fed increased the fed funds rate in March, the
economy began to cool. GDP growth fell from an annual rate of 5.6% to below
3%. In the first 6 months of 1997 (1H97), the yields on both the 10- and
30-year Treasury bonds traded in a 70 bps range, but their rates rose only 8
and 12 bps to 6.50% and 6.79%, respectively. Low interest rates and continued
growth helped stock prices to again rise to all-time highs. Small cap stocks
grew at half the big cap rate of 20%, but that still helped the
creditworthiness and prices of high yield bonds.
o High yield bond returns in 1H97(80% of which came in the last 3 months of
1H97) were 5.82% compared to 3.09% for all domestic bonds. These returns were
due to strong demand for high coupons and rising stock valuations underlying
high yield bonds. Among high yield bonds, lower-rated bonds outperformed more
interest-rate sensitive higher-rated bonds. Like government bonds, domestic
investment grade corporates' yields rose in 1H97. Emerging market bonds,
especially Russian and Brady bonds, outperformed again, increasing 10.47%, due
to improving political and economic fundamentals and the ongoing hunt for
yield.
o Expected Fed policies paved the way for the U.S. economy to maintain annual
GDP growth and CPI inflation rates below 3%. The outlook for U.S. debt and
equity markets therefore remains positive for full-year 1997.
THE FUNDS
o From January through June 1997, the total return of the Fund's shares was
4.30%; the Lipper average was 5.23%. Net assets rose 43%, from $6.6MM to
$9.5MM, during 1H97.
o The Fund's performance in 1H97 was restrained by its conservatism, which led
the Fund to sometimes have significant holdings of treasuries and cash. The
Fund nonetheless benefited again from high returns on broadcasting and
healthcare investments, where it took some profits. Its cable and telecom
holdings also rose in value significantly. To take advantage of considerable
market strength, especially in the second quarter, the Fund shifted more money
into higher yielding B-rated bonds.
o Stocks or equity rights attached to bonds ("equity kickers") held by the Fund
had limited impact on the Fund's returns in 1H97, although there were a few
exceptions (e.g., Ionica, SFX and XCL).
CURRENT STRATEGY
o Continue above-average exposure in non-cyclical industries and in bonds that
have equity kickers. Continue to sell securities which reach our price/spread
objectives. Reduce the Fund's holdings of treasuries.
o Since sectoral trends are less well-defined, we will continue to focus on
spreads among individual securities with different risk profiles/ratings and
invest in securities with the best relative values.
<TABLE>
<CAPTION>
Fund Information (All data is as of 6/30/97) Total Net Assets: $9,491,036
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) U.S. Treasury Bills 10.5% Telecommunications 18.7% Inception 1 year
--------- ------
(2) Multicanal Participacoes SA 2.4 10.45% 4.36%
(3) Intracel Corp. 2.3 U.S. Government 10.5%
(4) ITC Deltacom, Inc. 2.1 Cumulative Total Returns
(5) Transamerican Energy 2.1 Oil & Gas 8.8% (do not reflect sales charge)
---------------------------------------
(6) Paging Network, Inc. 2.0 Inception 1 year
--------- ------
(7) APP Intl. Finance Co. 1.8 Services 7.5% 41.77% 11.36%
(8) Celestica International, Inc. 1.7
(9) U.S. Can Corp. 1.7 Broadcasting & Media 6.0%
(10) Roller Bearing Co. 1.6
----
28.2%
====
</TABLE>
17
<PAGE>
Northstar High Yield Bond Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Principal Amount/
Security Units Value
- ------------------------------------------------------------------------------
<S> <C>
DOMESTIC CORPORATE BONDS & NOTES - 58.46%
Aerospace & Defense - 1.07%
Derlan Manufacturing, Inc. #
10.00%, Sr. Notes, 1/15/07 $ 100,000 $ 101,500
----------
Auto Parts & Equipment - 1.09%
Titan Wheel International, Inc.
8.75%, Sr. Subordinated Notes, 4/01/07 100,000 103,000
----------
Broadcasting & Media - 2.05%
Capstar Radio Broadcasting #
9.25%, Sr. Subordinated Notes, 7/01/07 100,000 97,500
PanAmSat L.P. $
0/11.375%, Sr. Subordinated Notes, 8/01/03 100,000 97,500
----------
195,000
----------
Cable - 1.80%
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Discount Notes, 3/15/04 200,000 143,000
Heartland Wireless Communications, Inc. $
0/13.00%, Sr. Notes, 4/15/03 75,000 27,375
----------
170,375
----------
Capital Goods Manufacturing - 1.62%
Roller Bearing Co. of America, Inc. #
9.625%, Sr. Subordinated Notes, 6/15/07 150,000 153,375
----------
Consumer Products - 1.57%
Packaged Ice, Inc. (1)
12.00%, Units, 4/15/04 145 149,350
----------
Containers and Packaging - 1.69%
U.S. Can Corp.
10.125%, Company Guarantee, 10/15/06 150,000 160,500
----------
Diversified Financial Services - 3.27%
Central Rents, Inc.
12.875%, Sr. Notes, 12/15/03 100,000 101,000
Ocwen Financial Corp.
11.875%, Notes, 10/01/03 100,000 109,500
Williams Scotsman, Inc. #
9.875%, Sr. Notes, 6/01/07 100,000 100,000
----------
310,500
----------
Entertainment - 1.05%
Paramount Communications, Inc.
8.25%, Sr. Debentures, 8/01/22 100,000 99,288
----------
18
<PAGE>
Northstar High Yield Bond Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<CAPTION>
Principal Amount/
Security Units Value
- ------------------------------------------------------------------------------
<S> <C>
Food & Beverage - 3.67%
Aurora Foods, Inc. #
9.875%, Sr. Subordinated Notes, 2/15/07 $ 95,000 $ 96,663
Di Giorgio Corp. #
10.00%, Sr. Notes, 6/15/07 150,000 149,250
North Atlantic Trading, Inc. #
11.00%, Sr. Notes, 6/15/04 100,000 102,750
----------
348,663
----------
Healthcare - 3.33%
Dade International, Inc.
11.125%, Sr. Subordinated Notes, 5/01/06 100,000 112,000
Imed Corp. #
9.75%, Sr. Subordinated Notes, 12/01/06 100,000 102,250
Urohealth Systems, Inc. # (2)
12.50%, Units, 4/01/04 100 101,500
----------
315,750
----------
Hotel & Gaming - 2.61%
Horseshoe Gaming L.L.C. #
9.375%, Sr. Subordinated Notes, 6/15/07 100,000 101,375
Trump Atlantic City Funding, Inc.
11.25%, Company Guarantee, 5/01/06 150,000 146,625
----------
248,000
----------
Insurance - 1.08%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 100,000 102,500
----------
Oil & Gas - 8.78%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 100,000 109,250
Crown Central Petroleum Corp.
10.875%, Sr. Notes, 2/01/05 100,000 103,500
HS Resources, Inc.
9.875%, Sr. Subordinated Notes, 12/01/03 50,000 50,937
Synder Oil Corp.
8.75%, Sr. Subordinated Notes, 6/15/07 150,000 150,000
Transamerican Energy Corp. #
11.50%, Sr. Secured Notes, 6/15/02 200,000 196,000
Wiser Oil Co. #
9.50%, Sr. Subordinated Notes, 5/15/07 100,000 100,750
XCL Ltd. Delaware # (3)
13.50%, Units, 5/01/04 120 123,000
----------
833,437
----------
19
<PAGE>
Northstar High Yield Bond Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<CAPTION>
Principal Amount/
Security Units Value
- ------------------------------------------------------------------------------
<S> <C>
Services - 5.40%
Allied Waste North America, Inc. #
10.25%, Sr. Subordinated Notes, 12/01/06 $ 100,000 $ 107,375
Coinstar, Inc. # $
0/13.00%, Sr. Subordinated Notes, 10/01/06 150,000 105,000
KinderCare Learning Centers, Inc.
9.50%, Sr. Subordinated Notes, 2/15/09 100,000 96,750
La Petite Holdings Corp.
9.625%, Sr. Secured Notes, 8/01/01 100,000 103,000
Loomis Fargo & Co. #
10.00%, Sr. Subordinated Notes, 1/15/04 100,000 100,500
----------
512,625
----------
Specialty Retailing - 0.89%
Waban, Inc.
11.00%, Sr. Subordinated Notes, 5/15/04 75,000 84,563
----------
Steel - 1.10% WCI Steel, Inc.
10.00%, Sr. Notes, 12/01/04 100,000 104,500
----------
Supermarkets - 1.07%
Quality Food Centers, Inc. #
8.70%, Sr. Subordinated Notes, 3/15/07 100,000 101,250
----------
Telecommunications - 14.25%
Geotek Communications, Inc. $
0/15.00%, Sr. Discount Notes, 7/15/05 100,000 58,500
Globalstar L.P./Globalstar Capital #
11.25%, Sr. Notes, 6/15/04 100,000 94,250
Hyperion Telecommunications, Inc. $
0/13.00%, Sr. Discount Notes, 4/15/03 150,000 77,235
ICG Holdings, Inc. $
0/12.50%, Sr. Secured Discount Notes, 5/01/06 100,000 68,728
Intercel, Inc. $
0/12.00%, Sr. Discount Notes, 5/01/06 150,000 94,695
ITC Deltacom, Inc. #
11.00%, Sr. Notes, 6/01/07 200,000 203,000
Paging Network, Inc.
10.00%, Sr. Subordinated Notes, 10/15/08 200,000 193,000
PriCellular Wireless Corp.
10.75%, Sr. Notes, 11/01/04 100,000 104,000
Unifi Communications, Inc. # (4)
14.00%, Units, 3/01/04 100 99,500
Verio, Inc. # (5)
13.50%, Units, 6/15/04 100 102,000
Western Wireless Corp.
10.50%, Sr. Subordinated Notes, 6/01/06 100,000 103,500
WinStar Communications, Inc. $
0/14.00%, Sr. Discount Notes, 10/15/05 100,000 56,000
WinStar Equipment Corp. # $
0/12.50%, Sr. Secured Notes, 3/15/04 100,000 98,000
----------
1,352,408
----------
20
<PAGE>
Northstar High Yield Bond Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<CAPTION>
Security Principal Amount Value
- ------------------------------------------------------------------------------
<S> <C>
Toys - 1.07%
Hedstrom Corp. #
10.00%, Sr. Subordinated Notes, 6/01/07 $ 100,000 $ 102,000
----------
Total Domestic Corporate Bonds & Notes
(cost $5,506,075) 5,548,584
----------
FOREIGN BONDS & NOTES - 17.52%
Cable - 2.41%
Multicanal Participacoes SA
12.625%, Company Guarantee, 6/18/04 200,000 229,000
----------
Capital Goods Manufacturing - 1.71%
Celestica International, Inc.
10.50%, Sr. Subordinated Notes, 12/31/06 150,000 162,000
----------
Consumer Products - 0.63%
International Semi-Tech Corp. $
11.50%, Sr. Secured Discount Notes, 8/15/03 100,000 60,250
----------
Metals & Mining - 1.11%
Westmin Resources Ltd.
11.00%, Sr. Secured Notes, 3/15/07 100,000 104,875
----------
Paper - 3.21%
APP International Finance Co.
11.75%, Company Guarantee, 10/01/05 150,000 165,750
Grupo Industrial Durango SA
12.00%, Notes, 7/15/01 75,000 81,937
Indah Kiat International Finance Corp.
12.50%, Company Guarantee, 6/15/06 50,000 56,688
----------
304,375
----------
Printing & Publishing - 1.15%
Newsquest Capital P.L.C.
11.00%, Sr. Subordinated Notes, 5/01/06 100,000 109,500
----------
Services - 1.10%
Intertek Finance PLC
10.25%, Sr. Subordinated Notes, 11/01/06 100,000 104,750
----------
Steel - 1.12%
Altos Hornos De Mexico SA #
11.375%, Notes, 4/30/02 100,000 106,750
----------
21
<PAGE>
Northstar High Yield Bond Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<CAPTION>
Principal Amount/
Security Units/ Shares Value
- ------------------------------------------------------------------------------
<S> <C>
Telecommunications - 3.00%
Colt Telecom Group PLC $ (6)
0/12.00%, Units, 12/15/06 100 $ 64,000
Ionica PLC $ (7)
0/15.00%, Units, 5/01/07 200 107,000
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 $ 150,000 113,250
----------
284,250
----------
Utilities - 2.08%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 100,000 114,500
Invergas SA
12.50%, Sr. Notes, 12/16/99 75,000 82,781
----------
197,281
Total Foreign Bonds & Notes ----------
(cost $1,513,514) 1,663,031
----------
CONVERTIBLE BONDS - 1.27%
Telecommunications - 1.27%
SA Telecommunications, Inc. #
10.00%, Notes, 8/15/06 125,000 90,781
WinStar Communications, Inc. # $
0/14.00%, Sr. Discount Notes, 10/15/05 50,000 30,125
----------
Total Convertible Bonds
(cost $159,482) 120,906
----------
COMMON STOCKS - 0.17% @
Broadcasting & Media - 0.03%
Pegasus Communications Corp. 225 2,503
----------
Cable - 0.08%
EchoStar Communications Corp. 450 7,031
----------
Diversified Financial Services - 0.06%
Central Rents, Inc. 100 6,050
----------
Total Common Stocks
(cost $7,323) 15,584
----------
CONVERTIBLE PREFERRED STOCKS - 2.31%
Healthcare - 2.31%
Intracel Corp., 8.00% (8) 14,108 218,674
----------
Total Convertible Preferred Stocks
(cost $104,155) 218,674
----------
22
<PAGE>
Northstar High Yield Bond Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<CAPTION>
Security Shares Value
- ------------------------------------------------------------------------------
<S> <C>
PREFERRED STOCKS - 6.77%
Broadcasting & Media - 3.71%
Chancellor Radio Broadcasting Co., 12.25% & 1,000 $ 130,500
Paxson Communications Corp., 12.50% & 1,070 112,885
SFX Broadcasting, Inc., 12.625% & 1,000 108,500
----------
351,885
----------
Diversified Financial Services - 1.09%
California Federal Preferred Capital Corp., 9.125% 4,000 103,250
----------
Healthcare - 1.08%
Fresenius Medical Care Capital Trust, 9.00% 1,000 102,500
----------
Services - 0.89%
La Petite Academy, Inc., 12.125% 2,000 85,000
----------
Total Preferred Stocks
(cost $565,681) 642,635
----------
WARRANTS - 0.89% @
Broadcasting & Media - 0.25%
Benedek Communications Corp., (expires 7/01/07) 1,000 2,250
Spanish Broadcasting Systems, Inc., (expires 6/30/99) 100 22,000
----------
24,250
----------
Cable - 0.00%
Heartland Wireless Communications, Inc.,
(expires 4/15/00) 450 5
----------
Consumer Products - 0.01%
Chattem, Inc., (expires 6/17/99) 50 1,063
----------
Paper - 0.35%
SD Warren Holdings Corp., (expires 12/15/06) 6,400 33,600
----------
Services - 0.11%
Coinstar, Inc., (expires 10/01/06) 150 10,500
----------
Steel - 0.02%
Sheffield Steel Corp., (expires 11/01/01) 500 1,500
----------
Supermarkets - 0.02%
Dairy Mart Convenience Stores, Inc.,
(expires 12/01/01) 666 1,498
----------
Telecommunications - 0.13%
Clearnet Communications, Inc., (expires 9/15/05) 660 3,300
Geotek Communications, Inc., (expires 6/20/01) # 3,000 4,500
Hyperion Telecommunications, Inc., (expires 4/15/01) 150 4,500
Occidente Caribe Celular SA , (expires 3/15/04) # 600 6
----------
12,306
Total Warrants ----------
(cost $62,500) 84,722
----------
23
<PAGE>
Northstar High Yield Bond Fund
Portfolio of Investments (Unaudited)
June 30, 1997
<CAPTION>
Security Principal Amount Value
- ------------------------------------------------------------------------------
<S> <C>
Total Investment Securities - 87.39%
(cost $7,918,730) $8,294,136
SHORT TERM INVESTMENTS - 10.52%
Government Treasuries - 10.52%
U.S. Treasury Bills, 5.21%, due 7/10/97 $ 1,000,000 998,730
----------
Total Short Term Investments
(cost $987,300) 998,730
----------
Other assets less liabilities - 2.09% 198,170
----------
Net Assets - 100.00% $9,491,036
===========
</TABLE>
# Sale restricted to qualified institutional investors.
$ Step Bond.
@ Non-income producing security.
& Payment-in-kind.
(1) A unit consists of $1,000 par value Sr. Notes, 12.00% due 4/15/04 and 1
warrant.
(2) A unit consists of $1,000 par value Sr. Subordinated Notes, 12.50% due
4/01/04 and 1 warrant.
(3) A unit consists of $1,000 par value Sr. Secured Notes, 13.50% due 5/01/04
and 1 warrant.
(4) A unit consists of $1,000 par value Sr. Notes, 1400% due 3/01/04 and 1
warrant.
(5) A unit consists of $1,000 par value Sr. Notes, 13.50% due 6/15/04 and 8
warrant.
(6) A unit consists of $1,000 par value Sr. Discount Notes, 12.00% due 12/15/06
and 1 warrant.
(7) A unit consists of $1,000 par value Sr. Discount Notes, 15.00% due 5/01/07
and 1 warrant.
(8) Private Placement.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Northstar Variable Trust
Statement of Assets and Liabilities (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Northstar Northstar Northstar
ASSETS: Northstar Income and Multi-Sector High Yield
Growth Fund Growth Fund Bond Fund Bond Fund
--------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $20,637,801
$14,876,061, $8,404,237, and $7,918,730, respectively)...... $24,106,877 $16,783,681 $8,642,839 $8,294,136
Repurchase agreements....................................... 3,019,000 1,210,000 904,000 0
Short term investments...................................... 0 0 0 998,730
Cash........................................................ 399 307 886 29,622
Receivable for investments sold............................. 174,694 126,932 0 0
Receivable for shares of beneficial interest sold........... 94,017 64,328 6,120 72,459
Dividends and interest receivable........................... 23,010 106,095 118,062 116,307
Prepaid expenses............................................ 1,584 1,538 1,304 1,333
Receivable from advisor..................................... 14,686 12,063 10,983 11,191
-----------------------------------------------------------------
Total Assets........................................ 27,434,267 18,304,944 9,684,194 9,523,778
-----------------------------------------------------------------
LIABILITIES:
Payable for investments purchased........................... 1,266,304 0 243,575 0
Management fees payable..................................... 15,165 10,897 5,361 5,689
Custodian & fund accounting fees payable.................... 8,228 6,830 5,379 6,250
Audit fee payable........................................... 4,771 4,653 4,684 4,232
Administrative services fees payable........................ 2,022 1,453 715 758
Payable for fund shares repurchased......................... 0 584 0 0
Income distribution payable................................. 0 0 8,215 14,786
Other liabilities........................................... 1,104 1,490 687 1,027
-----------------------------------------------------------------
Total Liabilities.................................. 1,297,594 25,907 268,616 32,742
-----------------------------------------------------------------
NET ASSETS.................................................. $26,136,673 $18,279,037 $9,415,578 $9,491,036
=================================================================
NET ASSETS WERE COMPOSED OF:
Capital paid in for shares of beneficial interest, $.01 par
value outstanding (unlimited shares authorized)......... $23,522,065 $16,346,885 $9,227,802 $9,173,831
Undistributed (overdistributed) net investment income...... (397) 3,799 400 0
Accumulated net realized gain (loss) on investments........ (854,071) 20,733 (51,185) (58,201)
Net unrealized appreciation of investments................. 3,469,076 1,907,620 238,561 375,406
-----------------------------------------------------------------
Net Assets.......................................... $26,136,673 $18,279,037 $9,415,578 $9,491,036
=================================================================
Net Asset Value Per Share ($26,136,673/1,749,176 shares,
$18,279,037/1,456,413 shares, $9,415,578/1,803,028
shares, and $9,491,036/1,797,789 shares, respectively)...... $14.94 $12.55 $5.22 $5.28
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Northstar Variable Trust
Statement of Operations (Unaudited)
For the period ended June 30, 1997
<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 $1,548, $0, $0,
and $0, respectively)....................................... $124,020 $171,073 $16,296 $25,754
Interest (net of withholding tax of $0, $0, $1,105,
and $0, respectively)....................................... 44,451 176,513 342,139 352,099
----------------------------------------------------------------
Total investment income........................................ 168,471 347,586 358,435 377,853
----------------------------------------------------------------
EXPENSES:
Investment advisory and management fees........................ 76,624 57,595 27,675 30,132
Custodian and fund accounting fees............................. 18,507 13,809 12,624 15,134
Administrative services fees................................... 10,217 7,679 3,690 4,018
Audit fees..................................................... 6,270 6,289 6,229 5,724
Printing expense............................................... 1,965 1,224 821 939
Trustee fees and expenses...................................... 1,610 1,072 529 571
Insurance expense.............................................. 234 242 115 118
Miscellaneous expenses......................................... 312 303 303 303
----------------------------------------------------------------
115,739 88,213 51,986 56,939
Less expenses reimbursed by investment adviser................. 33,987 26,763 22,483 24,791
----------------------------------------------------------------
Total expenses.......................................... 81,752 61,450 29,503 32,148
----------------------------------------------------------------
Net investment income.......................................... 86,719 286,136 328,932 345,705
----------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments............................... (895,734) (26,821) (51,274) (53,283)
Net change in unrealized appreciation of investments........... 2,295,561 1,086,221 34,365 76,475
Net change in unrealized depreciation of foreign currency...... 0 0 (41) 0
----------------------------------------------------------------
Net realized and unrealized gain (loss) on investments.. 1,399,827 1,059,400 (16,950) 23,192
----------------------------------------------------------------
Increase in net assets resulting from operations............... $1,486,546 $1,345,536 $311,982 $368,897
================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
Northstar Variable Trust
Statement of Changes in Net Assets (Unaudited)
For the period ended June 30, 1997
<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........................................ $86,719 $286,136 $328,932 $345,705
Net realized loss on investments............................. (895,734) (26,821) (51,274) (53,283)
Net change in unrealized appreciation of investments......... 2,295,561 1,086,221 34,365 76,475
Net change in unrealized depreciation on foreign currency ... 0 0 (41) 0
------------------------------------------------------------
Increase in net assets resulting from operations......... 1,486,546 1,345,536 311,982 368,897
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income..................................... (94,430) (282,337) (328,532) (345,705)
------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares......................... 12,665,725 5,382,285 3,598,117 2,760,918
Net asset value of shares issued to
shareholders in reinvestment of dividends............. 94,430 282,337 324,763 339,854
------------------------------------------------------------
12,760,155 5,664,622 3,922,880 3,100,772
Cost of shares redeemed.................................. (3,579,330) (1,027,939) (767,549) (252,226)
------------------------------------------------------------
Net increase in net assets derived from
capital share transactions............................... 9,180,825 4,636,683 3,155,331 2,848,546
------------------------------------------------------------
Net increase in net assets..................................... 10,572,941 5,699,882 3,138,781 2,871,738
NET ASSETS:
Beginning of period............................................ 15,563,732 12,579,155 6,276,797 6,619,298
------------------------------------------------------------
End of period.................................................. $26,136,673 $18,279,037 $9,415,578 $9,491,036
============================================================
Undistributed (overdistributed) net investment income........... ($397) $3,799 $400 $0
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<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................................................... $15,563,732 $12,579,155 $6,276,797 $6,619,298
===============================================================
Undistributed net investment income........................... $7,314 $0 $0 $0
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
Northstar Variable Trust
Financial Highlights (Unaudited)
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 from
beginning of investment gain(loss)on investment net invest- net realized Total
Period ended period income investments operations ment income gains distributions
- ---------------- ------------ ----------- -------------- ------------ ------------- --------------- -------------
<S> <C>
Northstar Growth Fund
05/06/94-
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)
06/30/97 14.08 0.05 0.87 0.92 (0.06) -- (0.06)
Northstar Income and Growth Fund
05/06/94-
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)
06/30/97 11.72 0.21 0.83 1.04 (0.21) -- (0.21)
Northstar Multi-Sector Bond Fund
05/06/94-
12/31/94 5.00 0.23 (0.15) 0.08 (0.23) -- (0.23)
12/31/95 4.85 0.42 0.29 0.71 (0.42) -- (0.42)
12/31/96 5.14 0.41 0.21 0.62 (0.41) (0.10) (0.51)
06/30/97 5.25 0.20 (0.03) 0.17 (0.20) -- (0.20)
Northstar High Yield Bond Fund
05/06/94-
12/31/94 5.00 0.28 (0.31) (0.03) (0.28) -- (0.28)
12/31/95 4.69 0.50 0.34 0.84 (0.49) -- (0.49)
12/31/96 5.04 0.45 0.32 0.77 (0.45) (0.09) (0.54)
06/30/97 5.27 0.20 0.01 0.21 (0.20) -- (0.20)
</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.
29
<PAGE>
<TABLE>
<CAPTION>
Ratio of
expense Ratio of net
Ratio of reimburse- investment
Net Asset Net Assets, end expenses to ment to income to
Value, end of of period average net average net average net Portfolio Average
Period ended period Total Return (000's) assets assets assets turnover commissions*
- ---------------- ------------- ------------- -------------- ------------ ------------ -------------- ----------- ------------
<S> <C>
Northstar Growth Fund
05/06/94-
12/31/94 $10.04 3.47% $2,701 1.00%(1) 1.45%(1) 2.31%(1) 61% N/A
12/31/95 11.56 24.78 3,813 0.80 1.24 1.77 123 N/A
12/31/96 14.08 22.99 15,564 0.80 0.90 0.65 161 $0.0414
06/30/97 14.94 6.25 26,137 0.80 0.16 0.42 84 0.0361
Northstar Income and Growth Fund
05/06/94-
12/31/94 9.92 2.02 3,595 1.00 (1) 1.43 (1) 3.11 (1) 45 N/A
12/31/95 11.39 21.39 7,410 0.80 0.94 3.63 74 N/A
12/31/96 11.72 13.80 12,579 0.80 0.60 3.67 129 0.0401
06/30/97 12.55 9.09 18,279 0.80 0.17 1.85 20 0.3644
Northstar Multi-Sector Bond Fund
05/06/94-
12/31/94 4.85 1.41 2,716 1.00 (1) 1.41 (1) 7.03 (1) 29 N/A
12/31/95 5.14 14.97 3,766 0.80 1.26 8.52 83 N/A
12/31/96 5.25 12.53 6,277 0.80 0.88 8.38 121 --
06/30/97 5.22 3.52 9,416 0.80 0.61 8.93 73 --
Northstar High Yield Bond Fund
05/06/94-
12/31/94 4.69 (0.95) 2,588 1.00 (1) 1.55 (1) 8.62 (1) 62 N/A
12/31/95 5.04 18.55 4,773 0.80 1.31 10.61 157 N/A
12/31/96 5.27 15.75 6,619 0.80 0.93 8.72 159 0.0547
06/30/97 5.28 4.30 9,491 0.80 0.62 8.60 43 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
NORTHSTAR VARIABLE TRUST
Notes to Financial Statements - June 30, 1997 (Unaudited)
Note 1. Organization and Significant Accounting Policies
Organization. The Northstar Variable 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 consistent
with the preservation of capital. 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 are 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.
Repurchase Agreements. The Funds' custodian takes possession of collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-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.
31
<PAGE>
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
period ended June 30, 1997, the Adviser earned $192,026 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 period ended June 30, 1997 the Administrator earned $25,604 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 period ended June 30, 1997, the Adviser has
reimbursed the Growth Fund $33,987, the Income and Growth Fund $26,763, the
Multi-Sector Fund $22,483 and the High Yield Fund $24,791. Wilson/Bennett
Capital Management, Inc., a registered investment advisor, serves as a
subadvisor to the Income and Growth Fund pursuant to a Subadvisory Agreement
dated August 1, 1996. For its services, Wilson/Bennett Capital Management, Inc.
receives an annual fee equal to 0.20% of the first $125 million of the average
daily net asset value of the Fund; 0.25% of the average daily net asset value of
the Fund exceeding $125 million up to $250 million; and 0.30% of the average
daily net asset value of the Fund exceeding $250 million. Wilson/Bennett Capital
Management, Inc. has waived their advisory fee until the Fund reaches $50
million. 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 equal to 0.48% of the average daily
net assets of the Fund. For the period ended June 30, 1997, Navellier received
$13,566 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 period ended June 30, 1997 were as
follows:
<TABLE>
<CAPTION>
Income and Multi-Sector High Yield
Growth Fund Growth Fund Bond Fund Bond Fund
----------- ----------- ------------ ----------
<S> <C>
Aggregate Purchases $24,005,578 $6,839,441 $7,928,734 $5,213,312
Aggregate Sales $15,947,781 $2,708,299 $4,792,326 $2,848,634
U.S. Government Securities included above were as follows:
Aggregate Purchases $0 $2,645,234 $3,682,726 $987,300
Aggregate Sales $0 $0 $2,549,503 $0
</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 June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Income and Multi-Sector High Yield
Growth Fund Growth Fund Bond Fund Bond Fund
----------- ----------- ------------ -----------
<S> <C>
Cost (tax basis) $20,637,801 $14,876,061 $8,404,237 $7,918,730
=========== =========== ========== ==========
Appreciated Securities 3,713,325 2,056,202 309,290 540,589
Depreciated Securities (244,249) (148,582) (70,729) (165,183)
--------- --------- -------- ---------
Net Unrealized Appreciation $ 3,469,076 $ 1,907,620 $ 238,561 $ 375,406
=========== =========== ========== ==========
</TABLE>
32
<PAGE>
Note 5. Capital Share Transactions
Transactions in capital shares of each Fund for the period ended June 30, 1997
were as follows:
<TABLE>
<CAPTION>
Income and Multi-Sector High Yield
Growth Fund Growth Fund Bond Fund Bond Fund
----------- ----------- ------------ ---------
<S> <C>
Shares Sold 893,204 444,870 693,607 525,549
Reinvested Dividends 6,506 22,964 62,459 64,502
Shares Repurchased (255,743) (85,101) (148,903) (48,033)
--------- -------- --------- --------
Net Increase 643,967 382,733 607,163 542,018
------- ------- ------- -------
</TABLE>
Transactions in capital shares of each Fund for the year ended December 31, 1996
were as follows:
<TABLE>
<CAPTION>
Income and Multi-Sector High Yield
Growth Fund Growth Fund Bond Fund Bond 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>
Note 6. Credit risk and Defaulted Securities
Although the Funds have a diversified portfolio, the High Yield Bond Fund had
77.25% 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 June 30, 1997, the
Trust did not hold any defaulted securities. 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 of financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
33
<PAGE>
Note 7. Federal Income Tax - Capital Loss Carryforward
At December 31, 1996, had capital loss carryforwards expiring December
31, 2002 and 2003 of $1,294 and $20,337, respectively. Multi-Sector and
High Yield Fund had post October capital loss deferrals of $13,084 and
$26,650, respectively.
