(Northstar Logo
reads as follows:
NORTHSTAR
THE NORTHSTAR FUNDS)
ANNUAL REPORT TO SHAREHOLDERS
December 31, 1996
<PAGE>
(Northstar logo)
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,
/s/ MARK L. LIPSON
Mark L. Lipson
President
January 1997
3
<PAGE>
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
(Bullet) Performance figures are historical and reflect reinvestment of all
distributions and changes in net asset value. Unless otherwise
indicated, the Fund's performance is computed without a sales
charge. When sales charges are included, Fund performance reflects
the maximum sales charge for each class of shares.
(Bullet) Class T shares of each Fund are no longer available for purchase by
new investors and may be purchased only under limited circumstances
by existing Class T shareholders. Since June 5, 1995, each Fund
began offering three new classes of shares (Class A, B, and C),
each representing a unique pricing structure for purchasing shares
of the Funds. Performance information relating to each Class of
shares of each Fund is contained in the performance graph for each
Fund.
(Bullet) Each Fund's investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less
than their original cost.
(Bullet) Each Fund's portfolio composition may change and there is no
assurance the Fund will continue to hold any particular securities.
(Bullet) Past performance is not indicative of future results.
ABOUT INDICES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
(Bullet) Standard & Poor's Corporation (S&P) is a credit-rating agency. The
unmanaged Standard & Poor's Composite Index of 500 Stocks is widely
regarded by investors as representative of the stock market in
general.
(Bullet) The CPI is an index of the prices paid by consumers for consumer
goods and services. The index is prepared by the Bureau of Labor
Statistics. The index is widely regarded by investors as the key
measure of inflation in the U.S. economy.
(Bullet) The unmanaged Russell 2000 Index is generally representative of the
performance of the stocks of small-capitalization companies.
(Bullet) Lehman Brothers, Inc. is the principal subsidiary of publicly-held
Lehman Brothers Holdings, Inc. It is engaged primarily in raising
and managing funds in capital markets worldwide. Lehman Brothers
indices measure the performance of fixed income securities over
various time periods and in various groupings. The indices are
unmanaged, but exclude small, illiquid and/or esoteric bonds from
the indices. We believe that about two-thirds of fixed income index
users rely on one or more of Lehman Brothers Fixed Income Indices.
(Bullet) An investment cannot be made in any indices listed. Unless
otherwise indicated, index results include reinvested dividends and
interest and do not reflect sales charges.
4
<PAGE>
[PHOTO]
THOMAS OLE DIAL
[NORTHSTAR LOGO]
NORTHSTAR
GOVERNMENT SECURITIES FUND
THE MARKETS
(Bullet) Moderate market interest rates and a federal funds rate that stayed
at 5.25% after January helped the U.S. economy maintain both GDP
growth and inflation at about 3% in 1996. The Federal Reserve Board
pleasantly surprised many market participants by not raising the
fed funds rate in 1996. However, periodic fears of too-rapid growth
in GDP, job creation and personal consumption expenditures caused
longer term interest rates to rise most of the year. Those fears
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. The 4th quarter was a major exception. Lower interest
rates caused bond prices to rise, which eliminated losses
accumulated earlier in the year. Total returns on most bonds were
nonetheless below 4% in 1996.
(Bullet) The yields on most Treasury and U.S. government agency bonds traded
in a 100-120 basis points range. Rates fell between 20 and 40 basis
points in the 4th quarter of 1996, limiting the damage caused
mainly in the second quarter. While Government National Mortgage
Association bonds (GNMAs), were more attractive than Treasuries,
investors wanted even more yield. So other bond investments were
even more attractive than agency bonds. Fears of faster mortgage
prepayments increased as interest rates dropped during the 4th
quarter, which further limited investor's appetite for GNMAs
compared to domestic corporate bonds. Therefore, in 1996,
Treasuries and agencies were the poorest performing bonds.
(Bullet) 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 markets nonetheless remains positive for
1997. (The U.S. dollar should help keep both inflation and interest
rates low as long as it remains strong, which we expect.)
THE FUND
(Bullet) From 12/31/95 to 12/31/96, the total returns of the Fund's Class A,
B, C and T shares were 0.57%, -0.15%, -0.21% and 0.32%,
respectively; the Lipper U.S. Government Fund average was 1.72%.
The Fund's net assets fell from $157 million to $137 million in
1996.
(Bullet) Due to the very long duration of the Fund's bond holdings, its
concentration in high yielding GNMAs and the fact that it had a
large investment in zero-coupon strips of a 23-year bond, the Fund
was particularly interest-rate sensitive. Since interest rates fell
during the quarter, the Fund's performance was outstanding in the
4th quarter. In that quarter, the Fund ranked 11th in total return
out of 179 similar Funds reported by Lipper.
CURRENT STRATEGY
(Bullet) Reduce the average duration of the Fund's holdings to a range of 5
to 7 years and eliminate the two zero-coupon positions to help
reduce the volatility of the Fund and lessen its downside risks.
(Bullet) Explore the risk/reward trade-offs of other U.S. government agency
bonds besides GNMAs with a view to increasing the diversification
of the Fund's holdings and boosting the fund's total return.
(Bullet) Maintain 100% of the portfolios' assets invested in obligations of
the U.S. government and its agencies in order to retain the Fund's
eligibility for share purchases by credit unions and institutions
with similar requirements.
- -----------------------------------------------
FUND INFORMATION (ALL DATA IS AS OF 12/31/96)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
NAME % FUND
<S> <C> <C>
1 GNMA 7.00% 57.4%
2 GNMA 6.50% 28.3
3 U.S. Treasury Strips '19 11.7
4 U.S. Treasury Strips '13 2.2
5 Cash Equivalents 0.4
------
100.0%
------
------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------
TOTAL NET ASSETS: $136,592,506
- ---------------------------------
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 3.55% n/a -4.19%
- --------------------------------------------
Class B 3.55% n/a -4.86%
- --------------------------------------------
Class C 5.98% n/a -1.15%
- --------------------------------------------
Class T 7.23% 7.66% -3.44%
- --------------------------------------------
<CAPTION>
CUMULATIVE TOTAL RETURNS
(does not reflect sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 10.91% n/a 0.57%
- --------------------------------------------
Class B 9.66% n/a -0.15%
- --------------------------------------------
Class C 9.60% n/a -0.21%
- --------------------------------------------
Class T 114.23% 44.62% 0.32%
- --------------------------------------------
</TABLE>
3
<PAGE>
NORTHSTAR
GOVERNMENT SECURITIES FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
NORTHSTAR GOVERNMENT SECURITIES FUND AND COMPARATIVE INDICES
FROM INCEPTION OF EACH CLASS OF SHARES THROUGH THE FUND'S
FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1996, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 3.55% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of 4.75%.
Average annualized total returns of 3.55% and 5.98% since inception on June 5,
1995 for Class B and Class C shares, respectively, and average annualized total
returns since inception on February 3, 1986 for Class T shares of 7.23%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown represents
past performance, and should not be considered indicative of future performance.
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS A
GOVERNMENT
CLASS A INT GOV'T CPI
9,528 10,000 10,000
6/95 9,369 10,064 10,010
7/95 9,199 10,069 10,030
8/95 9,466 10,152 10,040
9/95 9,684 10,220 10,050
10/95 10,025 10,332 10,080
11/95 10,234 10,458 10,090
12/95 10,508 10,562 10,111
1/96 10,449 10,650 10,151
2/96 10,095 10,537 10,171
3/96 9,959 10,489 10,212
4/96 9,865 10,459 10,253
5/96 9,813 10,453 10,284
6/96 9,977 10,560 10,294
7/96 10,012 10,593 10,325
8/96 9,938 10,604 10,335
9/96 10,169 10,741 10,366
10/96 10,478 10,917 10,397
11/96 10,744 11,049 10,428
12/96 10,567 10,990 10,460
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS B
CLASS B INT GOV'T CPI
10,000 10,000 10,000
6/95 9,827 10,064 10,010
7/95 9,643 10,069 10,030
8/95 9,918 10,152 10,040
9/95 10,140 10,220 10,050
10/95 10,491 10,332 10,080
11/95 10,704 10,458 10,090
12/95 10,983 10,562 10,111
1/96 10,926 10,650 10,151
2/96 10,539 10,537 10,171
3/96 10,391 10,489 10,212
4/96 10,287 10,459 10,253
5/96 10,227 10,453 10,284
6/96 10,403 10,560 10,294
7/96 10,422 10,593 10,325
8/96 10,338 10,604 10,335
9/96 10,582 10,741 10,366
10/96 10,897 10,917 10,397
11/96 11,167 11,049 10,428
12/96 10,966 10,990 10,460
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS C
CLASS C INT GOV'T CPI
10,000 10,000 10,000
6/95 9,827 10,064 10,010
7/95 9,643 10,069 10,030
8/95 9,918 10,152 10,040
9/95 10,140 10,220 10,050
10/95 10,491 10,332 10,080
11/95 10,693 10,458 10,090
12/95 10,983 10,562 10,111
1/96 10,926 10,650 10,151
2/96 10,538 10,537 10,171
3/96 10,389 10,489 10,212
4/96 10,284 10,459 10,253
5/96 10,223 10,453 10,284
6/96 10,397 10,560 10,294
7/96 10,417 10,593 10,325
8/96 10,335 10,604 10,335
9/96 10,571 10,741 10,366
10/96 10,888 10,917 10,397
11/96 11,160 11,049 10,428
12/96 10,960 10,990 10,460
NORTHSTAR GOVERNMENT SECURITIES FUND -- CLASS T
GOVERNMENT
T
LEHMAN
CLASS T INT GOV'T CPI
10,000 10,000 10,000
2/86 10,230 10,237 9,980
3/86 10,254 10,512 9,920
4/86 10,339 10,582 9,880
5/86 10,066 10,445 9,910
6/86 10,309 10,698 9,950
7/86 10,403 10,816 9,960
8/86 10,527 11,068 9,970
9/86 10,542 10,964 10,010
10/86 10,719 11,102 10,030
11/86 10,839 11,208 10,050
12/86 10,849 11,238 10,090
1/87 10,985 11,339 10,150
2/87 11,054 11,395 10,191
3/87 10,855 11,370 10,232
4/87 10,552 11,169 10,283
5/87 10,457 11,144 10,314
6/87 10,480 11,276 10,355
7/87 10,471 11,301 10,386
8/87 10,366 11,271 10,428
9/87 10,138 11,131 10,469
10/87 10,274 11,462 10,501
11/87 10,271 11,531 10,543
12/87 10,337 11,643 10,564
1/88 10,654 11,932 10,606
2/88 10,847 12,058 10,617
3/88 10,698 12,007 10,648
4/88 10,631 11,987 10,702
5/88 10,649 11,929 10,734
6/88 10,663 12,124 10,777
7/88 10,620 12,088 10,820
8/88 10,616 12,103 10,852
9/88 10,740 12,313 10,907
10/88 10,854 12,483 10,939
11/88 10,696 12,375 10,972
12/88 10,644 12,388 11,005
1/89 10,773 12,511 11,049
2/89 10,734 12,458 11,082
3/89 10,760 12,516 11,138
4/89 10,931 12,769 11,216
5/89 11,130 13,015 11,272
6/89 11,371 13,347 11,294
7/89 11,518 13,618 11,339
8/89 11,410 13,434 11,339
9/89 11,465 13,499 11,362
10/89 11,699 13,782 11,419
11/89 11,824 13,919 11,453
12/89 11,894 13,959 11,499
1/90 11,655 13,873 11,602
2/90 11,815 13,924 11,649
3/90 11,825 13,941 11,695
4/90 11,677 13,895 11,731
5/90 12,005 14,192 11,754
6/90 12,176 14,379 11,825
7/90 12,377 14,581 11,884
8/90 12,254 14,528 11,979
9/90 12,309 14,658 12,063
10/90 12,454 14,861 12,147
11/90 12,706 15,086 12,171
12/90 12,914 15,294 12,220
1/91 13,093 15,451 12,269
2/91 13,165 15,546 12,281
3/91 13,253 15,631 12,281
4/91 13,358 15,792 12,318
5/91 13,463 15,881 12,355
6/91 13,506 15,893 12,380
7/91 13,707 16,065 12,404
8/91 13,910 16,370 12,442
9/91 14,115 16,648 12,479
10/91 14,336 16,838 12,504
11/91 14,389 17,035 12,554
12/91 14,815 17,449 12,592
1/92 14,537 17,282 12,604
2/92 14,671 17,335 12,629
3/92 14,556 17,266 12,680
4/92 14,658 17,421 12,705
5/92 14,929 17,681 12,731
6/92 15,134 17,935 12,769
7/92 15,579 18,280 12,807
8/92 15,649 18,466 12,833
9/92 15,857 18,721 12,858
10/92 15,426 18,496 12,910
11/92 15,689 18,421 12,936
12/92 16,260 18,658 12,962
1/93 16,782 19,005 12,987
2/93 17,308 19,285 13,026
3/93 17,318 19,356 13,052
4/93 17,419 19,507 13,105
5/93 17,429 19,454 13,131
6/93 18,307 19,736 13,144
7/93 18,685 19,776 13,157
8/93 19,720 20,071 13,183
9/93 19,771 20,153 13,197
10/93 19,969 20,201 13,263
11/93 19,190 20,102 13,289
12/93 19,269 20,185 13,316
1/94 19,787 20,385 13,329
2/94 18,620 20,105 13,369
3/94 17,637 19,812 13,396
4/94 17,406 19,683 13,423
5/94 17,364 19,697 13,436
6/94 17,246 19,701 13,476
7/94 17,549 19,959 13,517
8/94 17,546 20,017 13,571
9/94 17,328 19,850 13,598
10/94 17,247 19,854 13,612
11/94 17,204 19,767 13,625
12/94 17,378 19,832 13,652
1/95 17,696 20,156 13,693
2/95 18,076 20,545 13,734
3/95 18,096 20,658 13,762
4/95 18,299 20,897 13,817
5/95 19,131 21,487 13,858
6/95 19,068 21,624 13,872
7/95 18,719 21,635 13,900
8/95 19,258 21,812 13,914
9/95 19,676 21,958 13,928
10/95 20,386 22,200 13,970
11/95 20,786 22,471 13,984
12/95 21,356 22,693 14,012
1/96 21,229 22,884 14,068
2/96 20,503 22,641 14,096
3/96 20,224 22,537 14,152
4/96 20,029 22,472 14,209
5/96 19,919 22,461 14,251
6/96 20,248 22,690 14,266
7/96 20,314 22,760 14,308
8/96 20,159 22,785 14,323
9/96 20,623 23,079 14,366
10/96 21,248 23,457 14,409
11/96 21,808 23,741 14,452
12/96 21,424 23,613 14,495
4
<PAGE>
NORTHSTAR GOVERNMENT SECURITIES FUND [NORTHSTAR LOGO]
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount Value
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCIES -- 99.60%
GNMA Pool #367856, 6.50%, due 9/15/23 $ 1,676,467 $ 1,610,984
GNMA Pool #367431, 6.50%, due 12/15/23 1,841,846 1,769,314
GNMA Pool #366750, 6.50%, due 3/15/24 4,055,199 3,896,803
GNMA Pool #376430, 6.50%, due 3/15/24 2,567,182 2,466,086
GNMA Pool #351481, 6.50%, due 4/15/24 3,638,906 3,495,606
GNMA Pool #352824, 6.50%, due 4/15/24 1,745,274 1,676,545
GNMA Pool #780035, 6.50%, due 7/15/24 3,564,960 3,424,572
GNMA Pool #411355, 6.50%, due 12/15/25 2,407,420 2,301,084
GNMA Pool #417514, 6.50%, due 12/15/25 2,134,345 2,040,071
GNMA Pool #420591, 6.50%, due 12/15/25 1,943,443 1,857,601
GNMA Pool #420596, 6.50%, due 12/15/25 1,971,194 1,884,127
GNMA Pool #420675, 6.50%, due 12/15/25 2,909,274 2,780,772
GNMA Pool #411385, 6.50%, due 4/15/26 4,956,845 4,727,591
GNMA Pool #413640, 6.50%, due 4/15/26 4,908,182 4,681,178
GNMA Pool #352081, 7.00%, due 9/15/23 4,779,465 4,701,799
GNMA Pool #369686, 7.00%, due 12/15/23 7,356,514 7,236,971
GNMA Pool #382159, 7.00%, due 1/15/24 3,576,203 3,522,560
GNMA Pool #362607, 7.00%, due 1/15/26 4,981,556 4,876,645
GNMA Pool #417832, 7.00%, due 1/15/26 3,490,785 3,417,269
GNMA Pool #420648, 7.00%, due 1/15/26 4,857,392 4,755,095
GNMA Pool #417276, 7.00%, due 2/15/26 6,839,780 6,695,734
GNMA Pool #413627, 7.00%, due 3/15/26 4,983,153 4,874,121
GNMA Pool #422307, 7.00%, due 3/15/26 4,500,441 4,405,662
GNMA Pool #426384, 7.00%, due 3/15/26 4,949,695 4,841,395
GNMA Pool #422324, 7.00%, due 4/15/26 4,982,663 4,873,642
GNMA Pool #430882, 7.00%, due 6/15/26 4,982,123 4,873,114
GNMA Pool #432878, 7.00%, due 6/15/26 4,983,516 4,874,476
GNMA Pool #412637, 7.00%, due 7/15/26 7,784,734 7,614,404
GNMA Pool #431008, 7.00%, due 7/15/26 3,485,262 3,409,004
GNMA Pool #431018, 7.00%, due 7/15/26 3,485,259 3,409,002
U. S. Treasury Strips, 0%, due 8/15/13 9,500,000 3,094,150
U. S. Treasury Strips, 0%, due 2/15/19 72,150,000 15,955,972
------------
TOTAL INVESTMENT SECURITIES -- 99.60%
(cost $136,366,579) 136,043,349
REPURCHASE AGREEMENT -- 0.20%
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 $279,079 and collateralized by $230,000 U.S.
Treasury Bonds, 8.50% due 2/15/20, value $286,602
(cost $279,000) 279,000 279,000
Other assets less liabilities -- 0.20% 270,157
------------
NET ASSETS -- 100.00% $136,592,506
------------
------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
[PHOTO]
THOMAS OLE DIAL
NORTHSTAR
STRATEGIC INCOME FUND
THE MARKETS
(Bullet) 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%. 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.
(Bullet) 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 progess by the
issuers. Since the credit profiles of domestic high yield bonds
improves with the amount of equity below them, those bonds' prices
were boosted by higher stock valuations.
(Bullet) 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
(Bullet) From 12/31/95 to 12/31/96, the total returns of the Fund's Class A,
B, C and T shares were 10.88%, 10.18%, 10.11% and 10.39%,
respectively. The Fund's net assets rose 4.5% in 1996, from $76
million to nearly $80 million.
(Bullet) We continued to align high yield names with those in our two high
yield portfolios and replace some foreign sovereign names with
others that have better total return prospects. We replaced U.S.
Government bonds with GNMAs, high yield and foreign bonds.
Convertible bonds hurt the Fund's yield but boosted its total
return in the fourth quarter of 1996.
(Bullet) The Fund was able to perform well during the fourth quarter of 1996
despite the 60% limit on high yield investments and its limited
emerging market exposure due to its high exposure to
interest-sensitive bonds amidst declining rates.
CURRENT STRATEGY
(Bullet) Utilize the new latitude gained from the removal of minimum
allocation limits and from the ability to invest in domestic and
foreign investment grade corporates to optimize the Fund's results
over time.
(Bullet) Maximize high yield holdings, limit U.S. and foreign government
investments, and increase holdings of investment grade corporates
to increase the Fund's yield. Limit future holdings of convertible
bonds to those that have exceptional yields. Keep the Fund's
duration moderate and its credit quality at a minimum of BB+.
- ------------------------------------------------
FUND INFORMATION (ALL DATA IS AS OF 12/31/96)
- ------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
NAME % FUND
<S> <C> <C>
1 GNMA 7.00% '26 9.9%
2 GNMA, 6.50% '26 8.9
3 TheraTx, Inc. 4.4
4 Australia Govt., 10.00% '07 3.8
5 Province of Quebec, 7.50% '23 3.8
6 Republic of Poland, 3.75% '14 3.7
7 Republic of Italy, 6.875% '23 3.6
8 Commonwealth Alum. Corp. 3.3
9 Veritas DGC, Inc. 3.2
10 Healthsource, Inc. 3.0
------
47.6%
------
------
</TABLE>
<TABLE>
<CAPTION>
TOP 5 SECTORS
(by percentage of net assets)
<S> <C>
High Yield 53%
Investment Grade 21%
U.S. Government 19%
Equity 4%
Cash 3%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------
TOTAL NET ASSETS: $79,598,192
- --------------------------------
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 7.45% n/a 5.60%
- --------------------------------------------
Class B 7.61% n/a 5.18%
- --------------------------------------------
Class C 9.93% n/a 9.11%
- --------------------------------------------
Class T 10.04% n/a 6.39%
- --------------------------------------------
<CAPTION>
CUMULATIVE TOTAL RETURNS
(does not reflect sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 17.60% n/a 10.88%
- --------------------------------------------
Class B 16.29% n/a 10.18%
- --------------------------------------------
Class C 16.13% n/a 10.11%
- --------------------------------------------
Class T 29.15% n/a 10.39%
- --------------------------------------------
</TABLE>
6
<PAGE>
NORTHSTAR [NORTHSTAR LOGO]
STRATEGIC INCOME FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
NORTHSTAR STRATEGIC INCOME FUND AND COMPARATIVE INDICES FROM
INCEPTION OF EACH CLASS OF SHARES THROUGH THE FUND'S FISCAL
YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1996, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 7.45% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of 4.75%.
Average annualized total returns of 7.61% and 9.93% since inception on June 5,
1995 for Class B and Class C shares, respectively, and average annualized total
returns since inception on July 1, 1994 for Class T shares of 10.04%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown represents
past performance, and should not be considered indicative of future performance.
NORTHSTAR STRATEGIC INCOME FUND -- CLASS A
STRATEGIC
A
LEHMAN
CLASS A AGG BOND CPI
9,527 10,000 10,000
6/95 9,492 10,064 10,010
7/95 9,566 10,069 10,030
8/95 9,666 10,152 10,040
9/95 9,773 10,220 10,050
10/95 9,841 10,332 10,080
11/95 9,936 10,458 10,090
12/95 10,104 10,612 10,111
1/96 10,322 10,678 10,151
2/96 10,262 10,451 10,171
3/96 10,219 10,363 10,212
4/96 10,271 10,292 10,253
5/96 10,349 10,274 10,284
6/96 10,378 10,412 10,294
7/96 10,407 10,436 10,325
8/96 10,444 10,411 10,335
9/96 10,697 10,596 10,366
10/96 10,908 10,843 10,397
11/96 11,174 11,043 10,428
12/96 11,203 10,920 10,460
NORTHSTAR STRATEGIC INCOME FUND -- CLASS B
B
LEHMAN
CLASS B INT GOV'T CPI
10,000 10,000 10,000
6/95 9,958 10,064 10,010
7/95 10,030 10,069 10,030
8/95 10,128 10,152 10,040
9/95 10,243 10,220 10,050
10/95 10,291 10,332 10,080
11/95 10,392 10,458 10,090
12/95 10,554 10,612 10,111
1/96 10,776 10,678 10,151
2/96 10,716 10,451 10,171
3/96 10,665 10,363 10,212
4/96 10,714 10,292 10,253
5/96 10,780 10,274 10,284
6/96 10,812 10,412 10,294
7/96 10,826 10,436 10,325
8/96 10,867 10,411 10,335
9/96 11,115 10,596 10,366
10/96 11,337 10,843 10,397
11/96 11,606 11,043 10,428
12/96 11,629 10,920 10,460
NORTHSTAR STRATEGIC INCOME FUND -- CLASS C
C
LEHMAN
CLASS C INT GOV'T CPI
10,000 10,000 10,000
6/95 9,950 10,064 10,010
7/95 10,022 10,069 10,030
8/95 10,120 10,152 10,040
9/95 10,234 10,220 10,050
10/95 10,283 10,332 10,080
11/95 10,376 10,458 10,090
12/95 10,547 10,612 10,111
1/96 10,770 10,678 10,151
2/96 10,701 10,451 10,171
3/96 10,650 10,363 10,212
4/96 10,699 10,292 10,253
5/96 10,774 10,274 10,284
6/96 10,797 10,412 10,294
7/96 10,820 10,436 10,325
8/96 10,851 10,411 10,335
9/96 11,099 10,596 10,366
10/96 11,330 10,843 10,397
11/96 11,589 11,043 10,428
12/96 11,613 10,920 10,460
NORTHSTAR STRATEGIC INCOME FUND -- CLASS T
T
LEHMAN
CLASS T INT GOV'T CPI
10,000 10,000 10,000
7/94 10,058 10,131 10,030
8/94 10,259 10,160 10,070
9/94 10,243 10,076 10,090
10/94 10,183 10,078 10,100
11/94 10,141 10,034 10,110
12/94 10,214 10,067 10,131
1/95 10,283 10,231 10,161
2/95 10,573 10,428 10,192
3/95 10,608 10,486 10,212
4/95 10,849 10,607 10,253
5/95 11,019 10,906 10,284
6/95 11,028 10,976 10,294
7/95 11,109 10,982 10,314
8/95 11,219 11,072 10,325
9/95 11,339 11,146 10,335
10/95 11,404 11,269 10,366
11/95 11,519 11,406 10,376
12/95 11,699 11,574 10,397
1/96 11,947 11,646 10,439
2/96 11,882 11,399 10,460
3/96 11,827 11,303 10,501
4/96 11,883 11,225 10,543
5/96 11,958 11,206 10,575
6/96 11,996 11,356 10,586
7/96 12,013 11,382 10,617
8/96 12,060 11,355 10,628
9/96 12,337 11,557 10,660
10/96 12,586 11,826 10,692
11/96 12,866 12,044 10,724
12/96 12,915 11,910 10,756
7
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount Value
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE SECURITIES -- 20.68%
FOREIGN GOVERNMENT SECURITIES -- 20.68% (1)
Canadian Government Bonds
9.00%, due 6/01/25 2,000,000 $ 1,798,407
Commonwealth of Australia Government Bonds
10.00%, due 10/15/07 3,200,000 3,012,924
Province of British Columbia, Canada
9.50%, due 1/09/12 2,000,000 1,790,987
Province of Quebec, Canada
7.50%, due 7/15/23 (2) 3,000,000 3,000,900
Republic of Italy
6.875%, due 9/27/23 (2) 3,000,000 2,856,540
Republic of Poland
3.75%, due 10/27/14 (2) 3,500,000 2,966,250
Spanish Government Bonds
10.00%, due 2/28/05 112,000,000 1,037,914
------------
TOTAL INVESTMENT GRADE SECURITIES
(cost $15,470,462) 16,463,922
------------
HIGH YIELD SECURITIES -- 42.63%
DOMESTIC BONDS & NOTES -- 32.90%
AIRLINES -- 1.29%
Continental Airlines, Inc.
9.50%, Sr. Notes, 12/15/01 # $1,000,000 1,025,000
------------
BROADCASTING & MEDIA -- 1.31%
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Subordinated Notes, 12/15/03 500,000 512,500
Spanish Broadcasting System, Inc.
0/7.50%, Sr. Notes, 6/15/02 $ 500,000 532,500
------------
1,045,000
------------
CHEMICALS -- 0.70%
Synthetic Industries, Inc.
12.75%, Debentures, 12/01/02 500,000 553,750
------------
CONSUMER PRODUCTS -- 2.91%
Jordan Industries, Inc.
10.375%, Sr. Notes, 8/01/03 1,000,000 995,000
Shop-Vac Corp.
10.625%, Sr. Notes, 9/01/03 # 1,250,000 1,321,875
------------
2,316,875
------------
ENTERTAINMENT -- 1.26%
LodgeNet Entertainment Corp.
10.25%, Sr. Notes, 12/15/06 # 1,000,000 1,005,000
------------
FINANCE -- 2.54%
Riggs National Corp.
8.625%, Bonds, 12/31/26 # 2,000,000 2,020,000
------------
FOREST & PAPER PRODUCTS -- 1.33%
Stone Container Corp.
10.75%, 1st Mortgage Notes, 10/01/02 1,000,000 1,057,500
------------
</TABLE>
8
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND [NORTHSTAR LOGO]
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount/Units Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GROCERY -- 1.34%
Ralphs Grocery Co.
10.45%, Sr. Notes, 6/15/04 $1,000,000 $ 1,065,000
------------
INDUSTRIALS AND COMMERCIAL SERVICES -- 2.59%
Statia Terms International
11.75%, 1st Mortgage Notes, 11/15/03 # 2,000,000 2,060,000
------------
INSURANCE -- 1.63%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 1,300,000 1,300,000
------------
METALS & MINING -- 3.25%
Commonwealth Aluminum Corp.
10.75%, Sr. Subordinated Notes, 10/01/06 2,500,000 2,587,500
------------
OIL & GAS -- 4.48%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 900,000 994,500
Veritas DGC, Inc.
9.75%, Sr. Notes, 10/15/03 2,500,000 2,575,000
------------
3,569,500
------------
PRINTING & PUBLISHING -- 0.69%
Garden State Newspapers, Inc.
12.00%, Sr. Subordinated Notes, 7/01/04 500,000 547,500
------------
TELECOMMUNICATIONS -- 3.93%
CS Wireless Systems, Inc.
0/11.375%, Units, 3/01/06 # $ (3) 3,000 1,095,000
RSL Communications Ltd./PLC
12.25%, Units, 11/15/06 # (4) 2,000 2,030,000
------------
3,125,000
------------
TRANSPORTATION -- 0.68%
Moran Transportation Co.
11.75%, Sr. Guaranteed Notes, 7/15/04 500,000 542,500
------------
UTILITIES -- 2.97%
CE Casecnan Water & Energy Co.
11.95%, Sr. Notes, 11/15/10 2,000,000 2,365,000
------------
TOTAL DOMESTIC BONDS & NOTES 26,185,125
------------
FOREIGN BONDS & NOTES -- 9.73%
CABLE -- 2.31%
Le Groupe Videotron Ltee.
10.25%, Sr. Subordinated Notes, 10/15/02 500,000 533,750
Rogers Cablesystems Ltd.
9.65%, Sr. Debentures, 1/15/14 (1) 1,750,000 1,303,586
------------
1,837,336
------------
CHEMICALS -- 0.62%
Acetex Corp.
9.75%, Sr. Secured Notes, 10/01/03 500,000 493,750
------------
</TABLE>
9
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount/Shares/Units Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN GOVERNMENT SECURITIES -- 1.87%
Republic of Argentina
5.25/6.00%, Government Guarantee, 3/31/23 $ $1,000,000 $ 631,250
Republic of Argentina
6.625%, Government Guarantee, 3/31/05 (5) 980,000 857,500
------------
1,488,750
------------
FOREST & PAPER PRODUCTS -- 1.37%
Indah Kiat International Finance
12.50%, Guaranteed Notes, 6/15/06 500,000 556,250
Malette, Inc.
12.25%, Sr. Notes, 7/15/04 500,000 535,000
------------
1,091,250
------------
TELECOMMUNICATIONS -- 1.65%
Colt Telecom Group PLC
0/12.00%, Units, 12/15/06 $ (6) 500 298,750
Telecom Brazil Funding Corp.
11.09375%, Guaranteed Notes, 12/09/99 # (5) 1,000,000 1,015,000
------------
1,313,750
------------
TRANSPORTATION -- 1.91%
Transportacion Maritima Mexica
10.00%, Sr. Notes, 11/15/06 1,500,000 1,522,500
------------
TOTAL FOREIGN BONDS & NOTES
7,747,336
------------
TOTAL HIGH YIELD SECURITIES
(cost $32,686,613) 33,932,461
------------
CONVERTIBLE BONDS -- 10.30%
HEALTHCARE -- 7.41%
Healthsource, Inc.
5.00%, Subordinated Notes, 3/01/03 3,000,000 2,394,780
TheraTx, Inc.
8.00%, Subordinated Debentures, 2/01/02 3,802,000 3,497,840
------------
5,892,620
------------
INSURANCE -- 2.89%
Penn Treaty America Corp.
6.25%, Subordinated Notes, 12/01/03 # 1,500,000 1,617,660
Sierra Health Services, Inc.
7.50%, Debentures, 9/15/01 750,000 683,437
------------
2,301,097
------------
TOTAL CONVERTIBLE BONDS
(cost $8,100,041) 8,193,717
------------
PREFERRED STOCKS -- 4.46%
CABLE -- 0.65%
Cablevision Systems Corp., 11.75% & 5,456 511,500
------------
COMPUTER SERVICES -- 2.34%
Vanstar Financing Trust, 6.75% # (7) 35,000 1,863,435
------------
ENTERTAINMENT -- 1.47%
Time Warner, Inc., 10.25% 10,749 1,171,641
------------
</TABLE>
10
<PAGE>
NORTHSTAR STRATEGIC INCOME FUND [NORTHSTAR LOGO]
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL PREFERRED STOCKS
(cost $3,279,544) $ 3,546,576
------------
WARRANTS -- 0.01% @
CONSUMER PRODUCTS -- 0.01%
Chattem, Inc., (expires 6/17/99) 500 10,125
------------
RETAIL & WHOLESALE -- 0.00%
Dairy Mart Convenience Stores, Inc.,
(expires 12/01/01) 4,999 0
------------
TOTAL WARRANTS
(cost $0) 10,125
------------
RIGHTS -- 0.00%
FOREIGN GOVERNMENT -- 0.00%
United Mexican States 1,000,000 0
------------
HEAVY EQUIPMENT -- 0.00%
Terex Corp. 2,000 0
------------
TOTAL RIGHTS
(cost $0) 0
------------
U.S. GOVERNMENT AND AGENCIES -- 18.83%
GNMA, 6.50%, due 4/15/26 $7,461,231 7,116,149
GNMA, 7.00%, due 7/15/26 8,050,176 7,874,038
------------
TOTAL U.S. GOVERNMENT AND AGENCIES
(cost $14,810,999) 14,990,187
------------
TOTAL INVESTMENT SECURITIES -- 96.91%
(cost $74,347,659) 77,136,988
REPURCHASE AGREEMENT -- 1.71%
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 $1,362,386
and collateralized by $1,280,000 U.S. Treasury
Notes, 7.25% due 8/15/04, value $1,392,000
(cost $1,362,000) 1,362,000 1,362,000
Other assets less liabilities -- 1.38% 1,099,204
------------
NET ASSETS -- 100.00% $ 79,598,192
------------
------------
</TABLE>
# Sale restricted to qualified institutional investors.
$ Step Bond.
@ Non-income producing security.
& Payment-in-kind security.
(1) The principal amount is shown in the respective country's currency.
(2) U.S. denominated security.
(3) A unit consists of $4,000 par value Sr. Discount Notes, 11.375% due 3/01/06
and 1.1 shares of common stock.
(4) A unit consists of $1,000 par value Sr. Notes, 12.25% due 11/15/06 and 1
warrant.
(5) Floating Rate Bond. Rate as of December 31, 1996.
(6) A unit consists of $1,000 par value Sr. Discount Notes, 12.00% due 12/15/06
and 1 warrant.
(7) Convertible Security.
See accompanying notes to financial statements.
11
<PAGE>
[PHOTO] [PHOTO]
JEFFREY AURIGEMMA PETER A. BAKST
NORTHSTAR
HIGH YIELD FUND
THE MARKETS
(Bullet) 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%. 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
also boosted the value of the U.S. dollar.
(Bullet) 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 profiles of domestic high yield bonds
improves with the amount of equity below them, those bonds' prices
were boosted by higher stock valuations.
(Bullet) 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
(Bullet) From 12/31/95 to 12/31/96, the total returns of the Fund's Class A,
B, C and T shares were 14.74%, 13.94%, 13.93% and 14.49%,
respectively. The Fund's superior performance promoted sales that
led its net assets to increase 28% in 1996, from $180 million to
over $231 million.
(Bullet) The Fund's performance was enhanced by changes in portfolio
allocations that anticipated changes in the markets. We
underweighted investments in cyclical industries (e.g., steel,
chemicals and paper). However, we increased returns by increasing
investments in the telecommunications, energy, broadcasting and
healthcare industries and in high-quality emerging market corporate
bonds. We raised cash to avoid year-end losses.
(Bullet) Bonds issued by companies that are high quality players in their
industries contributed significantly to the Fund's high returns
(e.g., APP, EchoStar, Grupo Televisa, MFS, Teleport and Time
Warner).
CURRENT STRATEGY
(Bullet) Continue to manage the Fund as a conservative "all-weather" high
yield fund with limited downside risk.
(Bullet) Focus on bonds rated B2/B or higher. Continue to invest in
companies with strong cash flows or asset protection whose
securities have the potential for credit upgrades.
- -----------------------------------------------
FUND INFORMATION (ALL DATA IS AS OF 12/31/96)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
NAME % FUND
<S> <C> <C>
1 MFS Communications, Inc. 2.1%
2 CE Casecnan Water & Energy 2.0
3 EchoStar Satellite Broadcasting 2.0
4 Grupo Televisa SA 2.0
5 Teleport Comm. Group, Inc. 2.0
6 Telewest PLC 2.0
7 Time Warner, Inc. 2.0
8 Americo Life, Inc. 1.8
9 APP International 1.8
10 Sweetheart Cup Co., Inc. 1.8
------
19.5%
------
------
</TABLE>
TOP 5 INDUSTRIES
(by percentage of net assets)
Telecommunications 15%
Utility 7%
Broadcasting 7%
Cable 6%
Entertainment 6%
<TABLE>
<CAPTION>
- ---------------------------------
TOTAL NET ASSETS: $231,051,719
- ---------------------------------
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 8.55% n/a 9.25%
- --------------------------------------------
Class B 8.81% n/a 8.93%
- --------------------------------------------
Class C 11.21% n/a 12.93%
- --------------------------------------------
Class T 10.97% 14.07% 10.49%
- --------------------------------------------
<CAPTION>
CUMULATIVE TOTAL RETURNS
(do not reflect sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 19.46% n/a 14.74%
- --------------------------------------------
Class B 18.28% n/a 13.94%
- --------------------------------------------
Class C 18.28% n/a 13.93%
- --------------------------------------------
Class T 120.40% 93.16% 14.49%
- --------------------------------------------
</TABLE>
12
<PAGE>
NORTHSTAR [NORTHSTAR LOGO]
HIGH YIELD FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
NORTHSTAR HIGH YIELD FUND AND COMPARATIVE INDICES FROM
INCEPTION OF EACH CLASS OF SHARES THROUGH THE FUND'S FISCAL
YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1996, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 8.55% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of 4.75%.
Average annualized total returns of 8.81% and 11.21% since inception on June 5,
1995 for Class B and Class C shares, respectively, and average annualized total
returns since inception on May 30, 1989 for Class T shares of 10.97%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown represents
past performance, and should not be considered indicative of future performance.
NORTHSTAR HIGH YIELD FUND -- CLASS A
A
LEHMAN
CLASS A HY BOND CPI
9,530 10,000 10,000
6/95 9,454 10,064 10,010
7/95 9,676 10,191 10,030
8/95 9,689 10,222 10,040
9/95 9,768 10,348 10,050
10/95 9,781 10,412 10,080
11/95 9,805 10,504 10,090
12/95 9,922 10,669 10,111
1/96 10,213 10,857 10,151
2/96 10,261 10,865 10,171
3/96 10,215 10,858 10,212
4/96 10,308 10,882 10,253
5/96 10,389 10,947 10,284
6/96 10,398 11,038 10,294
7/96 10,455 11,088 10,325
8/96 10,648 11,208 10,335
9/96 10,929 11,478 10,366
10/96 11,013 11,567 10,397
11/96 11,236 11,795 10,428
12/96 11,384 11,880 10,460
NORTHSTAR HIGH YIELD FUND -- CLASS B
B
LEHMAN
CLASS B HY BOND CPI
10,000 10,000 10,000
6/95 9,915 10,064 10,010
7/95 10,142 10,191 10,030
8/95 10,149 10,222 10,040
9/95 10,227 10,348 10,050
10/95 10,233 10,412 10,080
11/95 10,265 10,504 10,090
12/95 10,381 10,669 10,111
1/96 10,679 10,857 10,151
2/96 10,711 10,865 10,171
3/96 10,657 10,858 10,212
4/96 10,760 10,882 10,253
5/96 10,826 10,947 10,284
6/96 10,842 11,038 10,294
7/96 10,883 11,088 10,325
8/96 11,090 11,208 10,335
9/96 11,375 11,478 10,366
10/96 11,456 11,567 10,397
11/96 11,680 11,795 10,428
12/96 11,827 11,880 10,460
NORTHSTAR HIGH YIELD FUND -- CLASS C
C
LEHMAN
CLASS C HY BOND CPI
10,000 10,000 10,000
6/95 9,915 10,064 10,010
7/95 10,142 10,191 10,030
8/95 10,149 10,222 10,040
9/95 10,227 10,348 10,050
10/95 10,233 10,412 10,080
11/95 10,265 10,504 10,090
12/95 10,381 10,669 10,111
1/96 10,667 10,857 10,151
2/96 10,711 10,865 10,171
3/96 10,657 10,858 10,212
4/96 10,748 10,882 10,253
5/96 10,826 10,947 10,284
6/96 10,843 11,038 10,294
7/96 10,883 11,088 10,325
8/96 11,090 11,208 10,335
9/96 11,376 11,478 10,366
10/96 11,456 11,567 10,397
11/96 11,680 11,795 10,428
12/96 11,827 11,880 10,460
NORTHSTAR HIGH YIELD FUND -- CLASS T
T
LEHMAN
CLASS T HY BOND CPI
10,000 10,000 10,000
6/89 9,954 10,124 10,020
7/89 9,916 10,111 10,060
8/89 9,969 10,145 10,060
9/89 9,725 9,975 10,080
10/89 9,242 9,738 10,131
11/89 9,181 9,719 10,161
12/89 9,120 9,734 10,202
1/90 8,629 9,525 10,293
2/90 8,439 9,329 10,335
3/90 8,659 9,573 10,376
4/90 8,399 9,557 10,407
5/90 8,671 9,742 10,428
6/90 8,924 9,977 10,490
7/90 9,111 10,246 10,543
8/90 8,562 9,663 10,627
9/90 7,879 8,957 10,702
10/90 7,529 8,487 10,777
11/90 7,653 8,752 10,798
12/90 7,789 8,796 10,841
1/91 7,968 9,037 10,885
2/91 8,502 10,026 10,896
3/91 9,042 10,617 10,896
4/91 9,717 11,052 10,928
5/91 9,827 11,072 10,961
6/91 9,885 11,400 10,983
7/91 10,210 11,764 11,005
8/91 10,337 12,035 11,038
9/91 10,519 12,202 11,071
10/91 11,035 12,610 11,093
11/91 11,097 12,675 11,138
12/91 11,410 12,858 11,171
1/92 12,350 13,311 11,182
2/92 12,834 13,639 11,205
3/92 12,869 13,808 11,249
4/92 12,953 13,861 11,272
5/92 13,171 14,056 11,294
6/92 13,270 14,188 11,328
7/92 13,628 14,403 11,362
8/92 13,683 14,591 11,385
9/92 13,940 14,740 11,408
10/92 13,872 14,532 11,453
11/92 14,289 14,716 11,476
12/92 14,556 14,883 11,499
1/93 14,907 15,316 11,522
2/93 14,905 15,586 11,557
3/93 15,261 15,787 11,580
4/93 15,162 15,924 11,626
5/93 15,671 16,114 11,649
6/93 16,218 16,452 11,661
7/93 16,535 16,612 11,673
8/93 16,667 16,751 11,696
9/93 16,801 16,795 11,708
10/93 17,142 17,134 11,766
11/93 17,244 17,216 11,790
12/93 17,306 17,430 11,813
1/94 17,862 17,808 11,825
2/94 18,028 17,762 11,861
3/94 17,536 17,090 11,884
4/94 17,097 16,974 11,908
5/94 17,096 16,983 11,920
6/94 17,036 17,035 11,956
7/94 17,150 17,180 11,992
8/94 17,227 17,302 12,040
9/94 17,236 17,304 12,064
10/94 17,274 17,345 12,076
11/94 16,951 17,127 12,088
12/94 16,929 17,254 12,112
1/95 17,131 17,488 12,149
2/95 17,540 18,088 12,185
3/95 17,663 18,283 12,209
4/95 18,163 18,748 12,258
5/95 18,435 19,273 12,295
6/95 18,371 19,396 12,307
7/95 18,797 19,641 12,332
8/95 18,818 19,701 12,344
9/95 18,968 19,944 12,357
10/95 18,987 20,067 12,394
11/95 19,052 20,244 12,406
12/95 19,250 20,562 12,431
1/96 19,810 20,924 12,481
2/96 19,897 20,940 12,505
3/96 19,803 20,926 12,555
4/96 19,979 20,972 12,606
5/96 20,132 21,098 12,644
6/96 20,146 21,273 12,656
7/96 20,255 21,371 12,694
8/96 20,625 21,601 12,707
9/96 21,191 22,122 12,745
10/96 21,327 22,292 12,783
11/96 21,754 22,731 12,822
12/96 22,039 22,895 12,860
13
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC BONDS & NOTES -- 62.18%
AIRLINES -- 0.98%
SC International Services, Inc.
13.00%, Sr. Subordinated Notes, 10/01/05 $2,000,000 $ 2,265,000
------------
AUTOMOTIVE -- 1.43%
Collins & Aikman Products Co.
11.50%, Sr. Subordinated Notes, 4/15/06 3,000,000 3,300,000
------------
BROADCASTING & MEDIA -- 6.08%
American Radio Systems Corp.
9.00%, Sr. Subordinated Notes, 2/01/06 1,500,000 1,479,375
Jacor Communications Co.
9.75%, Sr. Subordinated Notes, 12/15/06 1,000,000 1,027,500
JCAC, Inc.
10.125%, Sr. Subordinated Notes, 6/15/06 3,000,000 3,112,500
SCI Television, Inc.
11.00%, Sr. Notes, 6/30/05 2,500,000 2,693,750
SFX Broadcasting, Inc.
10.75%, Sr. Subordinated Notes, 5/15/06 3,000,000 3,172,500
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Subordinated Notes, 12/15/03 1,250,000 1,281,250
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Subordinated Notes, 9/30/05 1,250,000 1,281,250
------------
14,048,125
------------
CABLE -- 1.34%
Comcast Corp.
9.375%, Sr. Subordinated Debentures, 5/15/05 2,000,000 2,090,000
Heartland Wireless Communications, Inc.
13.00%, Sr. Notes, 4/15/03 1,000,000 995,000
------------
3,085,000
------------
CONGLOMERATES -- 0.72%
Alliant Techsystems, Inc.
11.75%, Sr. Subordinated Notes, 3/01/03 1,500,000 1,672,500
------------
CONSUMER PRODUCTS -- 2.91%
Rayovac Corp.
10.25%, Sr. Subordinated Notes, 11/01/06 # 2,400,000 2,493,000
Sweetheart Cup Co., Inc.
10.50%, Sr. Subordinated Notes, 9/01/03 4,000,000 4,230,000
------------
6,723,000
------------
ENVIRONMENTAL CONTROL -- 0.68%
Allied Waste North America, Inc.
10.25%, Sr. Subordinated Notes, 12/01/06 # 1,500,000 1,578,750
------------
FINANCIAL SERVICES -- 0.73%
Homeside, Inc.
11.25%, Sr. Notes, 5/15/03 1,500,000 1,680,000
------------
FOOD -- 0.68%
International Home Foods, Inc.
10.375%, Sr. Subordinated Notes, 11/01/06 # 1,500,000 1,567,500
------------
</TABLE>
14
<PAGE>
NORTHSTAR HIGH YIELD FUNDU [NORTHSTAR LOGO]
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GROCERY -- 2.88%
Jitney-Jungle Stores of America, Inc.
12.00%, Sr. Notes, 3/01/06 $2,000,000 $ 2,122,500
Pathmark Stores, Inc.
9.625%, Sr. Subordinated Notes, 5/01/03 2,500,000 2,406,250
Ralphs Grocery Co.
10.45%, Sr. Notes, 6/15/04 2,000,000 2,130,000
------------
6,658,750
------------
HEALTHCARE -- 3.56%
Dade International, Inc.
11.125%, Sr. Subordinated Notes, 5/01/06 1,900,000 2,066,250
Imed Corp.
9.75%, Sr. Subordinated Notes, 12/01/06 # 2,900,000 2,961,625
Integrated Health Services, Inc.
10.25%, Sr. Subordinated Notes, 4/30/06 # 2,000,000 2,095,000
Tenet Healthcare Corp.
10.125%, Sr. Subordinated Notes, 3/01/05 1,000,000 1,110,000
------------
8,232,875
------------
HOTEL & GAMING -- 4.17%
Capital Gaming International, Inc.
0%, Promissory Notes, 8/01/95* 10,000 0
Courtyard By Marriott Ltd.
10.75%, Sr. Secured Notes, 2/01/08 2,000,000 2,125,000
Grand Casino, Inc.
10.125%, 1st Mortgage Notes, 12/01/03 1,000,000 1,010,000
John Q. Hammons Hotels L.P.
9.75%, 1st Mortgage Notes, 10/01/05 1,000,000 1,022,500
John Q. Hammons Hotels, Inc.
8.875%, 1st Mortgage Notes, 2/15/04 1,500,000 1,496,250
Trump Atlantic City Funding, Inc.
11.25%, Company Guarantee, 5/01/06 4,000,000 3,980,000
------------
9,633,750
------------
INSURANCE -- 1.84%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 4,250,000 4,250,000
------------
MANUFACTURING -- 0.62%
U.S. Can Corp.
10.125%, Sr. Subordinated Notes, 10/15/06 # 1,350,000 1,420,875
------------
MISCELLANEOUS SERVICES -- 1.31%
Intertek Financial PLC
10.25%, Sr. Subordinated Notes, 11/01/06 # 2,900,000 3,030,500
------------
OIL & GAS -- 2.09%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 2,000,000 2,210,000
HS Resources, Inc.
9.875%, Sr. Subordinated Notes, 12/01/03 2,500,000 2,625,000
------------
4,835,000
------------
</TABLE>
15
<PAGE>
NORTHSTAR HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PAPER PRODUCTS -- 1.17%
SD Warren Co.
12.00%, Sr. Subordinated Notes, 12/15/04 $2,500,000 $ 2,703,125
------------
PRINTING & PUBLISHING -- 0.95%
Garden State Newspapers, Inc.
12.00%, Sr. Subordinated Notes, 7/01/04 2,000,000 2,190,000
------------
RETAIL & WHOLESALE -- 1.22%
Waban, Inc.
11.00%, Sr. Subordinated Notes, 5/15/04 2,500,000 2,812,500
------------
STEEL -- 3.17%
AK Steel Corp.
10.75%, Sr. Notes, 4/01/04 2,000,000 2,185,000
Bar Technologies, Inc.
13.50%, Sr. Secured Notes, 4/01/01 2,000,000 2,055,000
UCAR Global Enterprises, Inc.
12.00%, Sr. Subordinated Notes, 1/15/05 535,000 618,594
WCI Steel, Inc.
10.00%, Sr. Secured Notes, 12/01/04 # 2,400,000 2,454,000
------------
7,312,594
------------
TELECOMMUNICATIONS -- 13.42%
Alliant Computer Systems, Inc.
7.25%, Subordinated Debentures, 5/15/12 @* 528,000 0
Cellular, Inc.
0/11.75%, Sr. Subordinated Notes, 9/01/03 $ 3,000,000 2,715,000
EchoStar Satellite Broadcasting Corp.
0/13.125%, Sr. Discount Notes, 3/15/04 $ 6,000,000 4,560,000
MFS Communications, Inc.
0/8.875%, Sr. Discount Notes, 1/15/06 $ 6,500,000 4,769,375
Omnipoint Corp.
11.625%, Sr. Notes, 8/15/06 3,000,000 3,142,500
Paging Network, Inc.
U10.125%, Sr. Subordinated Notes, 8/01/07 4,000,000 4,095,000
PriCellular Wireless Corp.
10.75%, Sr. Notes, 11/01/04 # 3,000,000 3,138,750
Teleport Communications Group, Inc.
0/11.125%, Sr. Discount Notes, 7/01/07 $ 6,500,000 4,501,250
Western Wireless Corp.
10.50%, Sr. Subordinated Notes, 6/01/06 1,900,000 1,992,625
Western Wireless Corp.
10.50%, Sr. Subordinated Notes, 2/01/07 2,000,000 2,095,000
------------
31,009,500
------------
TEXTILES -- 0.90%
Avondale Mills, Inc.
10.25%, Sr. Subordinated Notes, 5/01/06 2,000,000 2,080,000
------------
</TABLE>
16
<PAGE>
NORTHSTAR HIGH YIELD FUND [NORTHSTAR LOGO]
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION -- 1.99%
Moran Transportation Co.
11.75%, Sr. Guaranteed Notes, 7/15/04 $2,200,000 $ 2,387,000
Sea Containers Ltd.
12.50%, Sr. Subordinated Debentures, 12/01/04 2,000,000 2,220,000
------------
4,607,000
------------
UTILITIES -- 7.34%
AES Corp.
10.25%, Sr. Subordinated Notes, 7/15/06 3,000,000 3,225,000
CalEnergy, Inc.
9.50%, Sr. Notes, 9/15/06 1,000,000 1,032,500
California Energy, Inc.
9.875%, Sr. Notes, 6/30/03 1,000,000 1,045,000
California Energy, Inc.
0/10.25%, Sr. Discount Notes, 1/15/04 $ 2,650,000 2,809,000
Calpine Corp.
10.50%, Sr. Notes, 5/15/06 2,000,000 2,130,000
CE Casecnan Water & Energy Co.
11.95%, Sr. Notes, 11/15/10 4,000,000 4,730,000
Long Island Lighting Co.
7.125%, Debentures, 6/01/05 2,100,000 1,995,588
------------
16,967,088
------------
TOTAL DOMESTIC BONDS & NOTES
(cost $135,125,280) 143,663,432
------------
FOREIGN BONDS & NOTES -- 20.75%
BROADCASTING & MEDIA -- 0.70%
Bell Cablemedia PLC
0/11.875%, Sr. Discount Notes, 9/15/05 $ 2,000,000 1,625,000
------------
CABLE -- 4.72%
Multicanal Participacoes SA
12.625%, Company Guarantee, 6/18/04 3,000,000 3,240,000
Rogers Cablesystems Ltd.
9.625%, Notes, 8/01/02 3,000,000 3,138,750
Telewest, PLC
0/11.00%, Sr. Discount Debentures, 10/01/07 $ 6,500,000 4,525,625
------------
10,904,375
------------
CHEMICALS -- 0.86%
Acetex Corp.
9.75%, Sr. Secured Notes, 10/01/03 2,000,000 1,975,000
------------
</TABLE>
17
<PAGE>
NORTHSTAR HIGH YIELD FUND PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount/Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES -- 1.57%
Celestica International, Inc.
10.50%, Sr. Subordinated Notes, 12/31/06 # $3,450,000 $ 3,631,125
------------
ENTERTAINMENT -- 3.69%
Globo Comunicacoes e Participacoes Ltda.
9.875%, Company Guarantee, 12/20/04 # 4,000,000 4,000,000
Grupo Televisa SA
11.375%, Sr. Notes, 5/15/03 4,200,000 4,525,500
------------
8,525,500
------------
METALS & MINING -- 1.32%
Royal Oaks Mines, Inc.
11.00%, Sr. Subordinated Notes, 8/15/06 3,000,000 3,060,000
------------
PAPER PRODUCTS -- 4.43%
APP International Finance Co.
11.75%, Guaranteed Secured Notes, 10/01/05 3,900,000 4,221,750
Grupo Industrial Durango SA
12.00%, Sr. Notes, 7/15/01 2,600,000 2,795,000
Malette, Inc.
12.25%, Sr. Notes, 7/15/04 3,000,000 3,210,000
------------
10,226,750
------------
PRINTING & PUBLISHING -- 1.78%
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 # 4,000,000 4,120,000
------------
TELECOMMUNICATIONS -- 1.68%
Fonorola, Inc.
12.50%, Sr. Notes, 8/15/02 1,000,000 1,093,750
Telefonica de Argentina SA
11.875%, Notes, 11/01/04 2,500,000 2,775,000
------------
3,868,750
------------
TOTAL FOREIGN BONDS & NOTES
(cost $45,645,489) 47,936,500
------------
COMMON STOCKS -- 0.00%
GAMING -- 0.00%
Capital Gaming International, Inc. @ 44,540 3,652
------------
TOTAL COMMON STOCKS
(cost $274,102) 3,652
------------
PREFERRED STOCKS -- 4.21%
BANKING -- 0.87%
First Nationwide Bank Corp., 11.50% 17,500 2,007,031
------------
ENTERTAINMENT -- 2.03%
Time Warner, Inc., 10.25% 43,004 4,687,436
------------
HEALTHCARE -- 0.88%
Fresenius Medical Care Capital Trust, 9.00% 2,000 2,045,000
------------
PRINTING & PUBLISHING -- 0.43%
K III Communications Corp., 10.00% 10,000 982,500
------------
</TABLE>
18
<PAGE>
NORTHSTAR HIGH YIELD FUND [NORTHSTAR LOGO]
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL PREFERRED STOCKS
(cost $8,749,130) $ 9,721,967
------------
WARRANTS -- 0.05% @
GAMING -- 0.00%
Capital Gaming International, Inc., (expires 2/01/99) 36,318 1,271
------------
STEEL -- 0.05%
Bar Technologies, Inc., (expires 4/01/01) 2,000 120,000
------------
TOTAL WARRANTS
(cost $73,425) 121,271
------------
RIGHTS -- 0.00%
FOREIGN GOVERNMENT -- 0.00%
United Mexican States 1,500,000 0
------------
HEAVY EQUIPMENT -- 0.00%
Terex Corp. 8,000 0
------------
TOTAL RIGHTS
(cost $0) 0
------------
TOTAL INVESTMENT SECURITIES -- 87.19%
(cost $189,867,426) 201,446,822
REPURCHASE AGREEMENT -- 11.22%
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 $25,946,349 and
collateralized by $26,490,000 U.S. Treasury Notes,
5.75% due 12/31/98, value $26,461,020
(cost $25,939,000) $25,939,000 25,939,000
Other assets less liabilities -- 1.59% 3,665,897
------------
NET ASSETS -- 100.00% $231,051,719
------------
------------
</TABLE>
@ Non-income producing security.
# Sale restricted to qualified institutional investors.
$ Step Bond.
* Bankrupt security.
See accompanying notes to financial statements.
19
<PAGE>
[PHOTO] [PHOTO]
THOMAS OLE DIAL PETER BAKST
NORTHSTAR
BALANCE SHEET
OPPORTUNITIES FUND
THE MARKETS
(Bullet) Yields on the 10 year and 30 year Treasury bonds were volatile
throughout the year, rising to 6.42% and 6.64% from 5.57% and
5.95%, respectively. Continued economic strength made market
participants wary of a Fed tightening, while benign inflation
numbers capped the rise on Treasury yields.
(Bullet) The stock market remained strong, with the Dow Industrial 30 rising
a remarkable 28.89%, while the S&P 500 rose 22.94%. As evidenced by
the Russell 2000 return of 16.54%, small cap stocks underperformed
severely, as investors sought large cap companies showing strong
earnings momentum.
(Bullet) The High Yield market performed strongly, with the Lipper average
up 13.67%, as a strong economy and high equity prices created
strong demand for high yield securities. As a result, high yield
spread to Treasuries narrowed to approximately 355 basis points
from 420 basis points.
THE FUND
(Bullet) The Fund's returns on class A, B, C, and T shares for 1996 were
10.54%, 9.76%, 9.72%, and 10.18%, respectively. An overexposure to
an eclectic group of convertible bonds such as TWA hurt the
performance of the Fund. In addition, an underweighting of high
yield bonds also prevented the Fund from taking advantage of the
strong performance of that asset class.
(Bullet) Holdings were increased in the telecommunications, broadcasting,
and utility sectors. Exposure was reduced in airlines,
pharmaceuticals and healthcare.
(Bullet) Towards the latter part of the year, we increased our holdings of
high yield bonds to 11.80% from 6.30% of assets. Convertible bonds
and preferreds were reduced to 23.40% and 21.30%, respectively. Our
cash position rose to 25%.
CURRENT STRATEGY
(Bullet) We will continue to restructure the portfolio, focusing on both
straight debt and equities. Exposure to convertible securities will
continue to be reduced, while seeking investments with either high
current income or greater capital appreciation potential. We will
continue to emphasize "bottom-up" security analysis rather than
macro economic strategy.
- -----------------------------------------------
FUND INFORMATION (ALL DATA IS AS OF 12/31/96)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
NAME % FUND
<S> <C> <C>
1 SA Telecommunications, Inc. 3.0%
2 Royal Oak Mines, Inc. 2.4
3 Trump Atlantic City 2.3
4 Comcast Corp. 2.2
5 Beverly Enterprises, Inc. 1.8
6 Roche Holdings, Inc. 1.8
7 Kaman Corp. 1.7
8 Multicanal Participacoes SA 1.7
9 Unocal Corp. 1.7
10 Alexander & Alexander 1.6
------
20.2%
------
------
</TABLE>
TOP 5 INDUSTRIES
(by percentage of net assets)
Telecommunications 15%
Oil & Gas 7%
Finance 6%
Utility 5%
Broadcasting 5%
<TABLE>
<CAPTION>
- ---------------------------------
TOTAL NET ASSETS: $64,726,986
- ---------------------------------
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 11.00% n/a 5.25%
- --------------------------------------------
Class B 11.56% n/a 5.07%
- --------------------------------------------
Class C 13.66% n/a 8.78%
- --------------------------------------------
Class T 9.71% 9.98% 6.42%
- --------------------------------------------
<CAPTION>
CUMULATIVE TOTAL RETURNS
(do not reflect sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
UClass A 23.85% n/a 10.54%
- --------------------------------------------
Class B 22.55% n/a 9.76%
- --------------------------------------------
Class C 22.42% n/a 9.72%
- --------------------------------------------
Class T 174.85% 60.87% 10.18%
- --------------------------------------------
</TABLE>
20
<PAGE>
NORTHSTAR [NORTHSTAR LOGO]
BALANCE SHEET
OPPORTUNITIES FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND AND COMPARATIVE
INDICES FROM INCEPTION OF EACH CLASS OF SHARES THROUGH THE
FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1996, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 11.00% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of 4.75%.
Average annualized total returns of 11.56% and 13.66% since inception on June 5,
1995 for Class B and Class C shares, respectively, and average annualized total
returns since inception on February 3, 1986 for Class T shares of 9.71%, reflect
applicable contingent deferred sales charges (maximum contingent deferred sales
charge for Class B shares of 5.00% declines to 0% and Class T shares of 4.00%
declines to 0% after five years; and maximum charge for Class C shares is 1.00%
during the first year of investment only). All performance data shown represents
past performance, and should not be considered indicative of future performance.
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND -- CLASS A
A
LEHMAN
CLASS A S & P 500 CPI GOVT/CORP
9,522 10,000 10,000 10,000
6/95 9,472 10,280 10,010 10,067
7/95 9,767 10,607 10,030 10,068
8/95 9,917 10,604 10,040 10,160
9/95 10,100 11,095 10,050 10,233
10/95 9,993 11,039 10,080 10,346
11/95 10,458 11,493 10,090 10,482
12/95 10,669 11,761 10,111 10,592
1/96 10,830 12,144 10,151 10,683
2/96 10,864 12,228 10,171 10,558
3/96 11,016 12,391 10,212 10,504
4/96 11,119 12,558 10,253 10,467
5/96 11,239 12,845 10,284 10,459
6/96 11,199 12,946 10,294 10,570
7/96 10,678 12,354 10,325 10,602
8/96 11,104 12,586 10,335 10,610
9/96 11,421 13,343 10,366 10,758
10/96 11,412 13,692 10,397 10,948
11/96 11,834 14,696 10,428 11,093
12/96 11,793 14,454 10,460 11,022
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND -- CLASS B
B
LEHMAN
CLASS B S & P 500 CPI GOVT/CORP
10,000 10,000 10,000 10,000
6/95 9,946 10,280 10,010 10,067
7/95 10,239 10,607 10,030 10,068
8/95 10,397 10,604 10,040 10,160
9/95 10,584 11,095 10,050 10,233
10/95 10,464 11,039 10,080 10,346
11/95 10,952 11,493 10,090 10,482
12/95 11,165 11,761 10,111 10,592
1/96 11,326 12,144 10,151 10,683
2/96 11,352 12,228 10,171 10,558
3/96 11,507 12,391 10,212 10,504
4/96 11,615 12,558 10,253 10,467
5/96 11,732 12,845 10,284 10,459
6/96 11,683 12,946 10,294 10,570
7/96 11,138 12,354 10,325 10,602
8/96 11,574 12,586 10,335 10,610
9/96 11,887 13,343 10,366 10,758
10/96 11,877 13,692 10,397 10,948
11/96 12,308 14,696 10,428 11,093
12/96 12,255 14,454 10,460 11,022
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND -- CLASS C
C
LEHMAN
CLASS C S & P 500 CPI GOVT/CORP
10,000 10,000 10,000 10,000
6/95 9,943 10,280 10,010 10,067
7/95 10,243 10,607 10,030 10,068
8/95 10,402 10,604 10,040 10,160
9/95 10,581 11,095 10,050 10,233
10/95 10,461 11,039 10,080 10,346
11/95 10,949 11,493 10,090 10,482
12/95 11,158 11,761 10,111 10,592
1/96 11,319 12,144 10,151 10,683
2/96 11,354 12,228 10,171 10,558
3/96 11,504 12,391 10,212 10,504
4/96 11,603 12,558 10,253 10,467
5/96 11,720 12,845 10,284 10,459
6/96 11,673 12,946 10,294 10,570
7/96 11,120 12,354 10,325 10,602
8/96 11,555 12,586 10,335 10,610
9/96 11,872 13,343 10,366 10,758
10/96 11,872 13,692 10,397 10,948
11/96 12,293 14,696 10,428 11,093
12/96 12,242 14,454 10,460 11,022
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND -- CLASS T
T
LEHMAN
CLASS T S & P 500 CPI GOVT/CORP
10,000 10,000 10,000 10,000
2/86 10,150 10,606 9,980 10,235
3/86 10,400 11,261 9,920 10,504
4/86 10,300 11,103 9,880 10,575
5/86 10,420 11,660 9,910 10,452
6/86 10,551 11,922 9,950 10,694
7/86 10,556 11,223 9,960 10,802
8/86 11,046 12,022 9,970 11,045
9/86 10,763 11,094 10,010 10,955
10/86 11,063 11,700 10,030 11,097
11/86 11,198 11,952 10,050 11,203
12/86 11,076 11,713 10,090 11,241
1/87 11,607 13,257 10,150 11,354
2/87 11,713 13,746 10,191 11,412
3/87 11,778 14,210 10,232 11,388
4/87 11,489 14,047 10,283 11,180
5/87 11,424 14,131 10,314 11,154
6/87 11,725 14,918 10,355 11,289
7/87 11,881 15,637 10,386 11,315
8/87 12,037 16,185 10,428 11,286
9/87 11,773 15,903 10,469 11,139
10/87 10,503 12,443 10,501 11,458
11/87 10,321 11,381 10,543 11,531
12/87 10,483 12,320 10,564 11,652
1/88 11,082 12,818 10,606 11,950
2/88 11,324 13,354 10,617 12,083
3/88 11,225 13,021 10,648 12,037
4/88 11,236 13,144 10,702 12,016
5/88 11,178 13,186 10,734 11,964
6/88 11,582 13,883 10,777 12,154
7/88 11,582 13,808 10,820 12,128
8/88 11,476 13,275 10,852 12,147
9/88 11,713 13,927 10,907 12,358
10/88 12,004 14,289 10,939 12,526
11/88 11,835 14,019 10,972 12,419
12/88 11,887 14,351 11,005 12,431
1/89 12,315 15,372 11,049 12,561
2/89 12,216 14,927 11,082 12,510
3/89 12,338 15,368 11,138 12,563
4/89 12,674 16,138 11,216 12,815
5/89 12,984 16,704 11,272 13,068
6/89 13,109 16,721 11,294 13,398
7/89 13,691 18,199 11,339 13,672
8/89 13,918 18,481 11,339 13,496
9/89 13,893 18,509 11,362 13,559
10/89 13,688 18,042 11,419 13,847
11/89 13,881 18,340 11,453 13,978
12/89 13,989 18,885 11,499 14,018
1/90 13,414 17,586 11,602 13,928
2/90 13,389 17,735 11,649 13,979
3/90 13,493 18,313 11,695 13,998
4/90 13,227 17,821 11,731 13,949
5/90 13,931 19,462 11,754 14,255
6/90 14,072 19,462 11,825 14,447
7/90 14,058 19,361 11,884 14,647
8/90 13,492 17,535 11,979 14,587
9/90 13,317 16,800 12,063 14,700
10/90 13,440 16,688 12,147 14,870
11/90 13,836 17,687 12,171 15,096
12/90 14,098 18,297 12,220 15,303
1/91 14,446 19,057 12,269 15,459
2/91 15,031 20,339 12,281 15,583
3/91 15,282 20,945 12,281 15,689
4/91 15,282 20,952 12,318 15,860
5/91 15,535 21,760 12,355 15,956
6/91 15,013 20,899 12,380 15,968
7/91 15,572 21,837 12,404 16,146
8/91 15,944 22,265 12,442 16,455
9/91 16,073 22,016 12,479 16,738
10/91 16,247 22,278 12,504 16,929
11/91 16,262 21,300 12,554 17,123
12/91 17,084 23,849 12,592 17,541
1/92 16,895 23,375 12,604 17,382
2/92 16,792 23,599 12,629 17,449
3/92 16,652 23,250 12,680 17,381
4/92 16,845 23,898 12,705 17,534
5/92 17,275 23,922 12,731 17,806
6/92 17,208 23,693 12,769 18,070
7/92 17,717 24,626 12,807 18,429
8/92 17,673 24,035 12,833 18,613
9/92 17,853 24,439 12,858 18,867
10/92 17,671 24,490 12,910 18,621
11/92 18,019 25,232 12,936 18,551
12/92 18,460 25,664 12,962 18,799
1/93 18,859 25,843 12,987 19,164
2/93 19,319 26,115 13,026 19,467
3/93 19,814 26,781 13,052 19,544
4/93 19,614 26,101 13,105 19,701
5/93 19,753 26,693 13,131 19,657
6/93 20,225 26,907 13,144 19,966
7/93 20,381 26,764 13,157 20,014
8/93 20,960 27,685 13,183 20,332
9/93 21,230 27,599 13,197 20,416
10/93 21,387 28,134 13,263 20,471
11/93 20,882 27,771 13,289 20,356
12/93 21,062 28,238 13,316 20,450
1/94 21,664 29,156 13,329 20,677
2/94 21,127 28,278 13,369 20,371
3/94 20,377 27,175 13,396 20,035
4/94 20,377 27,488 13,423 19,898
5/94 20,410 27,828 13,436 19,912
6/94 20,146 27,291 13,476 19,914
7/94 20,511 28,151 13,517 20,201
8/94 20,677 29,210 13,571 20,264
9/94 20,386 28,625 13,598 20,077
10/94 20,235 29,224 13,612 20,075
11/94 19,832 28,069 13,625 19,985
12/94 19,939 28,622 13,652 20,055
1/95 20,250 29,315 13,693 20,392
2/95 20,856 30,373 13,734 20,814
3/95 21,071 31,400 13,762 20,932
4/95 21,456 32,279 13,817 21,192
5/95 22,190 33,449 13,858 21,832
6/95 22,188 34,386 13,872 21,978
7/95 22,860 35,479 13,900 21,981
8/95 23,214 35,469 13,914 22,181
9/95 23,646 37,111 13,928 22,340
10/95 23,379 36,925 13,970 22,588
11/95 24,468 38,443 13,984 22,884
12/95 24,948 39,338 14,012 23,124
1/96 25,303 40,621 14,068 23,323
2/96 25,382 40,903 14,096 23,050
3/96 25,732 41,447 14,152 22,933
4/96 25,973 42,004 14,209 22,853
5/96 26,254 42,964 14,251 22,834
6/96 26,139 43,303 14,266 23,076
7/96 24,923 41,322 14,308 23,146
8/96 25,916 42,099 14,323 23,164
9/96 26,635 44,632 14,366 23,486
10/96 26,615 45,797 14,409 23,902
11/96 27,597 49,158 14,452 24,217
12/96 27,485 48,347 14,495 24,062
21
<PAGE>
NORTHSTAR
BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 16.74%
BROADCASTING & MEDIA -- 0.68%
EchoStar Communications Corp. @ 20,000 $ 440,000
-----------
ENTERTAINMENT -- 1.16%
Time Warner, Inc. 20,000 750,000
-----------
ENVIRONMENTAL CONTROL -- 0.57%
Allied Waste Industries, Inc. @ 40,000 370,000
-----------
FINANCE -- 0.85%
Finova Group, Inc. 8,600 552,550
-----------
FOREST & PAPER PRODUCTS -- 1.58%
Buckeye Cellulose Corp. @ 38,300 1,019,738
-----------
INSURANCE -- 0.52%
Allmerica Financial Corp. 10,000 335,000
-----------
METALS & MINING -- 0.78%
U.S. Can Corp. @ 30,000 506,250
-----------
OIL & GAS -- 1.21%
KN Energy, Inc. 20,000 785,000
-----------
RETAILING -- 1.79%
Safeway, Inc. @ 15,000 641,250
Waban, Inc. @ 20,000 520,000
-----------
1,161,250
-----------
TELECOMMUNICATION -- 3.79%
MFS Communications, Inc. @ 10,000 545,000
Omnipoint Corp. @ 20,000 385,000
Paging Network, Inc. @ 30,000 457,500
Western Wireless Corp. @ 30,000 416,250
WorldCom, Inc. @ 25,000 651,562
-----------
2,455,312
-----------
TEXTILES -- 1.17%
Interface, Inc. 37,500 754,688
-----------
UTILITIES -- 2.64%
AES Corp. @ 15,000 697,500
CalEnergy, Inc. @ 30,000 1,008,750
-----------
1,706,250
-----------
TOTAL COMMON STOCKS
(cost $10,024,831) 10,836,038
-----------
PREFERRED STOCKS -- 2.26%
BROADCASTING & MEDIA -- 1.47%
Paxson Communications Corp., 12.50% 10,000 950,000
-----------
HEALTHCARE -- 0.79%
Fresenius Medical Care Capital Trust, 9.00% 500 511,250
-----------
TOTAL PREFERRED STOCKS
(cost $1,500,000) 1,461,250
-----------
CONVERTIBLE PREFERRED STOCKS -- 17.71%
AIRLINES -- 0.76%
Trans World Airlines, Inc., 8.00% # 20,000 495,000
-----------
</TABLE>
22
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND [NORTHSTAR LOGO]
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares/Principal Amount/Units Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BROADCASTING & MEDIA -- 2.32%
American Radio Systems Corp., 7.00% # 20,000 $ 943,340
Merrill Lynch Co., Inc. ("Cox Communications")
6.00% due 6/01/99 (1) 25,000 556,250
-----------
1,499,590
-----------
COMPUTER HARDWARE -- 1.53%
Wang Laboratories, Inc., 6.50% # 20,000 992,500
-----------
CONGLOMERATES -- 1.95%
Corning Delaware L.P., 6.00% 11,400 725,325
Pittston Mineral Group, 6.25% # 14,000 539,000
-----------
1,264,325
-----------
CONSUMER PRODUCTS -- 1.17%
Tyco Toys, Inc., $0.4125 75,000 759,375
-----------
FINANCE -- 1.63%
Alexander & Alexander Services, Inc., $3.625 # 22,200 1,054,500
-----------
MANUFACTURING -- 1.14%
Greenfield Capital Trust, 6.00% # 15,000 735,540
-----------
OIL & GAS -- 4.51%
Atlantic Richfield Co., 9.00% (2) 43,600 937,400
Tejas Gas Corp., 5.25% 15,000 896,250
Unocal Corp., 6.25% # 18,770 1,084,174
-----------
2,917,824
-----------
UTILITIES -- 2.70%
Kaman Corp., 6.50% 20,300 1,111,425
MCN Corp., 8.75% 23,000 635,375
-----------
1,746,800
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $11,259,821) 11,465,454
-----------
CORPORATE BONDS -- 11.83%
ENVIRONMENTAL CONTROL -- 1.39%
Allied Waste North America, Inc.
10.25%, Sr. Subordinated Notes, 12/01/06 # $400,000 421,000
ICF Kaiser International, Inc.
13.00%, Units, 12/31/03 # (3) 500 477,500
-----------
898,500
-----------
FINANCE -- 1.36%
Coinstar, Inc.
0/13.00%, Units, 10/01/06 # $ (4) 1,250 883,750
-----------
HOTEL & GAMING -- 2.31%
Trump Atlantic City Funding, Inc.
11.25%, Company Guarantee, 5/01/06 1,500,000 1,492,500
-----------
STEEL -- 0.79%
WCI Steel, Inc.
10.00%, Sr. Secured Notes, 12/01/04 # 500,000 511,250
-----------
</TABLE>
23
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount Value
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 5.98%
EchoStar Satellite Broadcasting Corp.
0/13.125%, Sr. Discount Notes, 3/15/04 $ $1,000,000 $ 760,000
Omnipoint Corp.
11.625%, Sr. Notes, 8/15/06 1,000,000 1,047,500
Paging Network, Inc.
10.00%, Sr. Subordinated Notes, 10/15/08 # 1,000,000 1,016,250
Western Wireless Corp.
10.50%, Sr. Subordinated Notes, 2/01/07 1,000,000 1,047,500
-----------
3,871,250
-----------
TOTAL CORPORATE BONDS
(cost $7,320,594) 7,657,250
-----------
CONVERTIBLE BONDS -- 19.45%
AEROSPACE & DEFENSE -- 1.33%
Gencorp, Inc.
8.00%, Subordinated Debentures, 8/01/02 750,000 863,048
-----------
CHEMICALS -- 1.77%
Roche Holdings, Inc.
0%, LYONS, 4/20/10 # (5) 2,500,000 1,143,750
-----------
COMPUTER HARDWARE -- 1.39%
Apple Computer, Inc.
6.00%, Subordinated Notes, 6/01/01 # 900,000 896,499
-----------
ELECTRONICS -- 4.19%
Magnetek, Inc.
8.00%, Debentures, 9/15/01 841,000 864,127
Park Electrochemical Corp.
5.50%, Subordinated Notes, 3/01/06 1,000,000 867,500
Solectron Corp.
6.00%, Subordinated Notes, 3/01/06 # 900,000 982,764
-----------
2,714,391
-----------
FINANCE -- 1.60%
Equitable Cos., Inc.
6.125%, Subordinated Debentures, 12/15/24 900,000 1,037,250
-----------
HEALTHCARE -- 3.04%
Beverly Enterprises, Inc.
5.50%, Subordinated Debentures, 8/01/18 1,125,000 1,188,281
North American Vaccine, Inc.
6.50%, Subordinated Notes, 5/01/03 # 750,000 776,250
-----------
1,964,531
-----------
OIL & GAS -- 1.00%
Pogo Producing Co.
5.50%, Subordinated Notes, 3/15/04 300,000 645,783
-----------
TELECOMMUNICATION -- 5.13%
Comcast Corp.
3.375/5.50%, Subordinated Debentures, 9/09/05 $ 1,500,000 1,410,420
SA Telecommunications, Inc.
10.00%, Subordinated Notes, 8/15/06 # 2,000,000 1,910,000
-----------
3,320,420
-----------
</TABLE>
24
<PAGE>
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND [NORTHSTAR LOGO]
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL CONVERTIBLE BONDS
(cost $11,813,469) $12,585,672
-----------
FOREIGN CORPORATE BONDS -- 7.05%
CABLE -- 1.67%
Multicanal Participacoes SA
12.625%, Company Guarantee, 6/18/04 $1,000,000 1,080,000
-----------
CHEMICALS -- 0.99%
Acetex Corp.
9.75%, Sr. Secured Notes, 10/01/03 650,000 641,875
-----------
ENTERTAINMENT -- 1.39%
Globo Comunicacoes e Participacoes Ltda.
9.875%, Company Guarantee, 12/20/04 # 900,000 900,000
-----------
METALS & MINING -- 2.36%
Royal Oaks Mines, Inc.
11.00%, Sr. Subordinated Notes, 8/15/06 1,500,000 1,530,000
-----------
NEWSPAPERS -- 0.64%
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 # 400,000 412,000
-----------
TOTAL FOREIGN CORPORATE BONDS
(cost $4,508,788) 4,563,875
-----------
TOTAL INVESTMENT SECURITIES -- 75.04%
(cost $46,427,503) 48,569,539
REPURCHASE AGREEMENT -- 24.41%
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 $15,806,477 and collateralized by $16,175,000 U.S. Treasury
Bills, 5.25% due 12/31/97, value $16,121,930
(cost $15,802,000) 15,802,000 15,802,000
Other assets less liabilities -- 0.55% 355,447
-----------
NET ASSETS -- 100.00% $64,726,986
-----------
-----------
</TABLE>
@ Non-income producing security.
# Sale restricted to qualified institutional investors.
$ Step bond.
(1) Strypes -- Structured Yield Product Exchangeable for Stock.
(2) Mandatory conversion on 9/15/97 into shares of Lyondell Petroleum Co. common
stock.
(3) A unit consists of $1,000 par value 13.00%, Sr. Subordinated Notes, 12/31/03
and 5 warrants.
(4) A unit consists of $1,000 par value 13.00%, Sr.. Subordinated Discount
Notes, 10/01/06 and 1 warrant.
(5) LYONS -- Liquid yield option notes. Convertible into 144A American
Depositary Shares.
See accompanying notes to the financial statements.
25
<PAGE>
[PHOTO]
GEOFFREY WADSWORTH
NORTHSTAR
GROWTH FUND
THE MARKETS
(Bullet) During 1996 the Dow Industrials rose 28.89%, the S&P 500 gained
22.94%, and the Russell 2000 was up 16.54%.
(Bullet) The U.S. equity market was much stronger than most forecasters had
expected. It benefited from solid growth in the economy, good
corporate earnings increases, and very modest inflation and
interest rate increases.
(Bullet) Purchase demand for equities was strong all year as money flowed
into mutual funds, corporate mergers and buy-ins offset new
issuances, and foreign buying picked up.
(Bullet) At the start of 1996 concern over a slowdown due to a widespread
inventory correction was reversed after the Federal Reserve lowered
interest rates in January and better growth became evident. Small
cap growth stocks led the first half, but lagged the large blue
chips after June. The market suffered two brief corrections of 5%
or more, first during July and again in December as inflationary
fears were stirred by strong employment data.
THE FUND
(Bullet) From 12/31/95 to 12/31/96, the total returns of the Funds Class A,
B, C and T shares were 20.54%, 19.74%, 19.74% and 19.90%,
respectively. This compares to the Lipper Growth Fund Index at
17.50%.
(Bullet) The focus remains on high quality large and mid-cap companies.
Investments are made where earnings growth prospects are above
average and the equity valuation is reasonable or temporarily
depressed.
(Bullet) Areas that were particularly strong for the Fund included energy
stocks, (oil drilling and natural gas), computer technology,
financial, pharmaceuticals, aerospace, telecommunication services
and consumer staples. Computer services holdings were
disappointing. Consumer cyclicals, (monthly retailers), were strong
during the first half but lagged badly in the second half.
Conversely, semiconductor stocks which did poorly in the first
half, finished with strong gains late in the year.
CURRENT STRATEGY
(Bullet) The environment continues to be favorable for the financial markets
going into 1997. While economic growth now appears to have been
close to 4% in the fourth quarter of 1996, we think this will
moderate allowing the outlook of 2 to 3% GDP growth with moderate 3
to 3.5% inflation to be extended.
(Bullet) The Fund continues to favor holdings in technology, financial
services, energy, health care, and specialty retailing. We continue
to look for individual companies with consistent growth prospects
and for global leaders that will benefit from a more synchronized
worldwide expansion during 1997.
- ------------------------------------------------
FUND INFORMATION (ALL DATA IS AS OF 12/31/96)
- ------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
NAME % FUND
<S> <C> <C>
1 Global Marine, Inc. 4.5%
2 Citicorp 4.2
Philip Morris Cos.,
3 Inc. 3.8
Magna International,
4 Inc. 3.5
5 WorldCom, Inc. 3.4
6 Compaq Computer Corp. 3.2
7 Schlumberger, Ltd. 3.2
8 AMP, Inc. 2.9
9 Home Depot, Inc. 2.9
10 Microsoft Corp. 2.9
------
34.5%
------
------
</TABLE>
TOP 5 INDUSTRIES
(by percentage of net assets)
Retailing 11%
Bank 8%
Pharmaceutical 6%
Financial Services 6%
Consumer Products 4%
<TABLE>
<CAPTION>
- --------------------------------
TOTAL NET ASSETS: $79,964,487
- --------------------------------
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 16.94% n/a 14.85%
- --------------------------------------------
Class B 17.62% n/a 14.74%
- --------------------------------------------
Class C 19.85% n/a 18.74%
- --------------------------------------------
Class T 11.86% 10.43% 15.90%
- --------------------------------------------
<CAPTION>
CUMULATIVE TOTAL RETURNS
(do not reflect sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 34.45% n/a 20.54%
- --------------------------------------------
Class B 33.23% n/a 19.74%
- --------------------------------------------
Class C 33.12% n/a 19.74%
- --------------------------------------------
Class T 239.81% 64.22% 19.90%
- --------------------------------------------
</TABLE>
26
<PAGE>
NORTHSTAR
GROWTH FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
NORTHSTAR GROWTH FUND AND COMPARATIVE INDICES FROM INCEPTION
OF EACH CLASS OF SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1996, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 16.94% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of 4.75%.
Average annualized total returns of 17.62% and 19.85% since inception on June 5,
1995 for Class B and Class C shares, respectively, and average annualized total
returns since inception on February 3, 1986 for Class T shares of 11.86%,
reflect applicable contingent deferred sales charges (maximum contingent
deferred sales charge for Class B shares of 5.00% declines to 0% and Class T
shares of 4.00% declines to 0% after five years; and maximum charge for Class C
shares is 1.00% during the first year of investment only). All performance data
shown represents past performance, and should not be considered indicative of
future performance.
NORTHSTAR GROWTH FUND -- CLASS A
A
CLASS A S & P 500 CPI
9,524 10,000 10,000
6/95 9,864 10,280 10,010
7/95 10,331 10,607 10,030
8/95 10,320 10,604 10,040
9/95 10,554 11,095 10,050
10/95 10,310 11,039 10,080
11/95 10,635 11,493 10,090
12/95 10,623 11,761 10,111
1/96 10,691 12,144 10,151
2/96 10,739 12,228 10,171
3/96 10,930 12,391 10,212
4/96 11,327 12,558 10,253
5/96 11,696 12,845 10,284
6/96 11,676 12,946 10,294
7/96 10,985 12,354 10,325
8/96 11,361 12,586 10,335
9/96 12,134 13,343 10,366
10/96 12,168 13,692 10,397
11/96 13,044 14,696 10,428
12/96 12,805 14,454 10,460
NORTHSTAR GROWTH FUND -- CLASS B
B
CLASS B S & P 500 CPI
10,000 10,000 10,000
6/95 10,350 10,280 10,010
7/95 10,840 10,607 10,030
8/95 10,823 10,604 10,040
9/95 11,056 11,095 10,050
10/95 10,799 11,039 10,080
11/95 11,136 11,493 10,090
12/95 11,127 11,761 10,111
1/96 11,191 12,144 10,151
2/96 11,241 12,228 10,171
3/96 11,435 12,391 10,212
4/96 11,844 12,558 10,253
5/96 12,225 12,845 10,284
6/96 12,189 12,946 10,294
7/96 11,464 12,354 10,325
8/96 11,852 12,586 10,335
9/96 12,648 13,343 10,366
10/96 12,634 13,692 10,397
11/96 13,582 14,696 10,428
12/96 13,323 14,454 10,460
NORTHSTAR GROWTH FUND -- CLASS C
C
CLASS C S & P 500 CPI
10,000 10,000 10,000
6/95 10,353 10,280 10,010
7/95 10,837 10,607 10,030
8/95 10,820 10,604 10,040
9/95 10,987 11,095 10,050
10/95 10,799 11,039 10,080
11/95 11,136 11,493 10,090
12/95 11,117 11,761 10,111
1/96 11,182 12,144 10,151
2/96 11,232 12,228 10,171
3/96 11,426 12,391 10,212
4/96 11,827 12,558 10,253
5/96 12,215 12,845 10,284
6/96 12,179 12,946 10,294
7/96 11,454 12,354 10,325
8/96 11,834 12,586 10,335
9/96 12,638 13,343 10,366
10/96 12,616 13,692 10,397
11/96 13,570 14,696 10,428
12/96 13,312 14,454 10,460
NORTHSTAR GROWTH FUND -- CLASS T
T
CLASS T S & P 500 CPI
10,000 10,000 10,000
2/86 10,310 10,606 9,980
3/86 10,750 11,261 9,920
4/86 10,580 11,103 9,880
5/86 11,041 11,660 9,910
6/86 11,110 11,922 9,950
7/86 10,285 11,223 9,960
8/86 10,995 12,022 9,970
9/86 10,454 11,094 10,010
10/86 10,865 11,700 10,030
11/86 11,096 11,952 10,050
12/86 10,895 11,713 10,090
1/87 11,966 13,257 10,150
2/87 12,441 13,746 10,191
3/87 12,741 14,210 10,232
4/87 12,641 14,047 10,283
5/87 12,869 14,131 10,314
6/87 13,345 14,918 10,355
7/87 13,831 15,637 10,386
8/87 14,110 16,185 10,428
9/87 13,903 15,903 10,469
10/87 10,893 12,443 10,501
11/87 10,241 11,381 10,543
12/87 10,904 12,320 10,564
1/88 11,403 12,818 10,606
2/88 11,851 13,354 10,617
3/88 11,675 13,021 10,648
4/88 11,769 13,144 10,702
5/88 11,665 13,186 10,734
6/88 12,052 13,883 10,777
7/88 12,041 13,808 10,820
8/88 11,841 13,275 10,852
9/88 12,282 13,927 10,907
10/88 12,640 14,289 10,939
11/88 12,461 14,019 10,972
12/88 12,725 14,351 11,005
1/89 13,481 15,372 11,049
2/89 13,322 14,927 11,082
3/89 13,520 15,368 11,138
4/89 14,037 16,138 11,216
5/89 14,640 16,704 11,272
6/89 14,343 16,721 11,294
7/89 15,483 18,199 11,339
8/89 15,843 18,481 11,339
9/89 15,919 18,509 11,362
10/89 15,440 18,042 11,419
11/89 15,745 18,340 11,453
12/89 15,813 18,885 11,499
1/90 14,569 17,586 11,602
2/90 14,819 17,735 11,649
3/90 15,482 18,313 11,695
4/90 14,748 17,821 11,731
5/90 16,295 19,462 11,754
6/90 16,270 19,462 11,825
7/90 16,075 19,361 11,884
8/90 14,731 17,535 11,979
9/90 13,855 16,800 12,063
10/90 13,831 16,688 12,147
11/90 14,476 17,687 12,171
12/90 14,984 18,297 12,220
1/91 15,871 19,057 12,269
2/91 17,142 20,339 12,281
3/91 17,591 20,945 12,281
4/91 17,531 20,952 12,318
5/91 18,229 21,760 12,355
6/91 17,339 20,899 12,380
7/91 18,364 21,837 12,404
8/91 18,882 22,265 12,442
9/91 18,665 22,016 12,479
10/91 19,173 22,278 12,504
11/91 18,799 21,300 12,554
12/91 20,692 23,849 12,592
1/92 20,501 23,375 12,604
2/92 20,553 23,599 12,629
3/92 20,117 23,250 12,680
4/92 20,497 23,898 12,705
5/92 20,712 23,922 12,731
6/92 19,952 23,693 12,769
7/92 20,623 24,626 12,807
8/92 20,307 24,035 12,833
9/92 20,496 24,439 12,858
10/92 20,963 24,490 12,910
11/92 22,165 25,232 12,936
12/92 22,357 25,664 12,962
1/93 22,098 25,843 12,987
2/93 22,125 26,115 13,026
3/93 22,863 26,781 13,052
4/93 22,303 26,101 13,105
5/93 22,972 26,693 13,131
6/93 22,885 26,907 13,144
7/93 22,913 26,764 13,157
8/93 23,884 27,685 13,183
9/93 23,784 27,599 13,197
10/93 24,141 28,134 13,263
11/93 23,839 27,771 13,289
12/93 24,671 28,238 13,316
1/94 25,468 29,156 13,329
2/94 24,757 28,278 13,369
3/94 23,279 27,175 13,396
4/94 23,493 27,488 13,423
5/94 23,521 27,828 13,436
6/94 22,524 27,291 13,476
7/94 23,337 28,151 13,517
8/94 24,308 29,210 13,571
9/94 23,705 28,625 13,598
10/94 23,591 29,224 13,612
11/94 22,761 28,069 13,625
12/94 22,782 28,622 13,652
1/95 22,768 29,315 13,693
2/95 23,346 30,373 13,734
3/95 23,874 31,400 13,762
4/95 24,657 32,279 13,817
5/95 25,281 33,449 13,858
6/95 26,385 34,386 13,872
7/95 27,618 35,479 13,900
8/95 27,573 35,469 13,914
9/95 28,186 37,111 13,928
10/95 27,532 36,925 13,970
11/95 28,374 38,443 13,984
12/95 28,343 39,338 14,012
1/96 28,506 40,621 14,068
2/96 28,615 40,903 14,096
3/96 29,126 41,447 14,152
4/96 30,167 42,004 14,209
5/96 31,134 42,964 14,251
6/96 31,061 43,303 14,266
7/96 29,218 41,322 14,308
8/96 30,203 42,099 14,323
9/96 32,357 44,632 14,366
10/96 32,192 45,797 14,409
11/96 34,638 49,158 14,452
12/96 33,981 48,347 14,495
27
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 98.38%
AEROSPACE & DEFENSE -- 3.12%
Boeing Co. 14,000 $ 1,489,250
Northrop Grumman Corp. 12,200 1,009,550
-----------
2,498,800
-----------
ALUMINUM -- 0.76%
Century Aluminum Co. 35,000 603,750
-----------
AUTOMOTIVE -- 3.49%
Magna International, Inc. 50,000 2,787,500
-----------
BANKING -- 8.08%
Citicorp 32,300 3,326,900
Mellon Bank Corp. 21,300 1,512,300
Wells Fargo & Co. 6,000 1,618,500
-----------
6,457,700
-----------
BUSINESS SERVICES -- 3.60%
Ceridian Corp. @ 35,000 1,417,500
Electronic Data Systems Corp. 33,700 1,457,525
-----------
2,875,025
-----------
COMPUTER HARDWARE -- 5.81%
Bay Networks, Inc. @ 50,000 1,043,750
Cisco Systems, Inc. @ 16,000 1,018,000
Compaq Computer Corp. @ 34,800 2,583,900
-----------
4,645,650
-----------
COMPUTER SOFTWARE -- 2.89%
Microsoft Corp. @ 28,000 2,313,500
-----------
CONSTRUCTION -- 1.88%
Fluor Corp. 24,000 1,506,000
-----------
CONSUMER PRODUCTS -- 5.82%
Philip Morris Cos., Inc. 27,000 3,040,875
Procter & Gamble Co. 15,000 1,612,500
-----------
4,653,375
-----------
ELECTRICAL EQUIPMENT -- 2.86%
AMP, Inc. 59,600 2,287,150
-----------
ENERGY -- 5.53%
El Paso Natural Gas Co. 40,000 2,020,000
Enron Oil & Gas Co. 40,000 1,010,000
Sonat, Inc. 27,000 1,390,500
-----------
4,420,500
-----------
ENERGY SERVICES -- 4.78%
Baker Hughes, Inc. 23,000 793,500
Schlumberger, Ltd. 26,000 2,596,750
Seitel, Inc. @ 10,800 432,000
-----------
3,822,250
-----------
</TABLE>
28
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES -- 6.00%
Associates First Capital Corp. 22,000 $ 970,750
Capital One Financial Corp. 60,000 2,160,000
Federal National Mortgage Association 44,800 1,668,800
-----------
4,799,550
-----------
FOREST & PAPER PRODUCTS -- 2.68%
Kimberly-Clark Corp. 22,540 2,146,935
-----------
HEALTHCARE -- 2.11%
Columbia/HCA Healthcare Corp. 21,900 892,425
Healthsouth Corp. @ 20,600 795,675
-----------
1,688,100
-----------
HOTEL & RESTAURANTS -- 1.90%
Doubletree Corp. @ 3,000 135,000
La Quinta Inns, Inc. 72,500 1,386,563
-----------
1,521,563
-----------
MACHINERY -- 1.88%
Deere & Co. 37,000 1,503,125
-----------
MISCELLANEOUS TECHNOLOGY -- 1.68%
Millipore Corp. 32,500 1,344,688
-----------
OFFICE EQUIPMENT/SUPPLIES -- 3.38%
American Pad & Paper Co. @ 30,000 678,750
Xerox Corp. 38,400 2,020,800
-----------
2,699,550
-----------
OIL & GAS DRILLING -- 5.02%
Global Marine, Inc. @ 175,000 3,609,375
Parker Drilling Co. @ 42,300 407,137
-----------
4,016,512
-----------
PHARMACEUTICAL -- 6.02%
Bristol-Myers Squibb Co. 9,000 978,750
Genzyme Corp. @ 42,000 913,500
Merck & Co., Inc. 12,000 951,000
Pfizer, Inc. 11,000 911,625
Pharmacia & Upjohn, Inc. 26,800 1,061,950
-----------
4,816,825
-----------
RETAILING -- 11.40%
AutoZone, Inc. @ 59,800 1,644,500
General Nutrition Cos., Inc. @ 50,000 843,750
Home Depot, Inc. 46,000 2,305,750
Nine West Group, Inc. @ 25,000 1,159,375
Office Depot, Inc. @ 100,000 1,775,000
Pep Boys -- Manny, Moe & Jack 45,000 1,383,750
-----------
9,112,125
-----------
</TABLE>
29
<PAGE>
NORTHSTAR GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SEMICONDUCTOR -- 4.32%
Intel Corp. 5,800 $ 759,438
National Semiconductor Corp. @ 41,500 1,011,562
Texas Instruments, Inc. 26,400 1,683,000
-----------
3,454,000
-----------
TELECOMMUNICATIONS -- 3.37%
WorldCom, Inc. @ 103,400 2,694,862
-----------
TOTAL COMMON STOCKS
(cost $61,811,638) 78,669,035
-----------
TOTAL INVESTMENT SECURITIES -- 98.38%
(cost $61,811,638) 78,669,035
REPURCHASE AGREEMENT -- 1.65%
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 $1,316,373 and collateralized
by $1,335,000 U.S. Treasury Notes, 6.25% due 6/30/98,
value $1,345,013 (cost $1,316,000) $1,316,000 1,316,000
Liabilities in excess of other assets -- (0.03%) (20,548)
-----------
NET ASSETS -- 100.00% $79,964,487
-----------
-----------
</TABLE>
@ Non-income producing security.
See accompanying notes to the financial statements.
30
<PAGE>
[PHOTO] [NORTHSTAR LOGO]
LOUIS NAVELLIER
NORTHSTAR
SPECIAL FUND
THE MARKETS
(Bullet) During 1996 the S&P 500 rose 22.94%, Russell 2000 gained 16.54% and
the Dow Industrials was up 28.89%.
(Bullet) The small cap sector led the way in the first two quarters of the
year. Wall Street responded very positively to the earnings
estimates and reports posted by much of 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 FUND
(Bullet) From 12/31/95 to 12/31/96, the total returns of the Fund's Class A,
B, C and T shares were 18.16%, 17.37%, 17.37% and 17.47%,
respectively; compared to 17.50% for the Lipper Growth Fund Index
and 22.71% for the NASDAQ Composite.
(Bullet) 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
(Bullet) 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.
(Bullet) 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 portfolio
have superior fundamental characteristics relative to the overall
market.
- -----------------------------------------------
FUND INFORMATION (ALL DATA IS AS OF 12/31/96)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS
NAME % FUND
<S> <C> <C>
1 Tubos de Acero 2.1%
2 PanEnergy Corp. 2.0
3 Allstate Corp. 1.9
4 Plum Creek Timber 1.9
5 Atlantic Richfield Co. 1.8
6 BMC Software, Inc. 1.8
7 Bristol-Myers Squibb 1.8
8 Commerce Bancshares 1.7
9 Paychex, Inc. 1.7
10 Camco International 1.6
------
18.3%
------
------
</TABLE>
TOP 5 INDUSTRIES
(by percentage of net assets)
Natural Gas 14%
Banks 8%
Oil 8%
Oil & Gas 7%
Pharmaceuticals 6%
<TABLE>
<CAPTION>
- ---------------------------------
TOTAL NET ASSETS: $265,531,464
- ---------------------------------
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 15.90% n/a 12.57%
- -------------------------------------------
Class B 16.46% n/a 12.37%
- -------------------------------------------
Class C 18.76% n/a 16.37%
- -------------------------------------------
Class T 10.13% 11.36% 13.47%
- -------------------------------------------
<CAPTION>
CUMULATIVE TOTAL RETURNS
(do not reflect sales charge)
- --------------------------------------------
Inception 5 years 1 year
<S> <C> <C> <C>
- --------------------------------------------
Class A 32.58% n/a 18.16%
- -------------------------------------------
Class B 31.21% n/a 17.37%
- -------------------------------------------
Class C 31.21% n/a 17.37%
- -------------------------------------------
Class T 186.56% 71.25% 17.47%
- -------------------------------------------
</TABLE>
31
<PAGE>
NORTHSTAR
SPECIAL FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
NORTHSTAR SPECIAL FUND AND COMPARATIVE INDICES FROM INCEPTION
OF EACH CLASS OF SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1996, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 15.90% for the period since the classes'
inception on June 5, 1995 reflects payment of the maximum sales charge of 4.75%.
Average annualized total returns of 16.46% and 18.76% since inception on June 5,
1995 for Class B and Class C shares, respectively, and average annualized total
returns since inception on February 3, 1986 for Class T shares of 10.13%,
reflect applicable contingent deferred sales charges (maximum contingent
deferred sales charge for Class B shares of 5.00% declines to 0% and Class T
shares of 4.00% declines to 0% after five years; and maximum charge for Class C
shares is 1.00% during the first year of investment only). All performance data
shown represents past performance, and should not be considered indicative of
future performance.
NORTHSTAR SPECIAL FUND -- CLASS A
A
RUSSELL
CLASS A 2000 CPI
9,523 10,000 10,000
6/95 10,229 10,519 10,010
7/95 10,706 11,125 10,030
8/95 10,862 11,355 10,040
9/95 10,886 11,558 10,050
10/95 10,428 11,041 10,080
11/95 10,716 11,505 10,090
12/95 10,685 11,808 10,111
1/96 10,527 11,881 10,151
2/96 10,894 12,163 10,171
3/96 11,293 12,414 10,212
4/96 12,467 13,074 10,253
5/96 13,331 13,589 10,284
6/96 12,646 13,031 10,294
7/96 11,574 11,893 10,325
8/96 12,023 12,584 10,335
9/96 12,840 13,076 10,366
10/96 12,340 12,874 10,397
11/96 12,651 13,404 10,428
12/96 12,626 13,756 10,460
NORTHSTAR SPECIAL FUND -- CLASS B
B
RUSSELL
CLASS B 2000 CPI
10,000 10,000 10,000
6/95 10,746 10,519 10,010
7/95 11,232 11,125 10,030
8/95 11,385 11,355 10,040
9/95 11,411 11,558 10,050
10/95 10,920 11,041 10,080
11/95 11,212 11,505 10,090
12/95 11,179 11,808 10,111
1/96 11,002 11,881 10,151
2/96 11,383 12,163 10,171
3/96 11,802 12,414 10,212
4/96 13,019 13,074 10,253
5/96 13,915 13,589 10,284
6/96 13,196 13,031 10,294
7/96 12,064 11,893 10,325
8/96 12,526 12,584 10,335
9/96 13,368 13,076 10,366
10/96 12,842 12,874 10,397
11/96 13,159 13,404 10,428
12/96 13,121 13,756 10,460
NORTHSTAR SPECIAL FUND -- CLASS C
C
RUSSELL
CLASS C 2000 CPI
10,000 10,000 10,000
6/95 10,741 10,519 10,010
7/95 11,232 11,125 10,030
8/95 11,385 11,355 10,040
9/95 11,406 11,558 10,050
10/95 10,920 11,041 10,080
11/95 11,217 11,505 10,090
12/95 11,179 11,808 10,111
1/96 11,002 11,881 10,151
2/96 11,383 12,163 10,171
3/96 11,802 12,414 10,212
4/96 13,025 13,074 10,253
5/96 13,915 13,589 10,284
6/96 13,191 13,031 10,294
7/96 12,070 11,893 10,325
8/96 12,526 12,584 10,335
9/96 13,368 13,076 10,366
10/96 12,842 12,874 10,397
11/96 13,159 13,404 10,428
12/96 13,121 13,756 10,460
NORTHSTAR SPECIAL FUND -- CLASS T
T
RUSSELL
CLASS T 2000 CPI
10,000 10,000 10,000
2/86 10,190 10,718 9,980
3/86 10,330 11,238 9,920
4/86 10,349 11,404 9,880
5/86 10,369 11,797 9,910
6/86 10,119 11,783 9,950
7/86 9,419 10,681 9,960
8/86 9,489 11,020 9,970
9/86 9,090 10,340 10,010
10/86 9,290 10,750 10,030
11/86 9,140 10,713 10,050
12/86 8,920 10,403 10,090
1/87 9,740 11,607 10,150
2/87 10,290 12,583 10,191
3/87 10,260 12,922 10,232
4/87 9,810 12,548 10,283
5/87 9,720 12,508 10,314
6/87 9,850 12,830 10,355
7/87 10,200 13,230 10,386
8/87 10,490 13,621 10,428
9/87 10,420 13,374 10,469
10/87 7,570 9,278 10,501
11/87 7,490 8,781 10,543
12/87 7,899 9,488 10,564
1/88 8,159 9,902 10,606
2/88 8,500 10,794 10,617
3/88 8,609 11,299 10,648
4/88 8,989 11,566 10,702
5/88 8,889 11,245 10,734
6/88 9,599 12,047 10,777
7/88 9,429 11,933 10,820
8/88 9,330 11,629 10,852
9/88 9,510 11,937 10,907
10/88 9,359 11,805 10,939
11/88 9,229 11,413 10,972
12/88 9,550 11,861 11,005
1/89 10,129 12,391 11,049
2/89 9,980 12,482 11,082
3/89 10,160 12,776 11,138
4/89 10,850 13,334 11,216
5/89 11,270 13,908 11,272
6/89 11,050 13,590 11,294
7/89 11,500 14,115 11,339
8/89 12,019 14,459 11,339
9/89 11,980 14,505 11,362
10/89 11,490 13,646 11,419
11/89 11,570 13,738 11,453
12/89 11,670 13,790 11,499
1/90 10,829 12,586 11,602
2/90 11,000 12,976 11,649
3/90 11,569 13,481 11,695
4/90 11,319 13,041 11,731
5/90 12,679 13,964 11,754
6/90 13,099 13,992 11,825
7/90 12,609 13,377 11,884
8/90 11,258 11,595 11,979
9/90 10,119 10,569 12,063
10/90 9,869 9,924 12,147
11/90 10,419 10,681 12,171
12/90 10,639 11,105 12,220
1/91 11,318 12,109 12,269
2/91 12,471 13,459 12,281
3/91 13,180 14,406 12,281
4/91 13,230 14,370 12,318
5/91 13,941 15,055 12,355
6/91 12,970 14,178 12,380
7/91 13,850 14,675 12,404
8/91 14,760 15,218 12,442
9/91 14,919 15,338 12,479
10/91 15,810 15,743 12,504
11/91 14,890 15,015 12,554
12/91 16,733 16,217 12,592
1/92 17,851 17,532 12,604
2/92 17,808 18,043 12,629
3/92 16,925 17,432 12,680
4/92 15,809 16,821 12,705
5/92 15,873 17,045 12,731
6/92 15,490 16,239 12,769
7/92 16,224 15,804 12,807
8/92 15,788 16,330 12,833
9/92 16,064 16,707 12,858
10/92 17,192 17,238 12,910
11/92 18,572 18,557 12,936
12/92 19,167 19,203 12,962
1/93 19,816 19,853 12,987
2/93 19,045 19,394 13,026
3/93 19,983 20,024 13,052
4/93 19,277 19,474 13,105
5/93 20,093 20,336 13,131
6/93 20,026 20,463 13,144
7/93 20,423 20,745 13,157
8/93 21,403 21,642 13,183
9/93 22,428 22,252 13,197
10/93 23,099 22,825 13,263
11/93 22,494 22,074 13,289
12/93 23,031 22,828 13,316
1/94 23,828 23,544 13,329
2/94 23,661 23,459 13,369
3/94 22,530 22,220 13,396
4/94 22,310 22,353 13,423
5/94 21,966 22,102 13,436
6/94 20,881 21,351 13,476
7/94 21,213 21,702 13,517
8/94 22,698 22,911 13,571
9/94 23,063 22,834 13,598
10/94 22,597 22,744 13,612
11/94 21,312 21,826 13,625
12/94 21,910 22,412 13,652
1/95 21,286 22,129 13,693
2/95 21,733 23,050 13,734
3/95 22,068 23,447 13,762
4/95 21,331 23,968 13,817
5/95 21,721 24,380 13,858
6/95 23,439 25,645 13,872
7/95 24,499 27,122 13,900
8/95 24,844 27,683 13,914
9/95 24,889 28,178 13,928
10/95 23,828 26,918 13,970
11/95 24,477 28,048 13,984
12/95 24,396 28,789 14,012
1/96 24,009 28,966 14,068
2/96 24,840 29,654 14,096
3/96 25,753 30,267 14,152
4/96 28,422 31,875 14,209
5/96 30,377 33,132 14,251
6/96 28,797 31,771 14,266
7/96 26,339 28,996 14,308
8/96 27,345 30,680 14,323
9/96 29,183 31,879 14,366
10/96 28,036 31,387 14,409
11/96 28,738 32,681 14,452
12/96 28,656 33,537 14,495
32
<PAGE>
NORTHSTAR SPECIAL FUND [NORTHSTAR LOGO]
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 99.13%
ADVANCED MEDICAL DEVICES -- 1.02%
Synetic, Inc. @ 55,800 $ 2,706,300
------------
AEROSPACE & DEFENSE -- 1.99%
AlliedSignal, Inc. 55,600 3,725,200
Oregon Metallurgical Corp. @ 48,100 1,551,225
------------
5,276,425
------------
AGRICULTURAL -- 1.44%
Grupo Industrial Maseca SA de CV ** 200,200 3,828,825
------------
APPAREL/FABRIC -- 3.73%
Fruit of the Loom, Inc. @ 103,500 3,920,062
Jones Apparel Group, Inc. @ 105,200 3,931,850
St. John Knits, Inc. 47,100 2,048,850
------------
9,900,762
------------
BANKS -- 8.06%
Cal Fed Bancorp, Inc. @ 158,700 3,888,150
Commerce Bancshares, Inc. 96,165 4,447,631
Federal Home Loan Mortgage Corp. 35,400 3,898,425
First of America Bank Corp. 67,000 4,028,375
Northern Trust Corp. 49,400 1,790,750
Zions Bancorp. 32,200 3,348,800
------------
21,402,131
------------
BEVERAGES -- 1.11%
Anheuser-Busch Cos., Inc. 73,400 2,936,000
------------
CHEMICALS -- 1.32%
Cytec Industries, Inc. @ 86,400 3,510,000
------------
COMPUTER SOFTWARE -- 3.55%
BMC Software, Inc. @ 114,000 4,716,750
Paychex, Inc. 91,400 4,701,387
------------
9,418,137
------------
DATA COMMUNICATION/NETWORKING -- 0.34%
Ascend Communications, Inc. @ 14,500 900,813
------------
DIVERSIFIED TECHNOLOGY -- 2.36%
Diebold, Inc. 54,400 3,420,400
Sanctuary Woods Multimedia Corp. @ 70,000 38,500
Zoltek Cos., Inc. @ 77,000 2,800,875
------------
6,259,775
------------
EDUCATION -- 0.82%
Apollo Group, Inc. @ 65,250 2,181,797
------------
ELECTRONICS -- 1.36%
Hubbell, Inc. 83,400 3,607,050
------------
FINANCIAL SERVICES -- 2.45%
Alliance Capital Management L.P. 139,300 3,708,863
Student Loan Marketing Association 30,000 2,793,750
------------
6,502,613
------------
</TABLE>
33
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOOD -- 4.54%
Campbell Soup Co. 45,600 $ 3,659,400
Hershey Foods Corp. 30,200 1,321,250
Safeway, Inc. @ 75,400 3,223,350
Vons Cos., Inc. @ 64,500 3,861,937
------------
12,065,937
------------
FOREST PRODUCTS -- 1.92%
Plum Creek Timber Co. 196,300 5,103,800
------------
FUNERAL/CEMETARY SERVICES -- 0.36%
Stewart Enterprises, Inc. 28,000 952,000
------------
HEAVY MACHINERY/CONSTRUCTION -- 1.29%
Smith International, Inc. @ 76,100 3,414,988
------------
HOUSEHOLD PRODUCTS -- 1.35%
Fort Howard Corp. @ 130,000 3,599,375
------------
INDUSTRIALS AND COMMERCIAL SERVICES -- 3.78%
Southdown, Inc. 139,700 4,348,163
Tubos de Acero de Mexico SA @ ** 357,900 5,681,662
------------
10,029,825
------------
INSURANCE -- 5.96%
Allstate Corp. 85,600 4,954,100
Conseco, Inc. 50,400 3,213,000
Jefferson-Pilot Corp. 73,800 4,178,925
Progressive Corp. 51,600 3,476,550
------------
15,822,575
------------
LODGING -- 2.36%
HFS, Inc. @ 46,500 2,778,375
Prime Hospitality Corp. @ 215,700 3,478,163
------------
6,256,538
------------
MEDIA -- 0.94%
Infinity Broadcasting Corp. @ 74,200 2,494,975
------------
NATURAL GAS -- 3.63%
Noble Affiliates, Inc. 69,300 3,317,737
PanEnergy Corp. 119,700 5,386,500
Transocean Offshore, Inc. 15,000 939,375
------------
9,643,612
------------
OFFICE EQUIPMENT/SUPPLIES -- 2.72%
Avery Dennison Corp. 107,200 3,792,200
Herman Miller, Inc. 60,800 3,442,800
------------
7,235,000
------------
OIL -- 8.05%
Atlantic Richfield Co. 36,200 4,796,500
British Petroleum Co. PLC ** 27,700 3,916,087
ENSCO International, Inc. @ 28,100 1,362,850
Murphy Oil Corp. 71,400 3,971,625
Santa Fe Energy Resources, Inc. @ 247,700 3,436,838
Snyder Oil Corp. 224,700 3,904,162
------------
21,388,062
------------
</TABLE>
34
<PAGE>
NORTHSTAR SPECIAL FUND [NORTHSTAR LOGO]
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OIL & GAS EXPLORATION -- 6.84%
Camco International, Inc. 94,700 $ 4,368,037
Global Marine, Inc. @ 84,100 1,734,563
Marine Drilling Cos., Inc. @ 120,400 2,370,375
Nabors Industries, Inc. @ 218,700 4,209,975
Reading & Bates Corp. @ 83,800 2,220,700
Tuboscope Vetco International Corp. @ 142,800 2,213,400
United Meridian Corp. @ 20,000 1,035,000
------------
18,152,050
------------
PHARMACEUTICAL -- 6.38%
American Home Products Corp. 57,200 3,353,350
Bristol-Myers Squibb Co. 43,800 4,763,250
Cardinal Health, Inc. 61,950 3,608,587
Jones Medical Industries, Inc. 80,000 2,930,000
Rhone-Poulenc Rorer, Inc. 29,400 2,296,875
------------
16,952,062
------------
PUBLISHING -- 1.50%
Houghton Mifflin Co. 70,400 3,986,400
------------
RAILROADS -- 1.46%
Conrail, Inc. 38,900 3,875,413
------------
REAL ESTATE INVESTMENT TRUST -- 1.37%
General Growth Properties 112,600 3,631,350
------------
RECREATION PRODUCTS -- 2.42%
Callaway Golf Co. 82,600 2,374,750
Nike, Inc. 67,700 4,045,075
------------
6,419,825
------------
RETAILERS -- 1.25%
Nautica Enterprises, Inc. @ 90,000 2,272,500
Wet Seal, Inc. @ 49,100 1,049,513
------------
3,322,013
------------
SEMICONDUCTER & RELATED -- 1.08%
Vitesse Semiconductor Corp. @ 63,200 2,875,600
------------
TELECOMMUNICATION -- 3.51%
Cascade Communications Corp. @ 47,200 2,601,900
Compania de Telecomunicaciones de Chile SA ** 38,400 3,883,200
PairGain Technologies, Inc. @ 93,600 2,848,950
------------
9,334,050
------------
TELEPHONE SYSTEMS -- 1.55%
Cincinnati Bell, Inc. 66,800 4,116,550
------------
TOBACCO -- 1.56%
Universal Corp. 128,000 4,132,992
------------
TOYS -- 0.54%
Galoob Toys, Inc. @ 102,200 1,430,800
------------
VEHICLE PARTS & EQUIPMENT -- 2.00%
Gentex Corp. @ 64,400 1,296,050
Lancaster Colony Corp. 87,200 4,011,200
------------
5,307,250
------------
</TABLE>
35
<PAGE>
NORTHSTAR SPECIAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
WATER COMPANIES -- 1.22%
United Water Resources, Inc. 209,300 $ 3,244,150
------------
TOTAL COMMON STOCKS
(cost $240,215,479) 263,217,820
------------
TOTAL INVESTMENT SECURITIES -- 99.13%
(cost $240,215,479) 263,217,820
REPURCHASE AGREEMENT -- 6.70%
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 $17,787,038 and
collateralized by $18,200,000 U.S. Treasury Bills,
5.25% due 12/31/97, value $18,140,286 (cost $17,782,000) $17,782,000 17,782,000
Liabilities in excess of other assets -- (5.83%) (15,468,356)
------------
NET ASSETS -- 100.00% $265,531,464
------------
------------
</TABLE>
@ Non-income producing security.
** American Depositary Receipts.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
PROXY RESULTS
During the year ended December 31, 1996, Special Fund shareholders voted on
the following proposal. The proposal was approved at a special meeting of
shareholders on January 30, 1996.
<TABLE>
<CAPTION>
Shares Shares
Voted Voted
For Against Abstentions
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
To approve the Sub-Advisory agreement between Northstar Investment
Management Corp., adviser to the Fund, and Navellier Fund Management,
Inc. 1,582,187 25,031 30,973
</TABLE>
36
<PAGE>
NORTHSTAR FUNDS [NORTHSTAR LOGO]
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Northstar Northstar Northstar
Government Strategic Northstar Balance Sheet Northstar Northstar
Securities Income High Yield Opportunities Growth Special
Fund Fund Fund Fund Fund Fund
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value
(cost $136,366,579, $74,347,659,
$189,867,426, $46,427,503,
$61,811,638 and $240,215,479,
respectively) $136,043,349 $77,136,988 $201,446,822 $48,569,539 $78,669,035 $263,217,820
Repurchase agreements 279,000 1,362,000 25,939,000 15,802,000 1,316,000 17,782,000
Cash 583 358 270 560 1,576 291
Dividend and interest receivable 685,217 1,280,473 3,605,004 443,231 118,611 176,384
Receivable for shares of beneficial
interest sold 84,573 98,068 752,767 47,636 57,847 1,100,987
Prepaid expenses 18,709 71,689 22,601 18,317 17,881 19,967
Other Receivables 0 0 0 0 9,335 815
---------------------------------------------------------------------------------
Total Assets 137,111,431 79,949,576 231,766,464 64,881,283 80,190,285 282,298,264
---------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial
interest reacquired 335,074 181,737 372,008 34,296 63,881 760,090
Distribution fee payable 75,326 56,656 149,601 41,857 62,133 179,590
Investment advisory fee payable 53,040 45,789 87,464 35,885 50,388 164,437
Foreign taxes payable 0 5,369 0 0 1,479 0
Payable for investments purchased 0 0 0 0 0 15,481,724
Accrued expenses 55,485 61,833 105,672 42,259 47,917 180,959
---------------------------------------------------------------------------------
Total Liabilities 518,925 351,384 714,745 154,297 225,798 16,766,800
---------------------------------------------------------------------------------
NET ASSETS $136,592,506 $79,598,192 $231,051,719 $64,726,986 $79,964,487 $265,531,464
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
NET ASSETS ARE COMPOSED OF:
Capital paid in for shares of
beneficial interest, $0.01 par value
outstanding (unlimited shares
authorized) $157,949,865 $79,630,685 $229,039,785 $61,057,069 $62,245,268 $248,471,934
Overdistributed net investment income 86,367 321,881 0 4,260 0 0
Accumulated net realized gain (loss)
on investments, foreign currency,
options, and futures (21,120,496) (3,141,195) (9,567,462) 1,523,621 861,822 (5,942,811)
Net unrealized appreciation
(depreciation) of investments and
foreign currency (323,230) 2,786,821 11,579,396 2,142,036 16,857,397 23,002,341
---------------------------------------------------------------------------------
Net Assets $136,592,506 $79,598,192 $231,051,719 $64,726,986 $79,964,487 $265,531,464
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CLASS A:
Net Assets $ 14,185,356 $17,292,883 $ 13,145,578 $ 1,100,090 $ 4,750,001 $ 65,660,263
---------------------------------------------------------------------------------
Shares outstanding 1,497,010 1,364,833 1,470,230 93,369 265,015 2,656,605
---------------------------------------------------------------------------------
Net asset value and redemption value
per share (net assets/shares
outstanding) $ 9.48 $ 12.67 $ 8.94 $ 11.78 $ 17.92 $ 24.72
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Maximum offering price per share (net
asset value plus sales charge of
4.75% of offering price) $ 9.95 $ 13.30 $ 9.39 $ 12.37 $ 18.81 $ 25.95
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CLASS B:
Net Assets $ 9,134,525 $30,733,233 $ 79,199,445 $ 3,764,917 $ 4,444,305 $126,858,662
---------------------------------------------------------------------------------
Shares outstanding 963,441 2,425,929 8,850,723 320,596 250,224 5,186,621
---------------------------------------------------------------------------------
Net asset value and offering price per
share $ 9.48 $ 12.67 $ 8.95 $ 11.74 $ 17.76 $ 24.46
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CLASS C:
Net Assets $ 1,146,708 $ 4,221,598 $ 14,275,438 $ 371,532 $ 364,626 $ 37,342,048
---------------------------------------------------------------------------------
Shares outstanding 121,075 333,654 1,595,776 31,608 20,530 1,526,794
---------------------------------------------------------------------------------
Net asset value and offering price per
share $ 9.47 $ 12.65 $ 8.95 $ 11.75 $ 17.76 $ 24.46
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CLASS T:
Net Assets $112,125,917 $27,350,478 $124,431,258 $59,490,447 $70,405,555 $ 35,670,491
---------------------------------------------------------------------------------
Shares outstanding 11,832,201 2,159,071 13,913,455 5,044,149 3,950,769 1,456,844
---------------------------------------------------------------------------------
Net asset value and offering price per
share $ 9.48 $ 12.67 $ 8.94 $ 11.79 $ 17.82 $ 24.48
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
Redemption price per share varies with the length of time Class B, C, and T
shares are held.
See accompanying notes to financial statements.
37
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Northstar Northstar
Government Northstar Northstar Balance Sheet Northstar
Securities Strategic High Yield Opportunities Northstar Special
Fund Income Fund Fund Fund Growth Fund Fund
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $0,
$0, $0, $0, $10,603, and $703,
respectively) $ 0 $ 80,500 $ 337,730 $ 1,692,082 $ 1,156,921 $1,209,103
Interest (net of withholding tax of $0,
$12,487, $(31,838), $0, $0, and $0,
respectively) 10,946,366 7,256,034 19,999,495 2,363,933 140,188 578,269
------------------------------------------------------------------------------
Total investment income 10,946,366 7,336,534 20,337,225 4,056,015 1,297,109 1,787,372
------------------------------------------------------------------------------
EXPENSES:
Investment advisory and management fees 923,929 532,941 941,594 464,088 575,383 1,146,789
Distribution fees:
Class A 31,014 68,706 32,630 3,058 4,665 108,927
Class B 59,149 273,868 575,358 30,311 33,508 630,676
Class C 8,032 32,011 98,509 3,219 2,365 189,225
Class T 813,064 270,759 851,368 502,693 679,967 328,758
Transfer agent fees and expenses:
Class A 18,630 39,429 23,027 2,539 3,463 77,555
Class B 11,341 57,589 120,326 6,721 6,993 145,570
Class C 1,664 7,261 21,809 845 785 48,604
Class T 80,274 20,817 92,159 45,264 65,478 47,495
Accounting and custodian fees 100,410 120,076 133,700 94,277 94,013 122,443
Printing and postage expenses 31,286 18,054 57,728 20,614 25,310 33,151
Registration fees 27,950 47,392 51,976 28,393 27,066 96,520
Audit fees 17,462 34,328 20,300 28,774 28,288 30,632
Trustee expenses 12,834 11,440 13,864 11,860 12,183 11,507
Insurance expenses 10,790 4,794 13,363 6,368 4,372 2,844
Legal fees 4,598 6,567 6,787 4,830 1,128 6,432
Organization expenses 0 21,960 0 0 0 0
Miscellaneous expenses 8,100 4,897 3,909 5,513 2,728 28,036
------------------------------------------------------------------------------
2,160,527 1,572,889 3,058,407 1,259,367 1,567,695 3,055,164
Less expenses reimbursed/waived by
management company 299,461 65,578 0 41,925 34,126 20,615
------------------------------------------------------------------------------
Total expenses 1,861,066 1,507,311 3,058,407 1,217,442 1,533,569 3,034,549
------------------------------------------------------------------------------
Net investment income (loss) 9,085,300 5,829,223 17,278,818 2,838,573 (236,460) (1,247,177)
------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments 932,343 (250,042) (831,501) 8,721,311 4,346,067 (5,942,811)
Net realized gain (loss) on foreign
currency 0 297,066 18,211 0 (52) 1,712
Net change in unrealized appreciation
(depreciation) of investments (9,831,154) 2,773,999 11,649,652 (4,632,099) 9,888,907 15,617,585
Net change in unrealized depreciation of
foreign currency 0 (1,117) 0 0 0 0
------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (8,898,811) 2,819,906 10,836,362 4,089,212 14,234,922 9,676,486
------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 186,489 $ 8,649,129 $28,115,180 $ 6,927,785 $13,998,462 $8,429,309
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
NORTHSTAR FUNDS [NORTHSTAR LOGO]
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Northstar Northstar
Government Strategic Northstar
Securities Fund Income Fund High Yield Fund
-------------------------- ------------------------- --------------------------
1996 1995 1996 1995 1996 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 9,085,300 $ 9,388,002 $ 5,829,223 $ 3,118,984 $ 17,278,818 $ 14,681,196
Net realized gain (loss) on
investments 932,343 10,033,763 (250,042) 657,579 (831,501) (5,577,338)
Net realized gain (loss) on foreign
currency 0 0 297,066 (15,982) 18,211 (61,890)
Net realized loss on options and
futures 0 0 0 (84,957) 0 0
Net change in unrealized appreciation
(depreciation) of investments (9,831,154) 11,830,566 2,773,999 1,109,531 11,649,652 9,968,024
Net change in unrealized appreciation
(depreciation) of foreign currency 0 0 (1,117) 13,355 0 0
---------------------------------------------------------------------------------
Increase in net assets resulting
from operations 186,489 31,252,331 8,649,129 4,798,510 28,115,180 19,009,992
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A (727,805) (31,103) (1,854,931) (382,101) (941,693) (238,931)
Class B (357,791) (34,991) (2,062,659) (315,465) (4,644,718) (537,227)
Class C (50,912) (156) (242,856) (29,224) (796,850) (76,102)
Class T (7,862,425) (9,374,624) (2,172,688) (2,318,425) (10,913,768) (13,814,466)
In excess of net investment income 0 (328,169) 0 0 0 (37,974)
Tax return of capital 0 0 0 0 (1,706,413) 0
---------------------------------------------------------------------------------
Total distributions (8,998,933) (9,769,043) (6,333,134) (3,045,215) (19,003,442) (14,704,700)
---------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 19,576,499 9,486,902 21,030,229 15,818,725 73,147,596 54,017,286
Net proceeds from merger 0 0 0 45,577,269 0 0
Net asset value of shares issued to
shareholders in reinvestment of
dividends 6,013,372 6,083,503 2,480,616 1,467,264 8,526,557 7,796,432
---------------------------------------------------------------------------------
25,589,871 15,570,405 23,510,845 62,863,258 81,674,153 61,813,718
Cost of shares redeemed (37,168,170) (32,678,732) (22,562,072) (13,535,436) (39,383,908) (22,895,030)
---------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from capital share
transactions (11,578,299) (17,108,327) 948,773 49,327,822 42,290,245 38,918,688
---------------------------------------------------------------------------------
Net increase (decrease) in net assets (20,390,743) 4,374,961 3,264,768 51,081,117 51,401,983 43,223,980
NET ASSETS:
Beginning of period 156,983,249 152,608,288 76,333,424 25,252,307 179,649,736 136,425,756
---------------------------------------------------------------------------------
End of period $136,592,506 $156,983,249 $79,598,192 $ 76,333,424 $231,051,719 $179,649,736
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income: $86,367 $(328,169) $321,881 $104,844 $0 $(37,974)
---------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
NORTHSTAR FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Northstar
Balance Sheet
Opportunities Northstar Northstar
Income Fund Growth Fund Special Fund
-------------------------- ------------------------- --------------------------
1996 1995 1996 1995 1996 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 2,838,573 $ 3,259,693 $ (236,460) $ 298,464 $ (1,247,177) $ (566,187)
Net realized gain (loss) on
investments 8,721,311 6,842,914 4,346,067 16,582,023 (5,942,811) 1,862,208
Net realized gain (loss) on foreign
currency 0 0 (52) (27,666) 1,712 21
Net change in unrealized appreciation
(depreciation) of investments (4,632,099) 6,328,209 9,888,907 160,556 15,617,585 2,669,199
---------------------------------------------------------------------------------
Increase in net assets resulting from
operations 6,927,785 16,430,816 13,998,462 17,013,377 8,429,309 3,965,241
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A (46,606) (16,747) 0 (5,272) 0 0
Class B (125,106) (35,496) 0 (330) 0 0
Class C (12,103) (3,103) 0 (5) 0 0
Class T (2,650,498) (3,228,817) 0 (265,197) 0 0
Distributions in excess of net
investment income 0 (50,342) 0 (27,660) 0 0
Net realized gain from investments (7,268,332) (6,865,265) (3,484,245) (16,582,008) 0 (1,761,465)
---------------------------------------------------------------------------------
Total distributions (10,102,645) (10,199,770) (3,484,245) (16,880,472) 0 (1,761,465)
---------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 3,914,850 4,370,028 8,022,620 10,998,087 263,413,495 8,290,445
Net asset value of shares issued to
shareholders in reinvestment of
dividends 8,513,000 8,536,854 3,217,412 15,393,542 0 1,662,683
---------------------------------------------------------------------------------
12,427,850 12,906,882 11,240,032 26,391,629 263,413,495 9,953,128
Cost of shares redeemed (19,784,271) (17,643,533) (21,542,815) (23,161,995) (43,756,330) (13,560,271)
---------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from capital share
transactions (7,356,421) (4,736,651) (10,302,783) 3,229,634 219,657,165 (3,607,143)
---------------------------------------------------------------------------------
Net increase (decrease) in net assets (10,531,281) 1,494,395 211,434 3,362,539 228,086,474 (1,403,367)
NET ASSETS:
Beginning of period 75,258,267 73,763,872 79,753,053 76,390,514 37,444,990 38,848,357
---------------------------------------------------------------------------------
End of period $ 64,726,986 $ 75,258,267 $79,964,487 $ 79,753,053 $265,531,464 $ 37,444,990
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income: $4,260 $(50,342) $0 $(27,666) $0 $0
---------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
NORTHSTAR FUNDS [NORTHSTAR LOGO]
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Net realized Dividends
Net Asset & unrealized declared Distributions
Value, Net gain (loss) Total from from net declared from
beginning investment on investment investment net realized Distributions
Period ended of period income investments operations income gain from Capital
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
Government Securities Fund, Class A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 $ 10.07 $ 0.63 $(0.60) $ 0.03 $(0.62) -- --
6/05/95-
12/31/95 9.51 0.34 0.59 0.93 (0.37) -- --
<CAPTION>
Government Securities Fund, Class B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 10.07 0.57 (0.60) (0.03) (0.56) -- --
6/05/95-
12/31/95 9.51 0.30 0.59 0.89 (0.33) -- --
<CAPTION>
Government Securities Fund, Class C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 10.07 0.58 (0.62) (0.04) (0.56) -- --
6/05/95-
12/31/95 9.51 0.30 0.59 0.89 (0.33) -- --
<CAPTION>
Government Securities Fund, Class T
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 10.07 0.60 (0.59) 0.01 (0.60) -- --
12/31/95 8.74 0.58 1.35 1.93 (0.60) -- --
12/31/94 10.32 0.56 (1.56) (1.00) (0.57) -- (0.01)
12/31/93 9.22 0.59 1.09 1.68 (0.58) -- --
12/31/92 8.99 0.61 0.23 0.84 (0.61) -- --
12/31/91 8.47 0.67 0.52 1.19 (0.67) -- --
12/31/90 8.47 0.68 -- 0.68 (0.68) -- --
<CAPTION>
Strategic Income Fund, Class A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 12.40 0.93 0.35 1.28 (1.01) -- --
6/05/95-
12/31/95 12.24 0.63 0.13 0.76 (0.60) -- --
<CAPTION>
Strategic Income Fund, Class B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 12.39 0.85 0.36 1.21 (0.93) -- --
6/05/95-
12/31/95 12.24 0.55 0.15 0.70 (0.55) -- --
<CAPTION>
Strategic Income Fund, Class C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 12.38 0.85 0.35 1.20 (0.93) -- --
6/05/95-
12/31/95 12.24 0.55 0.14 0.69 (0.55) -- --
<CAPTION>
Strategic Income Fund, Class T
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 12.39 0.88 0.35 1.23 (0.95) -- --
12/31/95 11.71 0.98 0.66 1.64 (0.96) -- --
7/01/94-
12/31/94 12.00 0.51 (0.25) 0.26 (0.49) (0.05) (0.01)
<CAPTION>
High Yield Fund, Class A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 8.56 0.76 0.44 1.20 (0.75) -- (0.07)
12/31/95 8.68 0.48 (0.10) 0.38 (0.50) -- --
<CAPTION>
High Yield Fund, Class B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 8.57 0.71 0.43 1.14 (0.69) -- (0.07)
12/31/95 8.68 0.44 (0.09) 0.35 (0.46) -- --
<CAPTION>
High Yield Fund, Class C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 8.57 0.72 0.42 1.14 (0.69) -- (0.07)
12/31/95 8.68 0.44 (0.09) 0.35 (0.46) -- --
<CAPTION>
High Yield Fund, Class T
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 8.56 0.73 0.45 1.18 (0.73) -- (0.07)
12/31/95 8.29 0.84 0.26 1.10 (0.83) -- --
12/31/94 9.31 0.81 (0.99) (0.18) (0.83) (0.01) --
12/31/93 9.09 0.85 0.80 1.65 (0.83) (0.60) --
12/31/92 7.94 0.92 1.19 2.11 (0.94) (0.02) --
12/31/91 6.27 1.08 1.67 2.75 (1.08) -- --
12/31/90 8.55 1.12 (2.30) (1.18) (1.10) -- --
<CAPTION>
Ratio Ratio of
of Expenses Ratio of net investment
Asset Assets, to expense income to
Value, end of average reimbursement average
Total end of Total period net to average net Portfolio
Period ended Distributions period Return (000's) assets(1) net assets(1) assets(1) turnover
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
Government Securities Fund, Class A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 $ (0.62) $ 9.48 0.57% $14,185 1.09% 0.20% 6.85% 101%
6/05/95
12/31/95 (0.37) 10.07 10.04 3,235 1.02 0.20 6.01 295
<CAPTION>
Government Securities Fund, Class B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.56) 9.48 (0.15) 9,135 1.80 0.20 6.05 101
6/05/95
12/31/95 (0.33) 10.07 9.61 2,790 1.70 0.20 5.20 295
<CAPTION>
Government Securities Fund, Class C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.56) 9.47 (0.21) 1,147 1.80 0.21 6.22 101
6/05/95
12/31/95 (0.33) 10.07 9.61 8 1.68 0.20 5.28 295
<CAPTION>
Government Securities Fund, Class T
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.60) 9.48 0.32 112,126 1.30 0.21 6.37 101
12/31/95 (0.60) 10.07 22.90 150,951 1.30 0.20 6.23 295
12/31/94 (0.58) 8.74 (9.82) 152,608 1.29 0.20 6.00 315
12/31/93 (0.58) 10.32 18.48 184,156 1.31 0.20 5.83 81
12/31/92 (0.61) 9.22 9.77 144,144 1.39 0.20 6.81 120
12/31/91 (0.67) 8.99 14.73 121,389 1.44 0.20 7.68 87
12/31/90 (0.68) 8.47 8.57 108,420 1.43 0.20 8.23 17
<CAPTION>
Strategic Income Fund, Class A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (1.01) 12.67 10.88 17,293 1.40 0.05 7.55 130
6/05/95
12/31/95 (0.60) 12.40 6.40 21,790 1.36 0.07 7.03 153
<CAPTION>
Strategic Income Fund, Class B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.93) 12.67 10.18 30,733 2.10 0.09 6.82 130
6/05/95
12/31/95 (0.55) 12.39 5.89 22,143 2.06 0.06 6.47 153
<CAPTION>
Strategic Income Fund, Class C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.93) 12.65 10.11 4,222 2.10 0.11 6.79 130
6/05/95
12/31/95 (0.55) 12.38 5.81 2,172 2.02 0.06 6.48 153
<CAPTION>
Strategic Income Fund, Class T
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.95) 12.67 10.39 27,350 1.90 0.09 7.07 130
12/31/95 (0.96) 12.39 14.54 30,228 1.90 0.28 6.86 153
7/01/94
12/31/94 (0.55) 11.71 2.14 25,252 1.90 0.63 7.92 156
<CAPTION>
High Yield Fund, Class A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.82) 8.94 14.74 13,146 1.11 -- 8.60 128
12/31/95 (0.50) 8.56 4.48 7,466 1.02 -- 9.83 103
<CAPTION>
High Yield Fund, Class B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.76) 8.95 13.94 79,199 1.81 -- 7.88 128
12/31/95 (0.46) 8.57 4.17 29,063 1.71 -- 9.18 103
<CAPTION>
High Yield Fund, Class C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.76) 8.95 13.93 14,275 1.82 -- 7.85 128
12/31/95 (0.46) 8.57 4.17 3,410 1.72 -- 9.29 103
<CAPTION>
High Yield Fund, Class T
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.80) 8.94 14.49 124,431 1.31 -- 8.43 128
12/31/95 (0.83) 8.56 13.71 139,711 1.33 -- 9.69 103
12/31/94 (0.84) 8.29 (2.18) 136,426 1.34 -- 9.08 86
12/31/93 (1.43) 9.31 18.89 125,095 1.40 -- 8.84 176
12/31/92 (0.96) 9.09 27.57 64,063 1.50 0.05 10.30 122
12/31/91 (1.08) 7.94 46.49 25,651 1.50 0.46 14.84 57
12/31/90 (1.10) 6.27 (14.59) 11,342 1.44 0.81 15.15 156
<CAPTION>
Average
commission
Period ended Per Share(2)
------------- -------------
<CAPTION>
Government Securities Fund, Class A
- --------------------------------------------------------------------
<S> <C>
12/31/96 --
6/05/95
12/31/95 --
<CAPTION>
Government Securities Fund, Class B
- --------------------------------------------------------------------
<S> <C>
12/31/96 --
6/05/95
12/31/95 --
<CAPTION>
Government Securities Fund, Class C
- --------------------------------------------------------------------
<S> <C>
12/31/96 --
6/05/95
12/31/95 --
<CAPTION>
Government Securities Fund, Class T
- --------------------------------------------------------------------
<S> <C>
12/31/96 --
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
<CAPTION>
Strategic Income Fund, Class A
- --------------------------------------------------------------------
<S> <C>
12/31/96 --
6/05/95
12/31/95 --
<CAPTION>
Strategic Income Fund, Class B
- --------------------------------------------------------------------
<S> <C>
12/31/96 --
6/05/95
12/31/95 --
<CAPTION>
Strategic Income Fund, Class C
- --------------------------------------------------------------------
<S> <C>
12/31/96 --
6/05/95
12/31/95 --
<CAPTION>
Strategic Income Fund, Class T
- --------------------------------------------------------------------
<S> <C>
12/31/96 --
12/31/95 --
7/01/94
12/31/94 --
<CAPTION>
High Yield Fund, Class A
- --------------------------------------------------------------------
<S> <C>
12/31/96 0.0777
12/31/95 --
<CAPTION>
High Yield Fund, Class B
- --------------------------------------------------------------------
<S> <C>
12/31/96 0.0777
12/31/95 --
<CAPTION>
High Yield Fund, Class C
- --------------------------------------------------------------------
<S> <C>
12/31/96 0.0777
12/31/95 --
<CAPTION>
High Yield Fund, Class T
- --------------------------------------------------------------------
<S> <C>
12/31/96 0.0777
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
</TABLE>
(1) Annualized
(2) 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.
See accompanying notes to financial statements.
41
<PAGE>
NORTHSTAR FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Net realized Dividends
Net Asset & unrealized declared Distributions
Value, Net gain (loss) Total from from net declared from
Period beginning investment on investment investment net realized Distributions
ended of period income investments operations income gain from Capital
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Balance Sheet Opportunities, Class A
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 $ 12.53 $ 0.56 $ 0.74 $ 1.30 $(0.57) $ (1.48) --
6/05/95-
12/31/95 12.77 0.43 1.06 1.49 (0.48) (1.25) --
<CAPTION>
Balance Sheet Opportunities, Class B
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 12.51 0.50 0.71 1.21 (0.50) (1.48) --
6/05/95-
12/31/95 12.77 0.35 1.09 1.44 (0.45) (1.25) --
<CAPTION>
Balance Sheet Opportunities, Class C
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 12.52 0.49 0.70 1.19 (0.48) (1.48) --
6/05/95-
12/31/95 12.77 0.38 1.07 1.45 (0.45) (1.25) --
<CAPTION>
Balance Sheet Opportunities, Class T
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 12.54 0.53 0.73 1.26 (0.53) (1.48) --
12/31/95 11.54 0.57 2.27 2.84 (0.59) (1.25) --
12/31/94 12.94 0.57 (1.25) (0.68) (0.54) (0.16) (0.02)
12/31/93 12.05 0.49 1.20 1.69 (0.49) (0.31) --
12/31/92 11.66 0.55 0.36 0.91 (0.52) -- --
12/31/91 10.13 0.57 1.53 2.10 (0.57) -- --
12/31/90 10.71 0.61 (0.54) 0.07 (0.63) -- (0.02)
<CAPTION>
Growth Fund, Class A
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 15.53 0.02 3.18 3.20 -- (0.81) --
6/05/95-
12/31/95 17.59 0.08 1.95 2.03 (0.10) (3.99) --
<CAPTION>
Growth Fund, Class B
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 15.50 (0.06) 3.13 3.07 -- (0.81) --
6/05/95-
12/31/95 17.59 0.06 1.92 1.98 (0.08) (3.99) --
<CAPTION>
Growth Fund, Class C
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 15.50 (0.05) 3.12 3.07 -- (0.81) --
6/05/95-
12/31/95 17.59 0.04 1.92 1.96 (0.06) (3.99) --
<CAPTION>
Growth Fund, Class T
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 15.53 (0.06) 3.16 3.10 -- (0.81) --
12/31/95 15.75 0.07 3.77 3.84 (0.07) (3.99) --
12/31/94 17.33 0.08 (1.41) (1.33) (0.08) (0.15) (0.02)
12/31/93 16.36 0.02 1.67 1.69 (0.04) (0.67) (0.01)
12/31/92 16.37 0.02 1.30 1.32 (0.02) (1.31) --
12/31/91 12.49 0.09 4.62 4.71 (0.08) (0.75) --
12/31/90 13.85 0.10 (0.83) (0.73) (0.10) (0.51) (0.02)
<CAPTION>
Special Fund, Class A
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 20.92 (0.04) 3.84 3.80 -- -- --
6/05/95-
12/31/95 19.56 (0.09) 2.48 2.39 -- (1.03) --
<CAPTION>
Special Fund, Class B
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 20.84 (0.12) 3.74 3.62 -- -- --
6/05/95-
12/31/95 19.56 (0.12) 2.43 2.31 -- (1.03) --
<CAPTION>
Special Fund, Class C
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 20.84 (0.13) 3.75 3.62 -- -- --
6/05/95-
12/31/95 19.56 (0.15) 2.46 2.31 -- (1.03) --
<CAPTION>
Special Fund, Class T
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 20.84 (0.21) 3.85 3.64 -- -- --
12/31/95 19.64 (0.34) 2.57 2.23 -- (1.03) --
12/31/94 20.79 (0.25) (0.76) (1.01) -- (0.14) --
12/31/93 17.40 (0.32) 3.83 3.51 -- (0.12) --
12/31/92 15.74 (0.33) 2.61 2.28 -- (0.62) --
12/31/91 10.64 (0.21) 6.24 6.03 -- (0.93) --
12/31/90 11.67 (0.20) (0.83) (1.03) -- -- --
<CAPTION> Ratio of
Net expenses Ratio of Ratio of net
Asset Assets, to expense income
Value, end of average reimbursement (loss) to
Period Total end of Total period net to average average net Portfolio
ended Distributions period Return (000's) assets(1) net assets(1) assets(1) turnover
<CAPTION>
Balance Sheet Opportunities, Class A
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 $ (2.05) $11.78 10.54% $1,100 1.40% 0.09% 4.30% 107%
6/05/95
12/31/95 (1.73) 12.53 11.95 797 1.27 -- 4.99 131
<CAPTION>
Balance Sheet Opportunities, Class A B
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (1.98) 11.74 9.76 3,765 2.10 0.07 3.64 107
6/05/95
12/31/95 (1.70) 12.51 11.56 1,759 1.95 -- 4.38 131
<CAPTION>
Balance Sheet Opportunities, Class C
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (1.96) 11.75 9.72 372 2.10 0.10 3.61 107
6/05/95
12/31/95 (1.70) 12.52 11.49 231 1.91 -- 4.49 131
<CAPTION>
Balance Sheet Opportunities, Class T
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (2.01) 11.79 10.18 59,490 1.69 0.06 3.99 107
12/31/95 (1.84) 12.54 25.11 72,472 1.68 -- 4.44 131
12/31/94 (0.72) 11.54 (5.33 ) 73,764 1.69 -- 4.36 59
12/31/93 (0.80) 12.94 14.08 80,841 1.77 -- 3.99 38
12/31/92 (0.52) 12.05 8.06 56,823 2.02 -- 4.73 59
12/31/91 (0.57) 11.66 21.17 49,367 2.06 -- 5.21 77
12/31/90 (0.65) 10.13 0.78 44,750 2.10 -- 5.73 57
<CAPTION>
Growth Fund, Class A
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.81) 17.92 20.54 4,750 1.50 0.06 0.11 62
6/05/95
12/31/95 (4.09) 15.53 11.55 1,355 1.42 -- 0.63 134
<CAPTION>
Growth Fund, Class B
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.81) 17.76 19.74 4,444 2.20 0.04 (0.55) 62
6/05/95
12/31/95 (4.07) 15.50 11.27 1,987 2.07 -- 0.06 134
<CAPTION>
Growth Fund, Class C
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.81) 17.76 19.74 365 2.20 0.15 (0.57) 62
6/05/95
12/31/95 (4.05) 15.50 11.17 69 2.11 -- 0.02 134
Growth Fund, Class T
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 (0.81) 17.82 19.90 70,406 2.00 0.04 (3.05) 62
12/31/95 (4.06) 15.53 24.40 76,343 2.00 -- 0.37 134
12/31/94 (0.25) 15.75 (7.66 ) 76,391 2.00 -- 0.49 54
12/31/93 (0.72) 17.33 10.36 80,759 2.04 -- 0.13 42
12/31/92 (1.33) 16.36 8.05 56,759 2.15 -- 0.09 47
12/31/91 (0.83) 16.37 38.10 40,884 2.25 -- 0.66 64
12/31/90 (0.63) 12.49 (5.24 ) 24,927 2.33 -- 0.80 54
<CAPTION>
Special Fund, Class A
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 -- 24.72 18.16 65,660 1.46 0.01 (0.30) 140
6/05/95
12/31/95 (1.03) 20.92 12.20 2,335 1.50 -- (0.91) 71
<CAPTION>
Special Fund, Class B
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 -- 24.46 17.37 126,859 2.17 0.01 (1.01) 140
6/05/95
12/31/95 (1.03) 20.84 11.79 1,491 2.20 0.01 (1.64) 71
<CAPTION>
Special Fund, Class C
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 -- 24.46 17.37 37,342 2.20 0.01 (1.03) 140
6/05/95
12/31/95 (1.03) 20.84 11.79 62 2.20 0.03 (1.60) 71
<CAPTION>
Special Fund, Class T
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 -- 24.48 17.47 35,670 2.07 0.04 (0.89) 140
12/31/95 (1.03) 20.84 11.34 33,557 2.16 -- (1.50) 71
12/31/94 (0.14) 19.64 (4.86 ) 38,848 2.16 -- (1.25) 39
12/31/93 (0.12) 20.79 20.16 28,838 2.34 -- (1.66) 35
12/31/92 (0.62) 17.40 14.54 11,336 2.84 -- (2.12) 40
12/31/91 (0.93) 15.74 57.27 5,480 2.95 0.74 (1.57) 85
12/31/90 -- 10.64 (8.83 ) 3,024 2.95 2.03 (0.97) 72
<CAPTION>
Average
Period commission
ended Per share(2)
--------- -------------
<CAPTION>
Balance Sheet Opportunities, Class A
---------------------------------------------
<S> <C>
12/31/96 $ 0.0690
6/05/95
12/31/95 --
<CAPTION>
Balance Sheet Opportunities, Class B
---------------------------------------------
<S> <C>
12/31/96 0.0690
6/05/95
12/31/95 --
<CAPTION>
Balance Sheet Opportunities, Class C
---------------------------------------------
<S> <C>
12/31/96 0.0690
6/05/95
12/31/95 --
<CAPTION>
Balance Sheet Opportunities, Class T
---------------------------------------------
<S> <C>
12/31/96 0.0690
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
<CAPTION>
Growth Fund, Class A
-------------------------------------
<S> <C>
12/31/96 0.0593
6/05/95
12/31/95 --
<CAPTION>
Growth Fund, Class B
-------------------------------------
<S> <C>
12/31/96 0.0593
6/05/95
12/31/95 --
<CAPTION>
Growth Fund, Class C
-------------------------------------
<S> <C>
12/31/96 0.0593
6/05/95
12/31/95 --
<CAPTION>
Growth Fund, Class T
--------------------------------------
<S> <C>
12/31/96 0.0593
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
<CAPTION>
Special Fund, Class A
-------------------------------------
<S> <C>
12/31/96 0.0392
6/05/95
12/31/95 --
<CAPTION>
Special Fund, Class B
-------------------------------------
<S> <C>
12/31/96 0.0392
6/05/95
12/31/95 --
<CAPTION>
Special Fund, Class C
-------------------------------------
<S> <C>
12/31/96 0.0392
6/05/95
12/31/95 --
<CAPTION>
Special Fund, Class T
-------------------------------------
<S> <C>
12/31/96 0.0392
12/31/95 --
12/31/94 --
12/31/93 --
12/31/92 --
12/31/91 --
12/31/90 --
</TABLE>
(1) Annualized
(2) 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.
See accompanying notes to financial statements.
42
<PAGE>
THE NORTHSTAR FUNDS [NORTHSTAR LOGO]
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1996
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- Northstar Government Securities Fund (formerly Northstar
Advantage Government Securities Fund), Northstar Strategic Income Fund (formerly
Northstar Advantage Strategic Income Fund), Northstar High Yield Fund (formerly
Northstar Advantage High Yield Fund), Northstar Balance Sheet Opportuities Fund
(formerly Northstar Advantage Income Fund), Northstar Growth Fund (formerly
Northstar Advantage Growth Fund) and Northstar Special Fund (formerly Northstar
Advantage Special Fund) (collectively the "Funds") are organized under the laws
of the Commonwealth of Massachusetts and registered under the Investment Company
Act of 1940 as diversified open-end management investment companies. Each is a
separate investment company with its own investment objective and specific
investment goals set forth below:
NORTHSTAR GOVERNMENT SECURITIES FUND ("Government Securities Fund") seeks to
achieve a high level of current income and to conserve principal by investing in
debt obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
NORTHSTAR STRATEGIC INCOME FUND ("Strategic Income Fund") seeks to achieve
high current income by allocating its investments among the following three
sectors of the fixed income securities markets: debt obligations of the U.S.
Government, its agencies and instrumentalities; high yield-high risk,
lower-rated and nonrated U.S. and foreign fixed income securities, and
investment grade debt obligations of foreign governments, their agencies and
instrumentalities and obligations of supranational entities.
NORTHSTAR HIGH YIELD FUND ("High Yield Fund") seeks to achieve high current
income primarily through investments in long and intermediate-term high
yield-high risk, lower-rated and nonrated corporate debt instruments.
NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND ("Balance Sheet Opportunities
Fund") seeks to realize income and secondarily, capital appreciation through
investments in a balance of debt securities, common and preferred stocks, and
securities convertible into common stock.
NORTHSTAR GROWTH FUND ("Growth Fund") seeks to achieve long-term growth of
capital by investing principally in common stocks selected for their prospects
for capital appreciation.
NORTHSTAR SPECIAL FUND ("Special Fund") seeks to achieve capital
appreciation through investment in a diversified portfolio of equity securities
selected for their potential for growth, primarily in small and
mid-capitalization companies.
Security Valuation -- Equity securities are valued at the closing sale
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 and Expenses -- 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. Income, expenses (except class specific
expenses), and realized/unrealized gains/losses, are allocated proportionately
to each Fund or class of shares based upon the relative net asset value.
Distributions to Shareholders -- Dividends from net investment income are
declared and paid monthly by the Government Securities, Strategic Income and
High Yield Funds, declared and paid quarterly by the Balance Sheet Opportunities
Fund and declared and paid annually
43
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1996
by the Growth and Special 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.
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 from undistributed net investment income to accumulated net
realized gain(loss) on investments and paid-in-capital.
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED NET
NET REALIZED
INVESTMENT GAIN ON PAID-IN-
INCOME INVESTMENTS CAPITAL
------------- ----------- -----------
<S> <C> <C> <C>
Government
Securities
Fund 328,169 3,210,033 (3,538,202)
Strategic
Income Fund 720,948 (774,790 ) 53,842
High Yield Fund 1,762,598 (18,211 ) (1,744,387)
Balance Sheet
Opportunities
Fund 50,342 (69,694 ) 19,352
Growth Fund 264,126 (49,402 ) (214,724)
Special Fund 1,247,177 (1,712 ) (1,245,465)
</TABLE>
These restatements did not affect net investment income (loss), net realized
gain (loss) on investments, or net assets for the year ended December 31, 1996.
Foreign Currency -- The Funds isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held.
Net realized gain(loss) on foreign currency transactions represent the
foreign exchange:
(1) gains and losses from the sale of holdings of foreign currencies, (2)
gains and losses between trade date and settlement date on investment securities
transactions and forward exchange contracts, and (3) gains and losses from the
difference between amounts of interest and dividends recorded and the amounts
actually received.
Forward Foreign Currency Contracts, Options and Futures -- The Funds may
enter into forward foreign currency contracts ("contracts") to purchase or sell
currencies at a specified rate at a future date. The Funds may enter into these
contracts solely for hedging purposes.
The Funds write and purchase put and call options on foreign currencies. The
premium paid by the Funds for the purchase of a call or put option is recorded
as an investment and subsequently "marked-to-market" to reflect the current
market value of the option. If an option which the Funds have purchased expires
on the stipulated expiration date, the Funds realize a loss in the amount of the
cost of the option.
The amount of potential gain or loss to the Funds upon exercise of a written
call option is the value (in U.S. dollars) of the currency sold, less the value
of the U.S. dollars received in exchange. The amount of potential gain or loss
to the Funds upon exercise of a written put option is the value (in U.S.
dollars) of the currency received, less the value of the U.S. dollars paid in
exchange.
Risks may arise upon entering these contracts from the potential inability
of counterparties to meet the terms of their contract and from unanticipated
movement in the value of a foreign currency relative to the U.S. dollar.
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Fund's agent in acquiring the
futures position). During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the contract
at the end of each day's trading.
Variation margin payments are received or made, depending upon whether
unrealized gains or losses are incurred. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the proceeds
from (or cost of) the closing transaction and the Fund's basis in the contract.
Repurchase Agreements -- The Funds' Custodian takes possession of collateral
pledged for investments in
44
<PAGE>
THE NORTHSTAR FUNDS [NORTHSTAR LOGO]
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1996
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 of 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 Funds intend 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 their respective shareholders.
Therefore, no Federal income tax provision or excise tax provision is required.
Organization Expenses -- Organization expenses have been capitalized by the
Funds and amortized on a straight-line basis over a 60 month period from the
commencement of operations of each Fund. Costs incurred by the Strategic Income
Fund in connection with its organization and its original registration amounted
to $105,074.
NOTE 2. INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
Northstar, Inc. (formerly NWNL Northstar, Inc.) (and its wholly owned
operating subsidiaries, Northstar Investment Management Corp., Northstar
Distributors, Inc. and Northstar Administrator Corp.) is an 80% owned subsidiary
of ReliaStar Financial Corp.
Northstar Investment Management Corp. (the "Adviser") serves as each Fund's
investment adviser. Each Fund pays the Adviser an investment advisory fee
calculated at an annual rate of 0.45% of average daily net assets for High Yield
Fund, 0.65% of average daily net assets for the Government Securities, Strategic
Income and Balance Sheet Opportunities Funds, and 0.75% of average daily net
assets for the Growth and Special Funds. The Adviser has agreed to waive 0.20%
of its advisory fee for the Government Securities Fund, therefore the rate paid
equals 0.45% of average daily net assets. For the year ended December 31, 1996,
the Adviser waived $284,286 of advisory fees for the Government Securities Fund.
For the year ended December 31, 1996, the Funds paid advisory fees to Northstar
Investment Management Corp. of $4,584,724. Navellier Fund Management,
Inc.("Navellier"), a registered investment adviser, serves as subadviser to the
Special 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
February 1, 1996 through December 31, 1996, Navellier received $723,585 in
subadvisory fees from the Adviser.
The Adviser has voluntarily undertaken to limit the expenses through June,
1997 of the Government Securities Fund 1.20% (Class A), 1.90% (Class B & C), and
1.30% (Class T); Strategic Income Fund 1.40% (Class A), 2.10% (Class B & C), and
1.90% (Class T); Balance Sheet Opportunities Fund 1.40% (Class A), 2.10% (Class
B & C), and 1.69% (Class T); Growth Fund 1.50% (Class A), 2.20% (Class B & C),
and 2.00% (Class T), and Special Fund 1.50% (Class A), 2.20% (Class B & C), and
2.16% (Class T) of each respective class's average net assets. The Adviser will
reimburse the Funds for amounts in excess of such limits, up to the total amount
of fees received during the period. At December 31, 1996, the Advisor's
reimbursements aggregated $15,175, $65,578, $41,925, $34,126, and $20,615 for
the Government Securities, Strategic Income, Balance Sheet Opportunities,
Growth, and Special Funds, respectively.
The Adviser has agreed that the fee of a Fund will be reduced, or the
Adviser will reimburse the Fund (up to the amount of its fee) by an amount
necessary to prevent the total expenses of the Fund (excluding taxes, interest,
brokerage commissions or transaction costs, certain distribution fees and
extraordinary expenses) from exceeding limits applicable to the Fund in any
state in which its shares then are qualified for sale. Currently, the most
restrictive annual expense limitation is 2.50% of the first $30,000,000 of
average net assets, 2.00% of the next $70,000,000 and 1.50% of the excess.
Northstar Administrators Corp.(the "Administrator") serves as administrator
to the Funds pursuant to an Administrative Services Agreement.
Northstar Distributors, Inc. (the "Distributor") an affiliate of the Adviser
and the Administrator, is the distributor of each Fund's shares. Under separate
Plans of Distribution pertaining to Class A, Class B, Class C and Class T
shares, the Funds pay the Distributor monthly service fees at an annual rate of
0.25% of the average
45
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1996
daily net assets in the case of Class A, Class B, Class C and Class T shares,
and monthly distribution fees at the annual rate of 0.05% of the average daily
net assets of Class A shares and 0.75% of the average daily net assets of Class
B and Class C shares for all Funds. Class T shares pay monthly distribution fees
at an annual rate of 0.40% of average daily net assets for the Government
Securities and High Yield Funds, 0.50% of average daily net assets for the
Balance Sheet Opportunities Fund and 0.70% of average daily net assets for the
Strategic Income, Growth and Special Funds. At December 31, 1996, the Funds owed
the Distributor $565,163 in service and distribution fees.
The Distributor also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares, and the contingent deferred
sales charge paid by shareholders upon certain redemptions of Class A, Class B,
Class C and Class T shares. For the year ended December 31, 1996, the
Distributor earned the following amounts in sales charges:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS T
SHARES SHARES SHARES SHARES
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Initial Sales
Charges $435,061 $ 0 $ 0 $ 0
Contingent
Deferred Sales
Charges $ 28,262 $432,846 $53,537 $906,775
</TABLE>
NOTE 3. ACQUISITION
On the close of business June 2, 1995, the Adviser completed the acquisition
of certain assets related to the mutual fund business of The Advest Group, Inc.
At the time of the transaction, the Funds entered into new Investment Advisory
Agreements, Distribution Agreements and Transfer Agency and Service Agreements
with new service providers, the terms and provisions of which are substantially
identical to the agreements with the former service providers.
NOTE 4. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments
(excluding short-term investments) for the year ended December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
GOVERNMENT STRATEGIC
SECURITIES INCOME HIGH YIELD
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
Aggregate
Purchases $142,491,104 $104,473,610 $259,925,744
Aggregate
Sales $149,267,688 $101,434,264 $241,070,373
<CAPTION>
U.S. Government Securities included above were as follows:
<S> <C> <C> <C>
Aggregate
Purchases $142,491,104 $26,747,714 $0
Aggregate
Sales $149,139,837 $21,730,678 $0
<CAPTION>
BALANCE SHEET
OPPORTUNITIES GROWTH SPECIAL
FUND FUND FUND
------------- ----------- ------------
<S> <C> <C> <C>
Aggregate
Purchases $ 71,650,363 $46,132,867 $417,198,900
Aggregate
Sales $102,597,115 $61,318,280 $198,773,469
<CAPTION>
U.S. Government Securities included above were as follows:
<S> <C> <C> <C>
Aggregate
Purchases $0 $ 0 $0
Aggregate
Sales $0 $1,104,130 $0
</TABLE>
NOTE 5. 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>
GOVERNMENT STRATEGIC
SECURITIES INCOME HIGH YIELD
FUND FUND FUND
------------ ----------- ------------
<S> <C> <C> <C>
Cost (tax
basis) $136,366,579 $74,347,659 $189,867,426
------------ ----------- ------------
Appreciated
Securities 1,784,947 3,404,376 12,032,286
Depreciated
Securities 2,108,177 615,047 452,890
------------ ----------- ------------
Net Unrealized
Appreciation
(Depreciation) $ (323,230 ) 2,789,329 $ 11,579,396
------------ ----------- ------------
</TABLE>
46
<PAGE>
THE NORTHSTAR FUNDS [NORTHSTAR LOGO]
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
BALANCE SHEET
OPPORTUNITIES GROWTH SPECIAL
FUND FUND FUND
------------- ----------- ------------
<S> <C> <C> <C>
Cost (tax
basis) $46,454,995 $61,822,648 $240,370,478
------------- ----------- ------------
Appreciated
Securities 3,728,703 18,105,606 27,458,675
Depreciated
Securities 1,614,159 1,259,219 4,611,333
------------- ----------- ------------
Net
Unrealized
Appreciation $ 2,114,544 $16,846,387 $ 22,847,342
------------- ----------- ------------
</TABLE>
NOTE 6. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of each Fund for the year ended December 31,
1996, were as follows:
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 1,173,549 $ 10,970,069 741,529 $ 6,986,079 130,474 $ 1,220,625 42,726 $ 399,726
Reinvested
dividends 69,846 652,825 30,877 290,097 308 2,892 538,420 5,067,558
Shares redeemed (67,570) (639,341) (85,933) (814,043) (10,459) (98,119) (3,742,558) (35,616,667)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 1,175,825 $ 10,983,553 686,473 $ 6,462,133 120,323 $ 1,125,398 (3,161,412) $(30,149,383)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<CAPTION>
STRATEGIC INCOME FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 474,942 $ 5,738,010 1,003,182 $ 12,151,460 212,149 $ 2,571,465 45,952 $ 569,294
Reinvested
dividends 50,560 625,158 54,402 672,776 5,092 62,954 90,573 1,119,728
Shares redeemed (918,406) (11,512,407) (418,455) (5,172,202) (59,061) (727,367) (416,724) (5,150,096)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) (392,904) $ (5,149,239) 639,129 $ 7,652,034 158,180 $ 1,907,052 (280,199) $ (3,461,074)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<CAPTION>
HIGH YIELD FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 827,729 $ 7,207,156 5,911,912 $ 51,482,500 1,413,571 12,306,310 248,508 $ 2,151,630
Reinvested
dividends 62,173 539,834 168,302 1,463,685 17,304 150,556 733,966 6,372,482
Shares redeemed (291,691) (2,549,211) (621,900) (5,398,570) (233,244) (2,046,070) (3,384,341) (29,390,057)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 598,211 $ 5,197,779 5,458,314 $ 47,547,615 1,197,631 $10,410,796 (2,401,867) $(20,865,945)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
</TABLE>
47
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
BALANCE SHEET OPPORTUNITIES FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 31,867 $ 409,691 161,646 $ 2,068,438 13,747 $ 174,866 99,979 $ 1,261,855
Reinvested
dividends 11,446 136,696 34,438 407,500 4,068 48,215 663,010 7,920,589
Shares redeemed (13,528) (172,359) (16,102) (205,751) (4,631) (59,861) (1,498,511) (19,346,300)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 29,785 $ 374,028 179,982 $ 2,270,187 13,184 $ 163,220 (735,522) $(10,163,856)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<CAPTION>
GROWTH FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 215,652 $ 3,898,525 145,699 $ 2,385,877 17,690 $ 291,243 90,737 $ 1,446,975
Reinvested
dividends 10,967 198,714 8,536 152,930 723 12,843 158,321 2,852,925
Shares redeemed (48,822) (803,512) (32,185) (531,632) (2,328) (39,672) (1,215,332) (20,167,999)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 177,797 $ 3,293,727 122,050 $ 2,007,175 16,085 $ 264,414 (966,274) $(15,868,099)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<CAPTION>
SPECIAL FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 3,480,949 $ 84,633,270 5,433,970 $131,453,623 1,739,092 $42,056,956 222,847 $ 5,269,646
Shares redeemed (935,948) (22,565,835) (318,902) (7,614,905) (215,261) (5,187,697) (376,467) (8,387,893)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 2,545,001 $ 62,067,435 5,115,068 $123,838,718 1,523,831 $36,869,259 (153,620) $ (3,118,247)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
</TABLE>
Transactions in capital shares of each Fund for the twelve months ended
December 31, 1995, were as follows:
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 326,499 $ 3,175,556 278,689 $ 2,664,382 732 $ 6,973 403,851 $ 3,639,991
Reinvested
dividends 3,398 32,936 3,358 32,382 20 190 649,744 6,017,995
Shares redeemed (8,712) (83,280) (5,079) (50,119) 0 0 (3,526,879) (32,545,333)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 321,185 $ 3,125,212 276,968 $ 2,646,645 752 $ 7,163 (2,473,284) $(22,887,347)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<CAPTION>
STRATEGIC INCOME FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 147,505 $ 2,139,353 492,026 $ 6,234,501 51,547 $ 652,909 565,764 $ 6,791,962
Issued in merger 2,278,702 27,859,837 1,316,859 16,093,857 133,030 1,623,575 0 0
Reinvested
dividends 9,752 119,651 9,167 112,921 517 6,349 101,327 1,228,343
Shares redeemed (678,222) (8,374,357) (31,251) (383,568) (9,620) (118,119) (384,285) (4,659,392)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 1,757,737 $ 21,744,484 1,786,801 $ 22,057,711 175,475 $ 2,164,714 282,806 $ 3,360,913
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
</TABLE>
48
<PAGE>
THE NORTHSTAR FUNDS [NORTHSTAR LOGO]
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
HIGH YIELD FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 910,824 $ 7,850,386 3,422,451 $ 29,521,715 439,743 $ 3,740,733 1,518,926 $ 12,904,451
Reinvested
dividends 21,104 181,582 24,757 213,414 2,911 25,009 862,636 7,376,428
Shares redeemed (59,909) (516,072) (54,799) (471,184) (44,509) (326,267) (2,517,197) (21,581,507)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 872,019 $ 7,515,896 3,392,409 $ 29,263,945 398,145 $ 3,439,475 (135,635) $ (1,300,628)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<CAPTION>
BALANCE SHEET OPPORTUNITIES FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 61,555 $ 803,879 131,744 $ 1,730,774 16,525 $ 219,651 127,572 $ 1,615,724
Reinvested
dividends 6,552 82,392 9,620 120,686 1,910 23,922 661,324 8,309,854
Shares redeemed (4,523) (61,195) (750) (9,931) (11) (142) (1,402,049) (17,572,265)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 63,584 $ 825,076 140,614 $ 1,841,529 18,424 $ 243,431 (613,153) $ (7,646,687)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<CAPTION>
GROWTH FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 294,621 $ 5,453,559 116,727 $ 2,205,716 3,902 $ 73,428 191,904 $ 3,265,384
Reinvested
dividends 17,194 267,392 20,122 312,150 704 10,926 951,457 14,803,074
Shares redeemed (224,597) (4,152,792) (8,675) (165,916) (161) (3,133) (1,077,114) (18,840,154)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 87,218 $ 1,568,159 128,174 $ 2,351,950 4,445 $ 81,221 66,247 $ (771,696)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<CAPTION>
SPECIAL FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS T
------------------------ -------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 131,315 $ 2,798,032 70,725 $ 1,537,491 2,986 $ 64,085 199,543 $ 3,892,577
Reinvested
dividends 4,827 100,976 2,276 47,440 23 476 72,639 1,513,791
Shares redeemed (24,538) (536,495) (1,448) (31,326) (46) (1,008) (639,277) (12,993,182)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
Net increase
(decrease) 111,604 $ 2,362,513 71,553 $ 1,553,605 2,963 $ 63,553 (367,095) $ (7,586,814)
--------- ------------ ----------- ------------ ----------- ----------- ----------- ------------
</TABLE>
NOTE 7. CREDIT RISK AND DEFAULTED SECURITIES
Although the Funds have a diversified portfolio, the High Yield and
Strategic Income Funds had 82.93% and 42.63%, respectively, of their portfolios
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 Fund held Alliant Computer Systems, Inc. and Capital Gaming
International, Inc., bankrupt securities.
49
<PAGE>
THE NORTHSTAR FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1996
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 8. FEDERAL INCOME TAX -- CAPITAL LOSS CARRYFORWARD
At December 31, 1996, the Government Securities Fund had capital loss
carryforwards expiring December 31, 1997, 1998, and 2002 of $2,940,526,
$1,442,754, and $16,737,216, respectively. The Strategic Income Fund had capital
loss carryforwards expiring December 31, 2002 and 2003 of $1,293,025 and
$1,301,325, respectively. The High Yield Fund had capital loss carryforwards
expiring December 31, 2002, 2003, and 2004 of $3,158,623, $5,577,338, and
$570,896, respectively. The Special Fund had capital loss carryforwards expiring
December 31, 2004 of $2,281,884.
NOTE 9. COMPENSATING BALANCE ARRANGEMENT
The Funds have an informal compensating balance arrangement with the
Custodian whereby the Funds may have overdrafts in their respective accounts and
have no interest assessed on the overdrafts. In return, the Funds are required
to maintain positive balances to offset negative balances. The required deposits
are calculated by dividing the overdrawn amounts by 0.90. At December 31, 1996,
the Funds did not have any compensating balances.
NOTE 10. 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.
NOTE 11. TRANSFER OF NET ASSETS
At the close of business on October 27, 1995 (the "Closing"), the Northstar
Strategic Income Fund acquired the net assets of the Northstar Advantage
Multi-Sector Bond Fund, ("Multi-Sector Fund") pursuant to an Agreement and Plan
of Reorganization dated June 2, 1995. In accordance with the agreement, the
Strategic Income Fund, at the closing, issued 3,728,590 shares of the Strategic
Income Fund having an aggregate value of $45,577,269 which included unrealized
depreciation on investments of $535,327 and accumulated net realized loss of
$2,981,579. As a result the Strategic Income Fund issued .370703764 share for
each Multi-Sector Fund Class A and Class B share and .371826372 share for each
Multi-Sector Fund Class C share. The transaction was structured for tax purposes
to qualify as a tax-free reorganization under the Internal Revenue Code.
Directly after the merger the combined net assets in the Strategic Income Fund
were $79,737,813 with a net asset value of $12.22 for Class A and Class B shares
and $12.21 for Class C shares.
50
<PAGE>
NORTHSTAR FUNDS [NORTHSTAR LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Trustees of
the Northstar Funds:
We have audited the accompanying statements of assets and liabilities of the
Northstar Funds (formerly Northstar Advantage Funds), comprising Northstar
Government Securities Fund, Northstar Strategic Income Fund, Northstar High
Yield Fund, Northstar Balance Sheet Opportunities Fund, Northstar Growth Fund
and Northstar Special Fund (formerly Northstar Advantage Government Securities
Fund, Northstar Advantage Strategic Income Fund, Northstar Advantage High Yield
Fund, Northstar Advantage Income Fund, Northstar Advantage Growth Fund, and
Northstar Advantage Special Fund, respectively) (collectively the "Funds"),
including the portfolios of investments, 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 Funds 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
51
