<PAGE>
File No. 33-73140
811-8220
As filed with the Securities and Exchange Commission on February 27, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form N1-A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 11
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 12
NORTHSTAR VARIABLE TRUST
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(Exact name of Registrant as specified in charter)
Two Pickwick Plaza, Greenwich, CT 06830
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(Address of Principal Executive Offices)
(203) 863-6200
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(Registrant's telephone number)
Mark L. Lipson
c/o Northstar Investment Management Corporation
Two Pickwick Plaza, Greenwich, Connecticut 06830
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(Name and address of agent for service)
Copies of all correspondence to:
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
immediately upon filing pursuant to paragraph (b)
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on [date] pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on [date] pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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X on April 30, 1998 pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
this post-effective amendment designates a new effective
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date for a previously filed post-effective amendment.
__________________________________________________________________________
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NORTHSTAR VARIABLE TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A)
UNDER THE SECURITIES ACT OF 1933
PART A
FORM N-1A PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Synopsis Cover Page
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Investment Programs;
Investment Objectives and Policies;
Other Investment Strategies
and Techniques; Risk Factors;
General Information
5. Management of the Fund Management of the Funds
6. Capital Stock and Other How Net Asset Value is
Securities Determined; Dividends,
Distributions and Taxes;
Performance Information;
General Information
7. Purchases of Securities Being Purchase of Shares; How Net Asset
Value is Determined.
8. Redemption or Repurchase Redemption of Shares; How Net Asset
Value is Determined
9. Legal Proceedings Not Applicable
<PAGE>
NORTHSTAR VARIABLE TRUST
CROSS REFERENCE SHEET
PART B
FORM N-1A CAPTION IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information & History Cover Page; Other Information
13. Investment Objectives & Policies Cover Page; Investment Objectives
and Policies; Investment
Restrictions; Other Investment
Techniques
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal N/A
Holders of Securities
16. Investment Advisory and Services of the Adviser and
Other Services Administrator; Services of the
Subadviser
17. Brokerage Allocation and Portfolio Transactions and
Other Practices Brokerage Allocation; Portfolio
Turnover
18. Capital Stock and Other Securities Purchases, Redemptions and
Exchange Transactions
19. Purchases, Redemptions and Net Asset Value; Purchases,
Pricing Redemption and Exchange
Transaction; Dividends and
Distributions
20. Tax Status Federal Income Tax Status
21. Underwriter Not Applicable
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
<PAGE>
PROSPECTUS APRIL 30, 1998
NORTHSTAR VARIABLE TRUST
NORTHSTAR GROWTH PORTFOLIO
NORTHSTAR INTERNATIONAL VALUE PORTFOLIO
NORTHSTAR INCOME AND GROWTH PORTFOLIO
NORTHSTAR MULTI-SECTOR BOND PORTFOLIO
NORTHSTAR HIGH YIELD BOND PORTFOLIO
Two Pickwick Plaza (203) 863-6200
Greenwich, Connecticut, 06830 (800) 595-7827
Northstar Growth Portfolio, Northstar International Value Portfolio, Northstar
Income and Growth Portfolio, Northstar Multi-Sector Bond Portfolio and Northstar
High Yield Bond Portfolio (the "Portfolios") are five diversified investment
portfolios comprising series of the Northstar Variable Trust (formerly
"Northstar/NWNL Trust"), an open-end, series, management investment company
which Northstar Investment Management Corporation (the "Adviser" or "Northstar")
serves as investment adviser to. The Northstar Growth Portfolio is sub-advised
by Navellier Portfolio Management, Inc. The International Value Portfolio is
sub-advised by Brandes Investment Partners, L.P. This Prospectus sets forth
basic information about the Trust and the Portfolios that prospective investors
should know before investing. It should be read and retained for future
reference. A Statement of Additional Information ("SAI"), dated April 30, 1998,
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The SAI is available without charge upon request to the
Trust at the address or telephone number set forth above.
Shares of the Portfolios are offered at net asset value and currently are
sold to segregated asset accounts ("Variable Accounts") of ReliaStar Life
Insurance Company (formerly "Northwestern National Life Insurance Company"),
Northern Life Insurance Company ("Northern"), and ReliaStar Bankers Security
Life Insurance Company ("BSL") (collectively the "Affiliated Insurance
Companies") to serve as an investment medium for variable annuity or variable
life insurance contracts (the "Variable Contracts") issued by the Affiliated
Insurance Companies. The Variable Accounts of ReliaStar Life Insurance Company
("ReliaStar"), Northern and BSL invest in shares of one or more of the
Portfolios in accordance with allocation instructions received from Variable
Contract owners. Such allocation rights are described further in the
accompanying Prospectus for the Variable Account.
NORTHSTAR GROWTH PORTFOLIO ("GROWTH PORTFOLIO") is a diversified portfolio
with an investment objective of seeking long-term capital growth primarily
through investments in equity securities of companies that are believed to
provide above average potential for capital appreciation.
NORTHSTAR INTERNATIONAL VALUE PORTFOLIO ("INTERNATIONAL VALUE PORTFOLIO")
is a diversified portfolio with an investment objective of long-term capital
appreciation. The Portfolio will seek to achieve this objective by primarily
investing in equity securities of foreign issuers with market capitalizations
greater than $1 billion.
NORTHSTAR INCOME AND GROWTH PORTFOLIO ("INCOME AND GROWTH PORTFOLIO") is a
diversified portfolio with an investment objective of seeking current income
balanced with the objective of achieving capital appreciation. The Portfolio
will seek to achieve its objective through investments in common and preferred
stocks, convertible securities, investment grade corporate debt securities and
government securities, selected for their prospects of producing income and/or
capital appreciation.
NORTHSTAR MULTI-SECTOR BOND PORTFOLIO ("MULTI-SECTOR PORTFOLIO") is a
diversified portfolio with an investment objective of maximizing current income.
The Portfolio will seek to achieve its objective by investment in the following
sectors of the fixed income securities markets: (a) securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities; (b) investment grade corporate debt securities
(c) investment grade or comparable quality debt securities issued by foreign
corporate issuers, and securities issued by foreign governments and their
political subdivisions, limited to 35% of assets determined at the time of
investment; and (d) high yield-high risk fixed income securities of U.S. and
foreign issuers, limited to 50% of assets determined at the time of investment.
See "Risk Factors".
NORTHSTAR HIGH YIELD BOND PORTFOLIO ("HIGH YIELD PORTFOLIO") is a
diversified portfolio with an investment objective of seeking high income by
investing predominantly in high yield-high risk lower-rated U.S.
dollar-denominated debt securities. It is the Portfolio's policy, while
investing in income producing securities, also to maximize total return from a
combination of income and capital appreciation.
THE HIGH YIELD PORTFOLIO WILL NORMALLY INVEST AT LEAST 65% OF ITS ASSETS IN
LOWER RATED HIGH YIELD-HIGH RISK BONDS, COMMONLY KNOWN AS "JUNK BONDS," AND THE
MULTI-SECTOR PORTFOLIO MAY INVEST UP TO 50% OF ITS ASSETS IN THESE SECURITIES.
THESE SECURITIES MAY INVOLVE HIGH RISK AND ARE CONSIDERED TO BE SPECULATIVE WITH
REGARD TO PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. THE INTERNATIONAL VALUE
PORTFOLIO INVESTS IN FOREIGN SECURITIES WHICH MAY BE MORE VOLATILE AND MORE
DIFFICULT TO SELL THAN U.S. INVESTMENTS AND MAY INVOLVE ADDITIONAL RISKS AS
DISCUSSED IN THIS PROSPECTUS. INVESTMENT IN THESE PORTFOLIOS MAY NOT BE
APPROPRIATE FOR ALL INVESTORS. CONTRACT OWNERS SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THESE PORTFOLIOS. SEE "RISK FACTORS -- HIGH
YIELD SECURITIES" AND "RISK FACTORS -- FOREIGN SECURITIES".
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF THE
VARIABLE ACCOUNT, WHICH ACCOMPANIES THIS PROSPECTUS. BOTH PROSPECTUSES SHOULD BE
READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Highlights....................................................................................... 3
Investment Programs........................................................................................ 4
Investment Objectives and Policies......................................................................... 4
Risk Factors............................................................................................... 8
Other Investment Strategies and Techniques................................................................. 10
Performance Information.................................................................................... 12
How Net Asset Value is Determined.......................................................................... 12
Management of the Portfolios............................................................................... 13
Purchase of Shares......................................................................................... 18
Redemption of Shares....................................................................................... 18
Dividends, Distributions and Taxes......................................................................... 18
General Information........................................................................................ 19
Appendix................................................................................................... A-1
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AT
ANY TIME SUBSEQUENT TO ITS DATE.
2
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NORTHSTAR VARIABLE TRUST FINANCIAL HIGHLIGHTS
The financial highlights for the Trust set forth below present certain
information and ratios as well as performance information about each series of
the Trust for a share outstanding throughout each year or portion thereof.(1)
This table should be read in conjunction with the audited financial statements
of the Trust dated December 31, 1997 and accompanying notes, which are contained
in the Trust's Annual Report to Shareholders for the fiscal year ended December
31, 1997 and incorporated by reference in the SAI, a copy of which may be
obtained without charge from the Trust. The financial highlights have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report
thereon is also incorporated by reference in the SAI and should be read in
conjunction with the related audited financial statements and notes thereto.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
INTER-
NATIONAL
VALUE MULTI-SECTOR
GROWTH PORTFOLIO PORTFOLIO INCOME AND GROWTH PORTFOLIO PORTFOLIO
--------------------------------------- --------- -------------------------------------- ------
1997 1996 1995 1994(1) 1997(1) 1997 1996 1995 1994(1) 1997
------- ------ ----- --- --------- ------ ------ ----- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period.... $ 14.08 11.56 10.04 10.00 10.00 11.72 11.39 9.92 10.00 5.25
Income from investment
operations:
Net investment
income................. 0.09 0.08 0.20 0.16 0.03 0.44 0.40 0.37 0.20 0.40
Net realized and
unrealized gain
(loss)................. 1.95 2.57 2.27 0.19 0.10 1.36 1.15 1.73 (0.01) (0.08)
------- ------ ----- --- --------- ------ ------ ----- --- ------
Total from investment
operations............. 2.04 2.65 2.47 0.35 0.13 1.80 1.55 2.10 0.19 0.32
------- ------ ----- --- --------- ------ ------ ----- --- ------
Less distributions:
Dividends declared from
net investment
income................. (0.10) (0.09) (0.19) (0.16) (0.03) (0.44) (0.41) (0.37) (0.20) (0.40)
Dividends from net
realized gains......... (0.17) (0.04) (0.76) (0.15) 0.00 (0.08) (0.81) (0.26) (0.07) (0.03)
------- ------ ----- --- --------- ------ ------ ----- --- ------
Total distributions.... (0.27) (0.13) (0.95) (0.31) (0.03) (0.52) (1.22) (0.63) (0.27) (0.43)
------- ------ ----- --- --------- ------ ------ ----- --- ------
Net Asset Value, end of
period................. $ 15.85 14.08 11.56 10.04 10.10 13.00 11.72 11.39 9.92 5.14
------- ------ ----- --- --------- ------ ------ ----- --- ------
------- ------ ----- --- --------- ------ ------ ----- --- ------
Total Return............ % 14.66 22.99 24.78 3.47 1.30 15.81 13.80 21.39 2.02 6.15
------- ------ ----- --- --------- ------ ------ ----- --- ------
------- ------ ----- --- --------- ------ ------ ----- --- ------
Ratios/supplemental
data:
Net assets end of
period (thousands)..... $32,156 15,564 3,813 2,701 5,937 21,531 12,579 7,410 3,595 10,548
------- ------ ----- --- --------- ------ ------ ----- --- ------
------- ------ ----- --- --------- ------ ------ ----- --- ------
Ratio of expenses to
average net assets..... % 0.80 0.80 0.80 1.00(2) 0.80 0.80 0.80 0.80 1.00(2) 0.80
------- ------ ----- --- --------- ------ ------ ----- --- ------
------- ------ ----- --- --------- ------ ------ ----- --- ------
Ratio of expense
reimbursement to
average net assets..... % 0.29 0.90 1.24 1.45(2) 1.81 0.31 0.60 0.94 1.43(2) 0.56
------- ------ ----- --- --------- ------ ------ ----- --- ------
------- ------ ----- --- --------- ------ ------ ----- --- ------
Ratio of net investment
income to average net
assets................. % 0.70 0.65 1.77 2.31(2) 0.97 3.72 3.67 3.63 3.11(2) 8.31
------- ------ ----- --- --------- ------ ------ ----- --- ------
------- ------ ----- --- --------- ------ ------ ----- --- ------
Portfolio Turnover
Rate................... % 178 161 123 61 5 55 129 74 45 163
------- ------ ----- --- --------- ------ ------ ----- --- ------
------- ------ ----- --- --------- ------ ------ ----- --- ------
Average Commissions Per
Share.................. 0.0359 0.0414 -- -- 0.0263 0.0598 0.0401 -- -- 0.0000
<CAPTION>
HIGH YIELD PORTFOLIO
-------------------------------------
1996 1995 1994(1) 1997 1996 1995 1994(1)
----- ----- ----- ------ ----- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period.... 5.14 4.85 5.00 5.27 5.04 4.69 5.00
Income from investment
operations:
Net investment
income................. 0.41 0.42 0.23 0.40 0.45 0.50 0.28
Net realized and
unrealized gain
(loss)................. 0.21 0.29 (0.15) 0.07 0.32 0.34 (0.31)
----- ----- ----- ------ ----- ----- ---
Total from investment
operations............. 0.62 0.71 0.08 0.47 0.77 0.84 (0.03)
----- ----- ----- ------ ----- ----- ---
Less distributions:
Dividends declared from
net investment
income................. (0.41) (0.42) (0.23) (0.40) (0.45) (0.49) (0.28)
Dividends from net
realized gains......... (0.10) -- -- (0.04) (0.09) -- --
----- ----- ----- ------ ----- ----- ---
Total distributions.... (0.51) (0.42) (0.23) (0.44) (0.54) (0.49) (0.28)
----- ----- ----- ------ ----- ----- ---
Net Asset Value, end of
period................. 5.25 5.14 4.85 5.30 5.27 5.04 4.69
----- ----- ----- ------ ----- ----- ---
----- ----- ----- ------ ----- ----- ---
Total Return............ 12.53 14.97 1.41 9.00 15.75 18.55 (0.95)
----- ----- ----- ------ ----- ----- ---
----- ----- ----- ------ ----- ----- ---
Ratios/supplemental
data:
Net assets end of
period (thousands)..... 6,277 3,766 2,716 12,606 6,619 4,773 2,588
----- ----- ----- ------ ----- ----- ---
----- ----- ----- ------ ----- ----- ---
Ratio of expenses to
average net assets..... 0.80 0.80 1.00(2) 0.79 0.80 0.80 1.00(2)
----- ----- ----- ------ ----- ----- ---
----- ----- ----- ------ ----- ----- ---
Ratio of expense
reimbursement to
average net assets..... 0.88 1.26 1.41(2) 0.56 0.93 1.31 1.55(2)
----- ----- ----- ------ ----- ----- ---
----- ----- ----- ------ ----- ----- ---
Ratio of net investment
income to average net
assets................. 8.38 8.52 7.03(2) 8.44 8.72 10.61 8.62(2)
----- ----- ----- ------ ----- ----- ---
----- ----- ----- ------ ----- ----- ---
Portfolio Turnover
Rate................... 121 83 29 152 159 157 62
----- ----- ----- ------ ----- ----- ---
----- ----- ----- ------ ----- ----- ---
Average Commissions Per
Share.................. -- -- -- -- 0.0547 -- --
</TABLE>
- ---------------
(1) The Growth, Income and Growth, Multi-Sector and High Yield Portfolios
commenced operations on May 6, 1994. The International Value Portfolio commenced
operations on August 8, 1997.
(2) Annualized
3
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INVESTMENT PROGRAMS
Northstar Variable Trust (the "Trust") is a Massachusetts business trust
organized as an open-end, diversified, series, management investment company.
Currently the Trust offers five series comprising five separate investment
portfolios -- Northstar Growth Portfolio, Northstar International Value
Portfolio, Northstar Income and Growth Portfolio, Northstar Multi-Sector Bond
Portfolio and Northstar High Yield Bond Portfolio (the "Portfolios"). Each of
the Portfolios has its own investment objective and investment policies as
described below. The Trustees of the Trust reserve the right to change any of
the investment policies, strategies or practices of any of the Portfolios, as
described in this Prospectus and the SAI, without shareholder approval, except
in those instances where shareholder approval is expressly required.
The investment objective of each Portfolio is a fundamental policy which
may not be changed without the approval of holders of a majority of the
outstanding shares of the Portfolio. There can, of course, be no assurance that
each Portfolio will achieve its investment objective since all investments are
inherently subject to market risks.
INVESTMENT OBJECTIVES AND POLICIES
NORTHSTAR GROWTH PORTFOLIO. The Portfolio's investment objective is to seek
long-term capital growth primarily through investments in equity securities
diversified over industries and companies which are believed to provide above
average potential for capital appreciation. The Portfolio invests primarily in
companies the portfolio manager identifies as either GROWTH or VALUE through
quantitative analysis. Growth companies have above average earnings or sales
growth and higher price to earnings ratios. Value companies are temporarily
undervalued or out of favor, and tend to have lower price to book ratios, higher
earnings or dividend yields and higher returns on equity. The percentage of
Portfolio assets allocated to the two different kinds of companies varies
depending on the portfolio manager's assessment of economic conditions and
investment opportunities.
Securities in which the Portfolio will normally invest include common
stocks, preferred stocks, and securities convertible into common stock, and the
Portfolio may also invest in warrants and options to purchase common stocks.
Under normal conditions, the Portfolio does not intend to invest more than 35%
of its assets in convertible securities. The Portfolio may invest in large
seasoned companies which are believed to possess superior return potential
similar to companies with formative growth profiles, and may invest in small and
medium-sized companies with above average earnings growth potential relative to
market value.
Investing in equity securities of small and medium-sized companies may
involve greater risk than is associated with investing in more established
companies. Small to medium-sized companies often have limited product and market
diversification, fewer financial resources or may be dependent on a few key
managers. Any one of the foregoing may change suddenly and have an immediate
impact on the value of the company's securities. Furthermore, whenever the
securities markets are experiencing rapid price changes due to national economic
trends, secondary growth securities have historically been subject to
exaggerated price changes. Although the Portfolio will invest predominantly in
equity and equity-related securities, it may also invest in non-equity
securities, such as corporate bonds or U.S. Government obligations during
periods, when, in the opinion of the Sub-Adviser, prevailing market, financial
or economic conditions warrant. Although the Portfolio selects securities for
long-term investment, the Portfolio may engage in short-term transactions.
The Portfolio may invest up to 20% of its assets in equity securities of
foreign issuers, not more than 10% of which may be invested in issuers that are
not listed on a U.S. securities exchange. The Portfolio normally will purchase
American Depository Receipts for foreign securities which are actively traded in
a United States market or on a U.S. securities exchange. While investment in
foreign securities is intended to increase diversification, such investments
involve risks in addition to the credit and market risks normally associated
with domestic securities. See "Risk Factors -- Foreign Securities".
NORTHSTAR INTERNATIONAL VALUE PORTFOLIO. The Portfolio's investment
objective is long-term capital appreciation. The Portfolio invests primarily in
equity securities of foreign issuers with market capitalizations greater than $1
billion. The Portfolio may invest up to 25% of its total assets in small
capitalization companies. Small capitalization companies are those with
capitalization of $1 billion or less. Investments in small capitalization
companies while generally providing greater growth potential than investments in
companies with larger capitalizations, also entail greater risks. Small
capitalization companies often have limited product lines,
4
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<PAGE>
markets or financial resources and may be dependent on one person or a few key
persons for management. The securities of such companies may be subject to more
volatile market movements than securities of larger, more established companies,
both because the securities typically are traded in lower volume and because the
issuers typically are more subject to changes in earnings and prospects. Because
the Portfolio applies a U.S. size standard on a global basis, it may invest in
issuers which might, in some countries, rank among the largest companies in
terms of capitalization.
Under normal circumstances, the Portfolio will invest at least 65% of its
total assets in equity securities of issuers located in at least three countries
other than the United States. Countries in which the Portfolio may invest
include, but are not limited to, the nations of Western Europe, North and South
America, Australia and Asia. Equity securities include common stocks, preferred
stocks and securities convertible into common stocks. It is anticipated that
securities generally will be purchased in the form of common stock, American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or Global
Depository Receipts ("GDRs"). ADRs, EDRs and GDRs, which may be sponsored or
unsponsored, are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. The issuers of
securities underlying unsponsored ADRs, EDRs and GDRs are not obligated to
disclose material information in the United States and, accordingly, there may
not be a correlation between such information and the market value of the
Depository Receipts.
The Portfolio may invest up to 25% of its assets in securities of companies
located in countries with emerging securities markets. Emerging markets are the
capital markets of any country that in the opinion of the Sub-Adviser is
generally considered a developing country by the international financial
community. See "Risk Factors -- Foreign Securities".
In seeking out foreign securities for purchase, the Sub-Adviser does not
attempt to match the security allocations of foreign stock market indices.
Therefore, the Portfolio's country weightings may differ significantly from
country weightings found in published foreign stock indices. For example, the
Sub-Adviser may choose not to invest the Portfolio's assets in a country whose
stock market, at any given time, may comprise a large portion of a published
foreign stock market index. At the same time, the Sub-Adviser may invest the
Portfolio's assets in countries whose representation in such an index may be
small or non-existent. The Sub-Adviser selects stocks for the Portfolio based on
their individual merits and not necessarily on their geographic locations.
NORTHSTAR INCOME AND GROWTH PORTFOLIO. The Portfolio's investment objective
is to seek current income balanced with the objective of achieving capital
appreciation. Under normal market conditions, the Portfolio will invest at least
65% of its total assets in income-producing securities. In seeking to achieve
its objective, the Portfolio will invest in equity securities of domestic and
foreign issuers that have prospects for dividend income and growth of capital,
including common stocks, preferred stocks, and securities convertible into
common stocks, and selected investment grade debt securities of domestic and
foreign private and government issuers. These debt securities would include U.S.
Government obligations, foreign and domestic corporate bonds, and bonds issued
by foreign governments considered stable by the Sub-Adviser and supported
through the authority to levy taxes by national state or provincial governments
or similar political subdivisions. The proportion of holdings in common stocks,
preferred stocks, other equity-related securities, and debt securities will vary
in accordance with the level of return that can be achieved from these various
types of securities. Under normal conditions, the Portfolio does not intend to
invest more than 35% of its assets in convertible securities. Securities are
also purchased on the basis of fundamental attraction regarding capital
appreciation prospects. In this way, income is "balanced" with capital. The
Portfolio invests in equity securities that are listed primarily on the New York
Stock Exchange or American Stock Exchange or that are traded in the
over-the-counter market. Equity and equity-related securities purchased by the
Portfolio will typically be of large well-established companies, but may also
include to a lesser extent small capitalization companies selected for their
growth potential. Debt securities purchased by the Portfolio will only be
securities rated investment grade (I.E., in the top four rating categories of
Moodys or S&P) at the time of purchase. Securities that are in the lowest
investment grade debt category may have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case with
higher grade securities. In the event that an existing holding is downgraded to
below investment grade, the Portfolio may nevertheless retain the security.
The Portfolio may invest up to 20% of its net assets in the securities of
foreign issuers, not more than 10% of which shall be in issuers whose securities
are not listed on a U.S. securities exchange. The Portfolio normally
5
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<PAGE>
will purchase American Depository Receipts for foreign securities which are
actively traded in a United States market or on a U.S. securities exchange.
While investment in foreign securities is intended to increase diversification,
such investments involve risks in addition to the credit and market risks
normally associated with domestic securities. See "Risk Factors -- Foreign
Securities".
NORTHSTAR MULTI-SECTOR BOND PORTFOLIO. The Portfolio's investment objective
is to maximize current income consistent with the preservation of capital. The
Portfolio will seek to achieve its objective by investing in four sectors of the
fixed income securities markets: (a) securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities ("U.S. Government Bonds"); (b) corporate debt securities rated
investment grade at the time of purchase ("Investment Grade Bonds"); (c)
investment grade or comparable quality debt securities issued by foreign
corporate issuers and foreign governments and their political subdivisions
("Foreign Bonds"); and (d) high yield-high risk fixed income securities of U.S.
and foreign issuers ("High Yield Bonds"). See the Appendix for a description of
bond ratings. Under normal circumstances, at least 65% of the Portfolio's total
assets will be invested in these four sectors. Securities that are in the lowest
investment grade debt category may have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade securities. See "High Yield Bonds" on page six. The Portfolio's
assets generally will be invested in each market sector but the Portfolio may
invest any amount of its assets in any one sector (except for High Yield Bonds,
in which sector the Portfolio will not invest more than 50% of its assets
determined at the time of investment, and no more than 35% of the Portfolio's
assets will be invested in Foreign Bonds, including foreign High Yield Bonds),
and the Portfolio may choose not to invest in a sector in order to achieve its
investment objective. The Adviser believes that this strategy may achieve a more
stable net asset value since diversification over several market sectors tends
to reduce volatility; however, there can be no assurance that certain economic
and other factors will not cause fluctuations in the value of the securities
held by the Portfolio, resulting in fluctuations of the Portfolio's net asset
value.
The following is a description of the four sectors in which the Portfolio
invests:
U.S. GOVERNMENT BONDS. The U.S. Government Bonds in which the Portfolio may
invest are (1) U.S. Treasury obligations such as bills, notes and bonds, which
differ only in their interest rates, maturities and times of issuance; and (2)
obligations issued or guaranteed by U.S. Government agencies, authorities and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Government, (b) the right of the issuer to borrow
an amount limited to a specific line of credit from the U.S. Treasury (which
line of credit is equal to the face value of the government obligation), (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality, or (d) the creditworthiness of the
instrumentality. The Portfolio may invest in U.S. Government Bonds denominated
in foreign currencies and may invest in pass-through securities that are derived
from mortgages. See "Other Investment Strategies and
Techniques -- Mortgage-Backed Securities".
WITH RESPECT TO OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES, AUTHORITIES AND INSTRUMENTALITIES, GUARANTEES AS TO THE TIMELY PAYMENT
OF PRINCIPAL AND INTEREST DO NOT EXTEND TO THE MARKET VALUE OF THE PORTFOLIO'S
SHARES. THE MARKET VALUE OF U.S. GOVERNMENT BONDS FLUCTUATES AS INTEREST RATES
CHANGE.
INVESTMENT GRADE BONDS. The Portfolio may invest in all types of long- and
short-term debt obligations of U.S. issuers denominated in U.S. dollars and in
foreign currencies. Investment Grade Bonds will be rated in the top four rating
categories of Moody's or S&P, or deemed to be of comparable quality by the
Adviser if the securities are unrated. Securities rated Baa or BBB (the lowest
investment grade category) are medium grade investment obligations that may have
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments, in the case of such obligations. For a more complete
description of ratings, see the Appendix.
FOREIGN BONDS. The Foreign Bonds in which the Portfolio may invest are
issued by foreign private issuers and foreign governments. Foreign governments
will be limited to those considered stable by the Adviser, and the Portfolio
will only invest in obligations supported through the authority to levy taxes by
national, state or provincial governments or similar political subdivisions. For
risk considerations involved, see "Risk Factors -- Foreign Securities".
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Normally, foreign corporate issues in which the Portfolio will invest will
be rated investment grade or deemed to be of equivalent quality; however, the
Portfolio may also invest in high yield-high risk securities of foreign private
issuers. See "High Yield Bonds" below and "Risk Factors -- High Yield
Securities". Normally the Portfolio expects to invest its assets in U.S. dollar
denominated securities; however, the Portfolio may invest up to 35% of assets in
non-U.S. dollar denominated securities. The Portfolio may hold foreign currency
for hedging purposes to compensate for declines in the U.S. dollar value of
foreign currency securities held by the Portfolio and against increases in the
U.S. dollar value of foreign currency bonds which the Portfolio might purchase.
The Portfolio is limited to investing no more than 35% of its assets in Foreign
Bonds, including foreign High Yield Bonds, determined at the time of investment.
HIGH YIELD BONDS. The High Yield Bonds in which the Portfolio may invest
are debt obligations of domestic issuers, including High Yield Bonds of domestic
issuers denominated in foreign currencies, and High Yield Bonds of foreign
issuers. The High Yield Bonds that the Portfolio may purchase are in the lower
rating categories (I.E., BB through CCC by S&P and Ba through Caa by Moody's),
or may be unrated securities. These lower-rated and comparable unrated
securities, while selected for their relatively high yield, may be subject to
greater fluctuations in market value and greater risks of loss of income and
principal than higher-rated securities. High yields often reflect the greater
risks associated with the securities that offer such yields. Because of these
greater risks, High Yield Bonds often carry lower ratings. Economic conditions
can sometimes narrow the spreads between yields on lower-rated (or comparable)
securities and higher-rated securities. If these spreads narrow to such a degree
that the Adviser believes that the yields available on lower-rated or comparable
unrated securities do not justify the higher risks associated with those
securities, the Portfolio will invest in higher-rated or comparable unrated
securities. The Portfolio may also invest in High Yield pass-through securities.
Investments in High Yield pass-through securities are subject to prepayment and
reinvestment risks similar to those associated with Mortgage-Backed Securities
described below.
The Adviser evaluates the purchase of High Yield Bonds for the Portfolio
primarily through the exercise of its own investment and credit analysis and on
the ratings assigned by Moody's and S&P. The Portfolio will not invest in High
Yield Bonds rated lower than CCC/Caa. As a fundamental policy, the Portfolio's
investments in High Yield Bonds will be limited to not more than 50% of its
assets, determined at the time of investment. Any subsequent change in the
percentage due to changes in the market value of portfolio securities or other
changes in the total assets will not be considered a violation of this
restriction. See "Risk Factors -- High Yield Securities". The Portfolio may
invest in debt securities of any maturity that pay fixed, floating or adjustable
interest rates. The Portfolio also may invest in discount obligations, including
zero-coupon securities, which do not pay interest but, rather, are issued at a
significant discount to their maturity values, or securities that pay interest,
at the issuer's option, in additional securities instead of cash (pay-in-kind
securities). The values of debt securities generally fluctuate inversely with
changes in interest rates. This is less likely to be true for adjustable or
floating rate securities, since interest rate changes are more likely to be
reflected in changes in the rates paid on the securities. However, reductions in
interest rates also may translate into lower distributions paid by the
Portfolio. Additionally, because zero-coupon and pay-in-kind securities do not
pay interest but the Portfolio nevertheless must accrue and distribute the
income deemed to be earned on a current basis, the Portfolio may have to sell
other investments to raise the cash needed to make income distributions. To a
lesser extent the Portfolio may invest in equity or equity-related securities,
including common stock, preferred stock, convertible securities and rights and
warrants attached to debt instruments. Typically the Portfolio would purchase a
high yield security that is convertible or exchangeable for equity securities,
or which carries the right in the form of a warrant or as part of a unit with
the security to acquire equity securities. The Portfolio would ordinarily
purchase these securities for their yield characteristics or capital
appreciation potential.
NORTHSTAR HIGH YIELD BOND PORTFOLIO. The Portfolio's investment objective
is to seek high income by investing predominantly in high yield -- high risk
lower-rated and non-rated U.S. dollar denominated debt securities. It is the
Portfolio's policy, while investing in income producing securities, also to
maximize total return from a combination of income and capital appreciation.
Under normal market conditions, the Portfolio will seek to achieve its
investment objective by investing at least 65% of its total assets in
higher-yielding, lower-rated U.S. dollar-denominated debt securities of U.S. and
foreign issuers, which involve special risks and are predominantly speculative
in character. The Portfolio may invest up to 35% of its assets in non-U.S.
dollar denominated securities. Investments in securities offering the high
current income sought by the Portfolio, while generally providing greater income
and potential opportunity
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for gain than investments in higher rated securities, also entail greater risk.
The value of high yield securities (and therefore the net asset value per share
of the Portfolio) can be expected to increase or decrease in response to changes
in interest rates, real or perceived changes in the credit risks associated with
its portfolio investments, and other factors affecting the credit markets
generally. The Portfolio may invest up to 50% of its assets in securities of
foreign issuers, subject to a limit of 35% of such assets in emerging market
debt. Emerging markets are countries whose sovereign bonds generally are rated
below investment grade and whose financial markets are not well-developed. The
Portfolio intends to restrict its investments in emerging markets to those with
sound economies that are expected to experience strong growth with controlled
inflation, and therefore higher-than-average returns, over time. See "Risk
Factors -- Foreign Securities".
Most of the debt securities in which the Portfolio invests are lower rated,
and may include bonds in the lowest rating categories (C for Moody's and D for
S&P) and unrated bonds. Most of the securities will be rated at least Caa by
Moody's or at least CCC by S&P, or if not rated, are of equivalent quality in
the opinion of the Adviser. The Portfolio may invest up to 10%, and hold up to
25%, of its assets in securities rated below Caa in the case of Moody's or CCC
by S&P. Such debt securities are highly speculative and may be in default of
payment of interest and/or repayment of principal may be in arrears. The issuers
of such debt securities may be involved in bankruptcy or reorganization
proceedings and/or may be restructuring outstanding debt. Investing in bankrupt
and troubled companies involves special risks. See "Risk Factors -- High Yield
Securities" and the Appendix.
The Portfolio may invest in debt securities of any maturity that pay fixed,
floating or adjustable interest rates. The Portfolio also may invest in discount
obligations, including zero-coupon securities, which do not pay interest but,
rather, are issued at a significant discount to their maturity values, or
securities that pay interest, at the issuer's option, in additional securities
instead of cash (pay-in-kind securities). The values of debt securities
generally fluctuate inversely with changes in interest rates. This is less
likely to be true for adjustable or floating rate securities, since interest
rate changes are more likely to be reflected in changes in the rates paid on the
securities. However, reductions in interest rates also may translate into lower
distributions paid by the Portfolio. Additionally, because zero-coupon and
pay-in-kind securities do not pay interest but the Portfolio nevertheless must
accrue and distribute the income deemed to be earned on a current basis, the
Portfolio may have to sell other investments to raise the cash needed to make
income distributions. To a lesser extent the Portfolio may invest in equity or
equity-related securities, including common stock, preferred stock, convertible
securities and rights and warrants attached to debt instruments. Typically the
Portfolio would purchase a high yield security that is convertible or
exchangeable for equity securities, or which carries the right in the form of a
warrant or as part of a unit with the security to acquire equity securities. The
Portfolio would ordinarily purchase these securities for their yield
characteristics or capital appreciation potential.
RISK FACTORS
EQUITY SECURITIES. Equity securities can over time rise and fall in value,
often based on factors unrelated to the value of the issuer of the securities,
and such fluctuations can be pronounced. Changes in the value of a Portfolio's
investments will result in changes in the value of the Portfolio's shares and
thus its total return to investors.
The securities of smaller companies in which the Portfolios may invest may
be subject to more abrupt or erratic market movements than larger more
established companies, because these securities typically are traded in lower
volume and the issuers typically are subject to a greater degree to changes in
earnings and prospects.
FOREIGN SECURITIES. Investing in foreign securities involves special risks.
These include currency fluctuations, political or economic instability in the
country of issue and the possible imposition of exchange controls or other laws
or restrictions. In addition, securities prices in foreign markets are generally
subject to different economic, financial, political and social factors than are
the prices of securities in U.S. markets. With respect to some foreign countries
there may be the possibility of expropriation or confiscatory taxation,
limitations on liquidity of securities or political or economic developments
which could affect the foreign investments of the Portfolios.
Further, securities of foreign issuers generally will not be registered
with the SEC, and such issuers will generally not be subject to the SEC's
reporting requirements. Accordingly, there is likely to be less publicly
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available information concerning certain of the foreign issuers of securities
held by the Portfolios than is available concerning U.S. companies. Foreign
companies are also generally not subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to U.S. companies. There may also be less government
supervision and regulation of foreign broker-dealers, financial institutions and
listed companies than exists in the U.S. These factors could make foreign
investments, especially those in developing countries, more volatile.
Investing in emerging securities markets involves risks which are in
addition to the usual risks inherent in foreign investments. Some emerging
markets countries may have fixed or managed currencies that are not free-
floating against the U.S. dollar. Further, certain currencies may not be traded
internationally. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Portfolios' portfolio securities are denominated may have a
detrimental impact on the Portfolios.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
Emerging securities markets typically have substantially less volume than
U.S. markets, and securities in many of such markets are less liquid, and their
prices often are more volatile than securities of comparable U.S. companies.
Such markets often have different clearance and settlement procedures for
securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets which the Portfolios desire to invest in
emerging markets may be uninvested. Settlement problems in emerging markets
countries also could cause the Portfolios to miss attractive investment
opportunities. Satisfactory custodial services may not be available in some
emerging markets countries, which may result in the Portfolios incurring
additional costs and delays in the transportation and custody of such
securities.
HIGH YIELD SECURITIES. Each of the Multi-Sector Portfolio and the High
Yield Portfolio may invest in higher-yielding securities that carry lower
investment grade ratings. These high yield-high risk securities are rated below
investment grade by the primary rating agencies (Moody's and S&P). See the
Appendix for a description of bond rating categories. The value of lower-rated
securities generally is more dependent on the ability of the company to meet
interest and principal payments than is the case for higher-rated securities.
Conversely, the value of higher-rated securities may be more sensitive to
interest rate movements than lower-rated securities. Companies issuing high
yield securities may not be as strong financially as those issuing bonds with
higher credit ratings. Investments in such companies are considered to be more
speculative than higher quality investments. In addition, the market for
lower-rated securities is generally less liquid than the market for higher-rated
securities, and adverse publicity and investor perceptions may also have a
greater negative impact on the market for these securities.
Companies issuing high yield bonds are more vulnerable to real or perceived
economic changes (such as rising interest rates), political changes or adverse
developments specific to the company. Adverse economic, political or other
developments may impair the company's ability to service principal and interest
obligations, to meet projected business goals and to obtain additional
financing, particularly if the company is highly leveraged. In the event of a
default, a Portfolio would experience a reduction of its income and could expect
a decline in the market value of the defaulted securities.
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Weighted average composition of the following Portfolios' portfolios at the
end of their 1997 fiscal year was:
<TABLE>
<CAPTION>
MULTI-SECTOR HIGH YIELD
------------ ----------
<S> <C> <C>
Investment Grade........................ 20.5% --%
BB...................................... 13.7 18.3
B....................................... 24.6 45.8
CCC..................................... 1.1 1.9
CC...................................... -- --
C....................................... -- --
D....................................... -- --
Nonrated................................ 7.0 18.9
U.S. Governments, equities
and other............................. 33.1 15.1
------------ ----------
TOTAL................................... 100% 100%
------------ ----------
------------ ----------
</TABLE>
This table does not reflect the current or future composition of any of the
Portfolios.
OTHER INVESTMENT STRATEGIES AND TECHNIQUES
Unless otherwise stated, each of the following strategies and techniques
may be utilized by each of the Portfolios. The Portfolios may, but do not
currently intend to, engage in certain additional investment techniques not
described in this Prospectus. These techniques and additional information on the
securities and techniques described in the Prospectus are contained in the SAI.
REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements,
either for temporary defensive purposes or to generate income from its cash
balances. Under a repurchase agreement, the Portfolio buys a security from a
bank or dealer, which is obligated to buy it back at a fixed price and time. The
security is held in a separate account at the Portfolio's custodian and
constitutes the Portfolio's collateral for the bank's or dealer's repurchase
obligation. Additional collateral may be added so that the obligation will at
all times be fully collateralized. However, if the bank or dealer defaults or
enters into bankruptcy, the Portfolio may experience costs and delays in
liquidating the collateral, and may experience a loss if it is unable to
demonstrate its right to the collateral in a bankruptcy proceeding. Repurchase
agreements maturing more than seven days in the future are considered illiquid,
and each Portfolio will invest no more than 5% of its net assets in such
repurchase agreements at any time, and under normal market conditions, will
limit its investments in repurchase agreements to 15% of its net assets (5% for
International Value Portfolio).
WHEN-ISSUED SECURITIES. Each Portfolio may acquire securities on a
"when-issued" basis by contracting to purchase securities for a fixed price on a
date beyond the customary settlement time with no interest accruing until
settlement. If made through a dealer, the contract is dependent on the dealer
completing the sale. The dealer's failure could deprive the Portfolio of an
advantageous yield or price. These contracts may be considered securities and
involve risk to the extent that the value of the underlying security changes
prior to settlement. Each Portfolio may realize short-term profits or losses if
the contracts are sold. Transactions in when-issued securities may be limited by
certain Internal Revenue Code requirements.
SECURITIES LENDING. The Portfolios may lend their securities in an amount
not exceeding 33% of their assets to financial institutions such as banks and
brokers if the loan is collateralized in accordance with applicable regulations.
When engaging in loans of portfolio securities, the loan collateral must, on
each business day, at least equal the value of the loaned securities and must
consist of cash, letters of credit of domestic banks or domestic branches of
foreign banks, or securities of the U.S. Government. Loans of securities involve
risks of delay in receiving additional collateral or in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, such securities lending will be
made only when, in the opinion of the Adviser or the Sub-Adviser in the case of
the Growth, International Value and Income and Growth Portfolios, the income to
be earned from the loans justifies the attendant risks. Loans are subject to
termination at the option of the Portfolio or the borrower.
DERIVATIVE SECURITIES. The International Value Portfolio does not currently
intend to make use of any derivatives, including transactions in currency
forwards for hedging purposes.
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ILLIQUID SECURITIES. Each Portfolio, other than the International Value
Portfolio, may invest up to 15% of its net assets in illiquid securities,
including restricted securities or private placements. The International Value
Portfolio may invest up to 5% of its net assets in illiquid securities,
including (i) securities for which there is no readily available market; (ii)
securities which may be subject to legal restrictions on resale (so-called
"restricted securities") other than Rule 144A securities noted below; (iii)
repurchase agreements having more than seven days to maturity; and (iv) fixed
time deposits subject to withdrawal penalties (other than those with a term of
less than seven days).
An illiquid security is a security that cannot be sold quickly in the
normal course of business. Some securities cannot be sold to the U.S. public
because of their terms or because of SEC regulations. The Adviser or Sub-Adviser
in the case of the Growth, International Value and Income and Growth Portfolios
may determine that securities that cannot be sold to the U.S. public, but that
can be sold to institutional investors ("Rule 144A" securities) or on foreign
markets, are liquid, following guidelines established by the Trustees of each
Portfolio.
TRADING AND PORTFOLIO TURNOVER. Each Portfolio generally intends to
purchase securities for long-term investment. However, short-term transactions
may result from liquidity needs, securities having reached a price or yield
objective, changes in interest rates or the credit standing of an issuer, or by
reason of economic or other developments not foreseen at the time of the initial
investment decision. Portfolio turnover rates are usually not a factor in making
buy and sell decisions. Each Portfolio may purchase a security in anticipation
of relatively short-term price gains. Each Portfolio may also sell one security
and simultaneously purchase the same or comparable security to take advantage of
short-term differentials in yield or price. Increased portfolio turnover may
result in higher costs for brokerage commissions, dealer mark-ups and other
transaction costs and may also result in taxable capital gains. Short term
trading may also be restricted by certain tax rules.
MORTGAGE-BACKED SECURITIES. Each Portfolio may invest in mortgage-backed
securities which are securities that directly or indirectly represent an
ownership participation in, or are secured by and payable from, mortgage loans
on real property ("Mortgage-Backed Securities"). Such securities include
mortgage pass-through securities representing participation interests in pools
of residential mortgage loans originated by U.S. Governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies or instrumentalities. Mortgage pass-through
securities differ from conventional debt securities, which provide for periodic
payment of interest in fixed amounts (usually semi-annually) and principal
payments at maturity or on specified call dates. Mortgage pass-through
securities provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments, including any repayments made by the individual
borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of
such securities and the servicer of the underlying mortgage loans. The
underlying mortgages may be prepaid at any time and such payments are passed
through to the certificate holder as a prepayment of principal. As a result, if
a Portfolio purchases such a Mortgage-Backed Security at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if the Portfolio purchases a
Mortgage-Backed Security at a discount, faster than expected prepayments will
increase, while slower than expected prepayment will reduce, yield to maturity.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. Generally, however, prepayments on
fixed rate mortgage loans will increase during a period of falling interest
rates and decrease during a period of rising interest rates. Mortgage-Backed
Securities may decrease in value as a result of increases in interest rates and
may benefit less than other fixed income securities from declining interest
rates because of the risk of prepayment. Accelerated prepayments on
Mortgage-Backed Securities purchased by the Portfolios at a premium also impose
a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is repaid in full.
TEMPORARY INVESTMENTS. In periods of unusual market conditions, for
temporary and defensive purposes, or when the Adviser or Sub-Adviser in the case
of the Growth, International Value and Income and Growth Portfolios considers it
appropriate, each Portfolio may invest part or all of its assets in cash, U.S.
Government securities, commercial paper, bankers' acceptances, repurchase
agreements and certificates of deposit.
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INVESTMENT RESTRICTIONS. Each of the Portfolios has adopted a number of
investment restrictions, as set forth in the SAI, some of which are fundamental,
and therefore, may not be changed without shareholder approval.
PERFORMANCE INFORMATION
The Portfolios may, from time to time, include their yield and total
returns in advertisements or reports to shareholders or prospective investors.
Performance information for the Portfolios will not be advertised or included in
sales literature unless accompanied by comparable performance information for a
separate account to which the Portfolios offer their shares. Both yield and
total return figures are computed in accordance with formulas specified by the
SEC and are based on historical earnings and are not intended to indicate future
performance. The yield for each Portfolio will be computed by dividing (a) net
investment income over a 30-day period by (b) an average value of invested
assets (using the average number of shares entitled to receive dividends at the
end of the period), all in accordance with applicable regulatory requirements.
Such amounts will be compounded for six months and then annualized for a
twelve-month period to derive the yield of each Portfolio.
Standardized quotations of average annual total return for a Portfolio's
shares will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment over a period of 1, 5 and 10 years (or up to
the life of the Portfolio). Standardized total return quotations reflect the
deduction of a proportional share of expenses (on an annual basis) of a
Portfolio, and assume that all dividends and distributions are reinvested when
paid. The Portfolios also may quote supplementally a rate of total return over
different periods of time or by non-standardized means. In addition, the
Portfolios may from time to time publish materials citing historical volatility
for shares of each Portfolio. Volatility is the standard deviation of day to day
logarithmic price changes expressed as an annualized percentage.
Performance information for the Portfolios may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Composite Stock Index
("S&P 500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices
so that Contract Owners may compare a Portfolio's results with those of a group
of unmanaged securities widely regarded by investors as representative of the
securities markets in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm which
ranks mutual funds by overall performance, investment objective, and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds by overall performance or other criteria; (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an investment in
a Portfolio; and (iv) well known monitoring sources of bank certificates of
deposit performance rates such as Salomon Brothers, FEDERAL RESERVE BULLETIN,
AMERICAN BANKER, Tower Data and THE WALL STREET JOURNAL. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Quotations of yield or total return for the Portfolios will not take into
account charges or deductions against any separate account to which the
Portfolios' shares are sold or charges and deductions against the Variable
Contracts issued by the Affiliated Insurance Companies. The Portfolios' yield
and total return should not be compared with mutual funds that sell their shares
directly to the public since the figures provided do not reflect charges against
the Variable Account or the Variable Contracts. Performance information for each
Portfolio reflects only the performance of a hypothetical investment in that
Portfolio during the particular time period on which the calculations are based.
Performance information should be considered in light of each Portfolio's
investment objective and policies, characteristics and qualities of the
portfolio, and the market conditions during the given time period, and should
not be considered as a representation of what may be achieved in the future. For
a description of the methods used to determine total return for the Portfolios,
see the SAI.
HOW NET ASSET VALUE IS DETERMINED
The net asset value per share of each Portfolio is determined at the close
of the general trading session (usually 4:00 p.m. EST) of the New York Stock
Exchange (the "Exchange") on each business day the Exchange is open. The net
asset value of each Portfolio is computed by dividing the value of the
Portfolio's securities, plus any cash and other assets (including dividends and
interest accrued but not collected) less all liabilities (including accrued
expenses) by the number of outstanding shares of each Portfolio.
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Fixed income securities are valued by using independent pricing services,
market quotations, prices provided by market makers, or estimates of market
values obtained from yield data related to instruments or securities with
similar characteristics in accordance with procedures established in good faith
by the Trust's Trustees. Short-term securities with remaining maturities of less
than 60 days are valued at amortized cost unless it is determined by the
Trustees that amortized cost does not reflect the fair value of such
obligations. Other assets are valued at fair value as determined in good faith
by the Trustees.
Generally, trading in foreign securities, as well as trading in corporate
bonds, U.S. Government Securities, money market instruments and repurchase
agreements, is substantially completed each day at various times prior to the
close of the general trading session of the Exchange. The values of such
securities used in computing the net asset value of the Portfolios are
determined as of such times. Occasionally, events affecting the value of such
securities may occur between such times and such closing which will not be
reflected in the computation of a Portfolio's net asset value. If events occur
which materially affect the value of such securities, the securities will be
valued at fair market value as determined in good faith by the Trustees.
MANAGEMENT OF THE PORTFOLIOS
THE TRUSTEES. The Trustees of the Trust ("Trustees") oversee the operations
of the Trust and each Portfolio and perform the various duties imposed on
trustees by the laws of the Commonwealth of Massachusetts and the Investment
Company Act of 1940 (the "1940 Act"). The Trustees meet quarterly to review the
Portfolios' investment policies, performance, expenses and other business
affairs and elect the officers of the Trust annually. The Trustees delegate day
to day management of the Portfolios to the officers of the Trust.
THE ADVISER AND AFFILIATED SERVICE PROVIDERS. Pursuant to an Investment
Advisory Agreement with the Trust, Northstar Investment Management Corporation
acts as the investment adviser to each Portfolio. In this capacity, the Adviser,
subject to the authority of the Trustees, is responsible for furnishing
continuous investment supervision to the Portfolios and is responsible for the
management of the Portfolios' portfolios for overseeing the investment
management provided by the Sub-Advisers and assumes all costs and expenses of
the sub-advisory arrangements. Northstar Administrators Corporation, an
affiliate of the Adviser, furnishes certain administrative, compliance and
accounting services to each Portfolio. Employees of the Adviser and
Administrator serve as officers of the Portfolios, and the Adviser provides
office space for the Portfolios and pays the salaries of all Portfolio officers
and Trustees who are affiliated with the Adviser.
The Adviser and its affiliates are indirect, majority owned subsidiaries of
ReliaStar Financial Corp. ("ReliaStar"). ReliaStar's address is 20 Washington
Avenue South, Minneapolis, MN 55401. Combined minority interests held by members
of senior management currently equal 20%. ReliaStar is a publicly traded holding
company whose subsidiaries specialize in the life and health insurance
businesses. Through the Affiliated Insurance Companies and other subsidiaries,
ReliaStar issues and distributes individual life insurance, annuities and mutual
funds, group life and health insurance and life and health reinsurance, and
provides related investment management services.
The Adviser's fee is accrued daily against the value of each Portfolio's
net assets and is payable by each Portfolio, except for the International Value
Portfolio, monthly at an annual rate of 0.75% on the first $250 million of each
Portfolio's average daily net assets scaled down to 0.55% for assets over $1
billion. The Adviser's fee for the International Value Portfolio is accrued
daily against the value of the Portfolio's net assets and is payable by the
Portfolio monthly at the annual rate of 1.00% of the Portfolio's average daily
net assets. The investment advisory fees paid by the Portfolios are higher than
the fees paid by most mutual funds. The Administrator's fee is accrued daily
against the value of each Portfolio's net assets and is payable monthly at an
annual rate of 0.10% of each Portfolio's average daily net assets. The Adviser,
Administrator and Sub-Adviser have agreed to waive fees for the International
Value Portfolio until the assets of the International Value Portfolio exceed $50
million.
The Adviser or Sub-Adviser in the case of the Growth, International Value
and Income and Growth Portfolios place all orders for the purchase and sale of
portfolio securities. In selecting brokers, the Adviser and Sub-Advisers may
consider research and brokerage services furnished to them. The Adviser and
Sub-Advisers also
13
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<PAGE>
advise other accounts that may purchase and hold securities in which the
Portfolios may invest and certain persons affiliated with the Adviser and
Sub-Advisers may purchase and hold, directly or indirectly, securities in which
the Portfolios or other accounts invest, subject to internal guidelines
regarding conflicts of interest.
PORTFOLIO MANAGERS.
JEFFREY AURIGEMMA
Jeffrey Aurigemma has co-managed the Northstar High Yield Bond Portfolio,
the Northstar High Total Return Fund II and the Northstar High Total Return Fund
since March 1998. Mr. Aurigemma has also managed the Northstar High Yield Fund
since May 1997. He joined Northstar in October 1993.
Mr. Aurigemma has over eight years of experience in the management of
high-yield fixed-income investments. From October 1993 through May 1997 he was a
senior credit analyst for the Northstar High Total Return Fund. Before joining
Northstar, he was a Senior Analyst -- Fixed Income for National Securities &
Research Corporation.
CHARLES BRANDES
Charles Brandes has co-managed the Northstar International Value Portfolio
since inception. Mr. Brandes has over 30 years of investment management
experience. He founded the general partner of Brandes Investment Partners, L.P.
in 1974 and owns a controlling interest in it. At Brandes Investment Partners,
L.P., he serves as a Managing Partner and senior member of the investment
committee.
Mr. Brandes earned his BA in Economics from Bucknell University. He is a
Chartered Financial Analyst and a member of the Association for Investment
Management and Research.
Charles Brandes and Jeff Busby structure the portfolio of the Northstar
International Value Portfolio from a buy list determined by Brandes' Investment
Committee, of which they are senior members.
JEFF BUSBY
Jeff Busby has co-managed the Northstar International Value Portfolio since
its inception. Mr. Busby has over 12 years of investment management experience.
At Brandes Investment Partners, L.P., he serves as a Managing Partner and senior
member of the Investment Committee. He is also responsible for overseeing all
trading activities for the firm.
Mr. Busby earned his BS in Chemical Engineering from Northwestern
University and his MBA in Finance from the University of California, Berkeley.
He is a Chartered Financial Analyst and a member of the Association for
Investment Management and Research and the Financial Analysts Society.
Mr. Brandes and Mr. Busby structure the International Value Portfolio from
a buy list determined by their firm's Investment Committee, of which they are
senior members.
THOMAS OLE DIAL
Thomas Ole Dial has managed the Northstar High Yield Bond Portfolio and the
Northstar Multi-Sector Bond Portfolio since inception. He now co-manages the
High Yield Bond Portfolio with Jeffrey Aurigemma and co-manages the Multi-Sector
Bond Portfolio with Ryan Johanson. Mr. Dial has managed the Northstar High Total
Return Fund II and the Northstar High Total Return Fund since inception, and has
managed the Northstar Balance Sheet Opportunities Fund since May 1997. Mr. Dial,
who has over 11 years of investment management experience, joined Northstar in
October 1993.
Before joining Northstar, Mr. Dial was Executive Vice President, Chief
Investment Officer -- Fixed Income of National Securities & Research
Corporation, and Senior Portfolio Manager of the National Bond Fund from August
1990 through July 1993.
14
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<PAGE>
RYAN JOHANSON
Ryan Johanson has co-managed the Northstar Multi-Sector Bond Portfolio
since November 1997 and has managed the Northstar Government Securities Fund and
the Northstar Strategic Income Fund since March 1997. He joined Northstar in
March 1997.
Mr. Johanson has over 11 years of experience in fixed-income investments.
Before joining Northstar, he was Director of Global Market Risk
Management -- Asia for Barclays Bank, Senior Manager of Banque Indosuez, and
Chief Investment Officer at Fidelity Federal Bank.
LOUIS NAVELLIER
Louis Navellier has managed the Northstar Growth Portfolio and the
Northstar Special Fund since February 1996, and the Northstar Growth & Value
Fund since inception.
Mr. Navellier has been managing assets since 1985 and is the sole owner of
Navellier & Associates, Inc., a registered investment adviser that manages
investments for high net worth individuals, institutions and pension funds.
GEOFFREY WADSWORTH
Geoffrey Wadsworth has managed the Northstar Income and Growth Portfolio
since January 1998. Mr. Wadsworth has also served as portfolio manager of the
Northstar Growth Fund since February 1996 and the Northstar Income and Growth
Fund since January 1998, separate investment companies managed by the advisors.
Before joining Northstar, Mr. Wadsworth was a Vice President of National
Securities & Research Corporation. He was portfolio manager of the National
Stock Fund and assistant manager of the National Income and Growth Fund,
National Worldwide Opportunities Fund and National Total Return Fund.
15
<PAGE>
<PAGE>
SUB-ADVISERS:
BRANDES
INVESTMENT PARTNERS, L.P.
Brandes Investment Partners, L.P. ("Brandes"), a registered investment adviser,
serves as Sub-Adviser to the International Value Portfolio pursuant to a
Sub-Advisory Agreement dated July 24, 1997 between the Adviser and Brandes. The
company was formed in May 1996 as the successor to its general partner, Brandes
Investment Partners, Inc. Brandes' principal address is 12750 High Bluff Drive,
San Diego, CA 92130. Brandes currently manages in excess of $15 billion for
international and global portfolios. After the Portfolio's assets exceed $50
million, Brandes will receive from Northstar, not the Portfolio, a monthly fee
for its services at an annual rate equal to 50% of the management fee that the
Portfolio pays Northstar. The Adviser is responsible for overseeing the
investment management provided by Brandes, and assumes all cost and expenses of
the Sub-Advisory Arrangement.
(a) The annual returns presented were calculated on a time-weighted and
asset-weighted, total return basis, including reinvestments of all dividends,
interest and income on a cash basis, realized and unrealized gain or losses and
are net of applicable investment advisory fees, brokerage commissions, custodial
fees and execution costs and any applicable foreign withholding taxes, without
provision for federal and state income taxes, if any. This total return method
differs from the SEC method of calculating total return. The Brandes composite
results include all actual, fee-paying, fully discretionary international equity
accounts under management for at least one month beginning July 1, 1990, having
substantially similar investment objectives, policies, techniques and
restrictions to those of the Northstar International Value Portfolio. The
weighed-average management fee during the period from July 1, 1990 through
December 31, 1997 was 0.91% per year. Securities transactions are accounted for
on the trade date and cash accounting is utilized. Cash and equivalents are
included in performance results. Net annual returns for the composite for
calendar year 1991 have been attested by an independent accounting firm.
Starting with calendar year 1992 through calendar year 1995, the net annual
returns for the Brandes composite have been examined by a Big Six accounting
firm in accordance with AIMR Level II verification standards. The examination of
net annual total returns for calendar year 1997 has not yet been completed.
Copies of their reports and a complete list and description of Brandes'
composites are available upon request. Brandes has prepared the performance data
in compliance with the performance presentation standards of the Association for
Investment Management and
Research (AIMR-PPS(tm)). AIMR did not prepare or review this data. The Portfolio
agrees to conform the performance presentation to any changes in the SEC staff
position relating to prior performance presentation.
The charts below show the historical track record of Brandes Investment
Partners, L.P. The figures have been provided by Brandes Investment Partners,
L.P. and have not been audited or verified. They do not indicate how the
Northstar International Value Portfolio or Brandes Investment Partners, L.P.
will perform in the future.
The chart below illustrates the past performance of Brandes Investment Partners,
L.P. in managing accounts with investment objectives, policies, techniques and
restrictions substantially similar, though not identical, to those of the
Northstar International Value Portfolio. The charts show average annual returns
for a composite of the actual performance of all international equity accounts
managed by Brandes Investment Partners from 1990 until the present.
The accounts were not subject to the same types of expenses as the fund or the
requirements of the Investment Company Act of 1940 or the Internal
Revenue Code, the limitations of which might have adversely affected performance
results. Included for comparison are performance figures of the Morgan Stanley
Capital International (MSCI) EAFE Index, an unmanaged index of securities listed
on exchanges in markets in Europe, Australia and the Far East. It has been
adjusted to reflect reinvestment of dividends. The results presented below may
not equate with the return experienced by any particular account as a result of
timing of investments and redemptions and the effect of taxes on any client.
<TABLE>
<CAPTION>
MSCI
BRANDES INTERNATIONAL EAFE
EQUITY COMPOSITE(%)(A) Index (%)
--------------------------- ---------
<S> <C> <C>
One year, ended
December 31, 1997 20.00 1.78
Three years,
ended December
31, 1997 16.67 6.27
Five years, ended
December 31, 1997 16.76 11.39
Cumulative total
return since
July 1, 1990 319.00 147.00
</TABLE>
[GRAPH APPEARS HERE - PLOT POINTS ARE BELOW]
1990 3.26 2.44
1991 5.42 3.19
1992 5.59 3.43
1993 6.53 3.76
1994 6.63 3.83
1995 9.53 5.27
1996 10.65 6.44
1997 11.92 8.59
16
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<PAGE>
NAVELLIER FUND
MANAGEMENT, INC.
Navellier Fund Management, Inc. ("Navellier"), a registered investment adviser,
serves as Sub-Adviser to the Growth Portfolio pursuant to a Sub-Advisory
Agreement dated February 1, 1996 between the Adviser and Navellier. This
Agreement was approved for renewal by the Trustees on January 22, 1998.
Navellier is a newly-formed company which is wholly-owned by Louis G. Navellier.
The principal address of Navellier is 1 East Liberty, Third Floor, Reno, NV
89501. Navellier currently manages approximately $2 billion for high net worth
individuals, institutions and pension funds. For its services, Navellier will
receive a fee equal to 0.48% of the average daily net assets of the Growth
Portfolio.
<TABLE>
<CAPTION>
NAVELLIER AND
ASSOCIATES S&P 500
COMPOSITE (%) Index (%)
-------------- ---------
<S> <C> <C>
1985 49.95 31.84
1986 31.20 18.66
1987 8.05 5.24
1988 11.40 16.51
1989 22.20 31.58
1990 12.51 (3.15)
1991 66.41 30.50
1992 3.12 7.61
1993 16.83 10.09
1994 1.53 1.31
</TABLE>
<TABLE>
<CAPTION>
NAVELLIER AND
ASSOCIATES S&P 500
COMPOSITE (%) Index (%)
-------------- ---------
<S> <C> <C>
1995 43.80 37.59
1996 10.68 22.31
1997 13.05 33.32
Three years
ended
December 31,
1997 21.61 30.88
Five years ended
December 31,
1997 16.37 20.13
Ten years ended
December 31,
1997 18.82 17.96
Cumulative total
return since
January 1, 1985 1,092.00 759.00
</TABLE>
[GRAPH APPEARS HERE - PLOT POINTS ARE BELOW]
Navellier S&P
and 500
Associates w/
Composite Divs
1985 1.5 1.32
1986 1.97 1.56
1987 2.13 1.65
1988 2.37 1.92
1989 2.89 2.52
1990 3.26 2.44
1991 5.42 3.19
1992 5.59 3.43
1993 6.53 3.76
1994 6.63 3.83
1995 9.53 5.27
1996 10.65 6.44
1997 11.92 8.59
17
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<PAGE>
CUSTODIAN AND ACCOUNTING SERVICES AGENT. The Portfolios' custodian and
accounting services agent is State Street Bank and Trust Company, a trust
company organized under the laws of Massachusetts and located at 225 Franklin
Street, Boston, Massachusetts 02110.
PURCHASE OF SHARES
As of the date of the Prospectus, shares of the Portfolios are offered only
for purchase by the Variable Accounts to serve as an investment medium for the
Variable Contracts issued by the Affiliated Insurance Companies. Shares of the
Portfolios may be offered in the future to other separate accounts established
by one or more of the Affiliated Insurance Companies or sold to separate
accounts of other affiliated or unaffiliated insurance companies.
Shares of each Portfolio are sold at their respective net asset values
(without a sales charge) next computed after receipt of a purchase order.
The various Portfolios may be used independently or in combination. To the
extent that shares of the Portfolios are sold to the Variable Accounts as the
investment medium for a Variable Contract, the structure of the Portfolios
permits Variable Contract owners, within the limitations described in their
Contracts, to allocate their accumulated value in the Contracts in response to
or in anticipation of changes in market conditions. The assets of each Portfolio
are segregated, and a Variable Contract owner's interest is limited to the
Portfolio in which the Contract's accumulated value is allocated.
The Trust reserves the right to discontinue offering shares of one or more
Portfolios at any time. In the event that a Portfolio ceases offering its
shares, any investments allocated by an insurance company investing in the Trust
to such Portfolio will, subject to any necessary regulatory approvals, be
invested in the Portfolio deemed appropriate by the Trustees.
Shares of any Portfolio may be exchanged for shares of any of the other
Portfolios, all of which are described in this Prospectus. Exchanges are treated
as a redemption of shares of one Portfolio and a purchase of shares of one or
more of the other Portfolios and are effected at the respective net asset values
per share of each Series on the date of the exchange. The Trust reserves the
right to modify or discontinue its exchange privilege at any time without
notice.
Variable Contract Owners do not deal directly with the Trust to purchase,
redeem, or exchange shares of a Portfolio, and Variable Contract Owners should
refer to the prospectus for the Variable Account for information on the
allocation of premiums and on transfers of accumulated value among sub-accounts
of the Variable Account.
REDEMPTION OF SHARES
Shares of any Portfolio may be redeemed on any business day. Redemptions are
effected at the per share net asset value next determined after receipt of the
redemption request. Redemption proceeds normally will be paid within seven days
following receipt of instructions in proper form. The right of redemption may be
suspended by the Trust or the payment date postponed beyond seven days when the
New York Stock Exchange is closed (other than customary weekend and holiday
closing) or for any period during which trading thereon is restricted because an
emergency exists, as determined by the Securities and Exchange Commission,
making disposal of portfolio securities or valuation of net assets not
reasonably practicable, and whenever the Securities and Exchange Commission has
by order permitted such suspension or postponement for the protection of
shareholders. If the Board of Trustees should determine that it would be
detrimental to the best interests of the remaining shareholders of a Portfolio
to make payment wholly or partly in cash, the Portfolio may pay the redemption
price in whole or part by a distribution in kind of securities from the
portfolio of the Portfolio in lieu of cash, in conformity with applicable rules
of the Securities and Exchange Commission. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting the assets into
cash.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code ("Code"). Accordingly, a
Portfolio so qualifying generally will not be subject to federal
18
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<PAGE>
income taxes to the extent that it distributes on a timely basis its investment
company taxable income and its net capital gains. Such income and capital gains
distributions are automatically reinvested in additional shares of the
Portfolio, unless the shareholder elects to receive cash.
Distributions of any investment company taxable income (which includes among
other items, dividends, interest, and any net realized short-term capital gains
in excess of net realized long-term capital losses) are treated as ordinary
income for tax purposes in the hands of the shareholder (Variable Account). Net
capital gains (the excess of any net long-term capital gains over net short-term
capital losses) will, to the extent distributed and classified by a Portfolio as
capital gain distributions, be treated as long-term capital gains in the hands
of the Variable Account regardless of the length of time the Variable Account
may have held the shares. Income distributions of any net investment income of
the Northstar Growth Portfolio, Northstar International Value Portfolio and
Northstar Income and Growth Portfolio will be declared and paid quarterly; any
income distributions from net investment income of the Northstar Multi-Sector
Bond Portfolio and the Northstar High Yield Bond Portfolio will be declared
daily and paid quarterly. Capital gain distributions, if any, will be paid at
least once annually.
To comply with regulations under section 817(h) of the Code, each Portfolio
is required to diversify its investments. Generally, a Portfolio will be
required to diversify its investments so that on the last day of each quarter of
a calendar year no more than 55% of the value of its total assets is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. For this purpose, securities of a given
issuer generally are treated as one investment, but each U.S. Government agency
and instrumentality is treated as a separate issuer. Any security issued,
guaranteed, or insured (to the extent so guaranteed or insured) by the U.S. or
any agency or instrumentality of the U.S. is treated as a security issued by the
U.S. Government or its agency or instrumentality, whichever is applicable.
Compliance with the diversification rules under Section 817(h) of the Code
generally will limit the ability of a Portfolio to invest greater than 55% of
its total assets in direct obligations of the U.S. Treasury (or any other
issuer) or to invest primarily in securities issued by a single agency or
instrumentality of the U.S. Government.
The Treasury Department announced that it would issue future regulations or
rulings addressing the circumstances in which a variable Contract Owner's
control of the investments of the separate account may cause the Contract Owner,
rather than the insurance company, to be treated as the owner of the assets held
by the separate account. If the Contract Owner is considered the owner of the
securities underlying the separate account, income and gains produced by those
securities would be included currently in the contract owner's gross income. It
is not known what standard will be set forth in the regulations or rulings.
In the event that rules or regulations are adopted, there can be no assurance
that the Portfolios will be able to operate as currently described in the
Prospectus, or that the Trust will not have to change any Portfolio's investment
objective or investment policies. While each Portfolio's investment objective is
fundamental and may be changed only by a vote of a majority of its outstanding
shares, the Trustees have reserved the right to modify the investment policies
of any Portfolio as necessary to prevent any such prospective rules and
regulations from causing the contract owners to be considered the owners of the
shares of a Portfolio underlying the Variable Accounts.
Reference is made to the Prospectus for the respective Variable Accounts and
Variable Contracts for information regarding the federal income tax treatment of
distributions to the Variable Accounts. See "Federal Income Tax Status" in the
Portfolios' SAI for more information on taxes.
GENERAL INFORMATION
ORGANIZATION OF THE PORTFOLIOS. The Trust was organized under Massachusetts
law in 1993 as a business trust. The Declaration of Trust provides that the
Trustees are authorized to create an unlimited number of series. All shares have
equal voting rights, except that only shares of the respective series are
entitled to vote on matters concerning only that series. Each share of each
Portfolio will be given one vote, unless a different allocation of voting rights
is required under applicable law for a mutual fund that is an investment medium
for variable insurance products. At the date of this Prospectus, there are five
existing series of the Trust (I.E., the Portfolios).
19
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<PAGE>
In accordance with current laws, it is anticipated that an insurance company
issuing a variable contract that participates in the Trust will request voting
instructions from Contract Owners and will vote shares or other voting interests
in the separate account in proportion to the voting instructions received. The
Affiliated Insurance Companies and the Variable Accounts are currently the only
shareholders of the Trust, although other separate accounts of the Affiliated
Insurance Companies or other insurance companies may become shareholders in the
future.
The shares of each Portfolio, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders will be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares having voting rights. Except as set forth above and subject
to the 1940 Act, the Trustees will continue to hold office and appoint successor
Trustees.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees,
officers, employees or agents of the Trust in connection with the Trust's
property or the affairs of the Trust, and requires that notice of the disclaimer
be given in each contract or obligation entered into or executed by the Trust or
its Trustees, officers, employees, or agents. The Declaration of Trust provides
for indemnification out of Trust property for all loss and expense of any
shareholder held personally liable by reason of being or having been a
shareholder of the Trust. The risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations, and thus should be considered
remote.
REGISTRATION STATEMENT. This Prospectus does not contain all the information
included in the Registration Statement filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, with respect to the securities
offered hereby, certain portions of which have been omitted pursuant to the
rules and regulation of the Securities and Exchange Commission. The Registration
Statement, including the exhibits filed therewith, may be examined at the office
of the Securities and Exchange Commission in Washington, D.C.
ADDITIONAL INQUIRIES. Inquiries and requests for the Statement of Additional
Information, the Annual Report to Shareholders and the Semi-Annual Report to
Shareholders should be directed to:
The Northstar Variable Trust
300 First Stamford Place
Stamford, CT 06902
1-800-595-7827
20
<PAGE>
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, I.E., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P")
CORPORATE DEBT RATINGS
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
A-1
<PAGE>
<PAGE>
BBB -- Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
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[GRAPHIC OMITTED]
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
[GRAPHIC OMITTED]NORTHSTAR VARIABLE TRUST
300 First Stamford Place
Stamford, Connecticut 06902
(203) __________
(800) 595-7827
Northstar Variable Trust (the "Trust") is an open-end series management
investment company organized as a Massachusetts business trust. The Trust
changed its name on August 1, 1996 from the "Northstar/NWNL Trust" to the
"Northstar Variable Trust". The Trust consists of five separate series (each a
"Portfolio"), each of which represents shares of beneficial interest in a
separate portfolio of securities and other assets with its own objective and
policies. Each Portfolio is managed separately by Northstar Investment
Management Corporation ("Northstar" or the "Adviser"), the Portfolios'
investment adviser. Northstar has engaged Navellier Portfolio Management, Inc.
("Navellier" or the "Sub-Adviser") to serve as subadviser to the Northstar
Variable Trust Growth Portfolio, subject to the supervision of Northstar.
Northstar has engaged Brandes Investment Partners, L.P. to serve as subadviser
("Brandes" or the "Sub-Adviser") to the Northstar Variable Trust International
Value Portfolio. Collectively Navellier and Brandes will be referred to as (the
"Sub-Advisers").
Shares of the Trust are issued and redeemed in conjunction with
investments in and payments under variable annuity and variable life contracts.
Shares of the Trust are currently offered to separate accounts ("Variable
Accounts") of Reliastar Life Insurance Company (formerly "Northwestern National
Life Insurance Company"), Northern Life Insurance Company and ReliaStar Bankers
Security Life Insurance Company (the "Affiliated Insurance Companies"). The
Variable Accounts of the Affiliated Insurance Companies invest in shares of one
or more of the Portfolios in accordance with allocation instructions received
from Variable Contract Owners. Such allocation rights are described further in
the Prospectus for the Variable Account.
A summary of the five diversified investment portfolios comprising series
of the Trust (the "Portfolios") is set forth herein and in the Prospectus for
the Portfolios. This document is not the Prospectus of the Portfolios but is
incorporated therein by reference and should be read in conjunction with the
Prospectus dated April 30, 1998. Copies of the Prospectus may be obtained upon
request and without charge by contacting the Trust at the address or phone
number above.
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TABLE OF CONTENTS
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INVESTMENT OBJECTIVES AND POLICIES ....................... 2
INVESTMENT RESTRICTIONS .................................. 3
OTHER INVESTMENT TECHNIQUES .............................. 5
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION .......... 12
PORTFOLIO TURNOVER ....................................... 13
SERVICES OF THE ADVISER AND ADMINISTRATOR ................ 13
SERVICES OF THE SUB-ADVISERS ............................. 15
NET ASSET VALUE .......................................... 16
PURCHASES, REDEMPTIONS AND EXCHANGE TRANSACTIONS ......... 16
DIVIDENDS AND DISTRIBUTIONS .............................. 16
FEDERAL INCOME TAX STATUS ................................ 16
TRUSTEES AND OFFICERS .................................... 18
OTHER INFORMATION ........................................ 20
PERFORMANCE INFORMATION .................................. 21
APPENDIX ................................................. A-1
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INVESTMENT OBJECTIVES AND POLICIES
Northstar Growth Portfolio, Northstar International Value Portfolio,
Northstar Income and Growth Portfolio, Northstar Multi-Sector Bond Portfolio
and Northstar High Yield Bond Portfolio (the "Portfolios") are five diversified
investment portfolios comprising series of the Northstar Variable Trust (the
"Trust"), an open-end series management investment company. The investment
objective of each Portfolio, set forth below, is a fundamental policy which may
not be changed without the approval of the holders of a majority of the
outstanding shares of each Portfolio. There can be no assurance that each
Portfolio will achieve its stated investment objective and the International
Value, Multi-Sector and High Yield Portfolios may not be appropriate for all
investors. (See "Risk Factors" in the current Prospectus.) In general, the
assets of each Portfolio are kept fully invested in securities selected to meet
the investment objective of each Portfolio; however, for temporary defensive
purposes, any part of a Portfolio's assets may be held from time to time in
cash or cash equivalents. At such times when a Portfolio's assets are invested
for temporary defensive purposes, the Portfolio will not be investing in
accordance with its investment objective.
Northstar Growth Portfolio ("Growth Portfolio"). The Growth Portfolio has
an investment objective of long-term growth of capital primarily through
investments in equity securities diversified over industries and companies
which are believed to provide above average potential for capital appreciation.
The Portfolio invests primarily in companies the portfolio manager identifies
as either growth or value through quantitative analysis. Growth companies have
above average earnings or sales growth and higher price to earnings ratios.
Value companies are temporarily undervalued or out of favor, and tend to have
lower price to book ratios, higher earnings or dividend yields and higher
returns on equity. The percentage of Portfolio assets allocated to the two
different kinds of companies varies depending on the portfolio manager's
assessment of economic conditions and investment opportunities.
Securities in which the Portfolio will normally invest include common
stocks, preferred stock and securities convertible into common stock. The
Portfolio may invest in large seasoned companies which are believed to possess
superior return potential similar to companies with formative growth profiles,
and may invest in small and medium sized companies with above average earnings
growth potential relative to market value. Although the Portfolio will invest
primarily in equity and equity-related securities, it may also invest in
non-equity securities, such as corporate bonds or U.S. Government obligations
during periods, when, in the opinion of the Portfolio's Adviser or Sub-Adviser,
prevailing market, financial or economic conditions warrant. The Portfolio may
invest up to 20% of its assets in equity securities of foreign issuers, not
more than 10% of which may be invested in issuers that are not listed on a U.S.
securities exchange.
Northstar International Value Portfolio ("International Value"). The
International Value Portfolio has an investment objective of seeking long-term
capital appreciation by investing primarily in equity securities of foreign
issuers with market capitalizations greater than $1 billion.
The Portfolio may invest up to 25% of its total assets in small
capitalization companies. Small capitalization companies are those with
capitalization of $1 billion or less. Under normal circumstances, the Portfolio
will invest at least 65% of its total assets in equity securities of issuers
located in at least three countries other than the United States. Countries in
which the Portfolio may invest include, but are not limited to, the nations of
Western Europe, North and South America, Australia and Asia. Equity securities
include common stocks, preferred stocks and securities convertible into common
stocks. It is anticipated that securities generally will be purchased in the
form of common stock, American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") or Global Depositary Receipts ("GDRs"). ADRs, EDRs
and GDRs, which may be sponsored or unsponsored, are receipts typically issued
by a U.S. bank or trust company evidencing ownership of the underlying foreign
securities. The Portfolio may invest up to 25% of its assets in securities of
companies located in countries with emerging securities markets. Emerging
markets are the capital markets of any country that is generally considered a
developing country by the international financial community. See "Risk Factors
- -- Foreign Securities" in the current Prospectus.
Northstar Income and Growth Portfolio ("Income and Growth Portfolio"). The
Income and Growth Portfolio has an investment objective of seeking current
income balanced with the objective of achieving capital appreciation.
Under normal market conditions, the Portfolio will invest at least 65% of
its total assets in income-producing securities. In seeking to achieve its
objective, the Portfolio will invest in equity securities of domestic and
foreign issuers that have prospects for dividend income and growth of capital,
including common stocks, preferred stocks and securities convertible into
common stocks, and selected investment grade debt securities of domestic and
foreign private and government issuers. These debt securities would include
U.S. Government obligations, foreign and domestic corporate bonds, and bonds
issued by foreign governments considered stable by the Adviser and supported
through the authority to levy taxes by national state or provincial governments
or similar political subdivisions. The proportion of holdings in common stock,
preferred stocks,
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other equity-related securities and debt securities will vary in accordance
with the level of return that can be achieved from these various types of
securities. Securities are also purchased on the basis of fundamental
attraction regarding capital appreciation prospects. In this way, income is
"balanced" with capital. The Portfolio invests in equity securities that are
listed primarily on the New York Stock Exchange or American Stock Exchange or
that are traded in the over-the-counter market. Equity and equity-related
securities purchased by the Portfolio will typically be of large
well-established companies, but may also included to a lesser extent smaller
capitalization companies selected for their growth potential.
Northstar Multi-Sector Bond Portfolio ("Multi-Sector Portfolio"). The
Multi-Sector Portfolio has an investment objective to maximize current income.
The Portfolio will seek to achieve its objective by investing in the
following sectors of the fixed income securities markets: (a) securities issued
or guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities ("U.S. Government Bonds"); (b)
investment grade or comparable quality corporate debt securities ("Investment
Grade Bonds"); (c) investment grade or comparable quality debt securities
issued by foreign corporate issuers and debt securities issued by foreign
governments and their political subdivisions ("Foreign Bonds"); and (d) high
yield-high risk fixed income securities of U.S. and foreign issuers ("High
Yield Bonds"). Under normal circumstances, at least 65% of the Portfolio's
total assets will be invested in these four sectors. The Portfolio's assets
generally will be invested in each market sector, but the Portfolio may invest
any amount of its assets in any one sector (except for High Yield Bonds, in
which sector the Portfolio will not invest more than 50% of its assets
determined at the time of investment, and no more than 35% of the Portfolio's
assets may be invested in Foreign Bonds, including foreign High Yield Bonds),
and the Portfolio may choose not to invest in a sector in order to achieve its
investment objective. The Adviser believes this strategy may achieve a more
stable net asset value since diversification over several market sectors tends
to reduce volatility; however, there can be no assurance that certain economic
and other factors will not cause fluctuations in the value of the securities
held by the Portfolio, resulting in fluctuations of the Portfolio's net asset
value.
Northstar High Yield Bond Portfolio ("High Yield Portfolio"). The High
Yield Portfolio has an investment objective of seeking high income by investing
predominantly in high yield-high risk, lower-rated and non-rated U.S. dollar-
denominated debt securities. It is the Portfolio's policy, while investing in
income producing securities, also to maximize total return from a combination
of income and capital appreciation.
Under normal market conditions, the Portfolio will seek to achieve its
investment objective by investing at least 65% of its total assets in
higher-yielding, lower-rated U.S. dollar-denominated debt securities of U.S.
and foreign issuers, which involve special risks and are predominantly
speculative in character. Investments in securities offering the high current
income sought by the Portfolio, while generally providing greater income and
potential opportunity for gain than investments in higher rated securities,
also entail greater risk. The value of high yield securities (and therefore the
net asset value per share of the Portfolio) can be expected to increase or
decrease in response to changes in interest rates, real or perceived changes in
the credit risks associated with its portfolio investments, and other factors
affecting the credit markets generally. (See "Risk Factors" in the current
Prospectus.)
The Portfolio is subject to a limit of 50% in investments in securities of
foreign issuers, of which no more than 35% may be in emerging market debt, and
not more than 35% may be in non-U.S. Dollar denominated securities.
INVESTMENT RESTRICTIONS
Northstar Growth, Income and Growth, Multi-Sector and High Yield
Portfolios. The following investment restrictions are fundamental policies and
cannot be changed without the approval of the holders of a majority of the
Portfolio's outstanding voting securities (defined in the 1940 Act as the
lesser of (a) more than 50% of the outstanding shares or (b) 67% or more of the
shares represented at a meeting at which more than 50% of the outstanding
shares are represented). All other investment policies or practices are
considered by the Portfolios to be non-fundamental and accordingly may be
changed without shareholder approval. If a percentage restriction on investment
or use of assets set forth below is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing market values
will not be considered a deviation from this policy.
A Portfolio may not:
1. borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may (i) borrow from banks, but only if
immediately after such borrowing there is asset coverage of 300% and (ii) enter
into transactions in options, futures, and options on futures as described in
the Portfolio's Prospectus and Statement of Additional Information
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(the deposit of assets in escrow in connection with the writing of covered put
and call options and the purchase of securities on a when-issued or delayed
delivery basis and collateral arrangements with respect to initial or variation
margin deposits for futures contracts will not be deemed to be pledges of the
Portfolio's assets);
2. underwrite the securities of others;
3. purchase or sell real property, including real estate limited
partnerships (but each Portfolio may purchase marketable securities of
companies which deal in real estate or interests therein, including real estate
investment trusts);
4. deal in commodities or commodity contracts except in the manner
described in the current Prospectus and Statement of Additional Information of
the Trust;
5. make loans to other persons (but each Portfolio may, however, lend
portfolio securities, up to 33% of net assets at the time the loan is made, to
brokers or dealers or other financial institutions not affiliated with the
Portfolio or the Adviser, subject to conditions established by the Adviser (See
"Lending of Securities" in the Prospectus), and may purchase or hold
participations in loans in accordance with the investment objectives and
policies of the Portfolio as described in the current Prospectus and Statement
of Additional Information of the Trust;
6. participate in any joint trading accounts;
7. purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with futures
contracts will not be deemed to be purchases of securities on margin);
8. sell short, except that the Portfolio may enter into short sales
against the box in the manner described in the current Prospectus and Statement
of Additional Information for the Portfolio;
9. invest more than 25% of its assets in any one industry or related group
of industries;
10. with respect to 75% of a Portfolio's assets, purchase a security
(other than U.S. Government obligations) if as a result more than 5% of the
value of total assets of the Portfolio would be invested in securities of a
single issuer; or
11. with respect to 75% of a Portfolio's assets purchase a security if as
a result more than 10% of any class of securities, or more than 10% of the
outstanding voting securities of an issuer, would be held by the Portfolio.
In addition, as a fundamental policy, the Multi-Sector Portfolio will not
invest more than 50% of the Portfolio's assets in High Yield-High Risk Bonds,
determined at the time of investment.
The following policies are non-fundamental and may be changed without
shareholder approval:
A Portfolio may not:
1. purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that the Portfolio
may purchase shares of other investment companies subject to such restrictions
as may be imposed by the Investment Company Act of 1940 and rules thereunder or
by any state in which shares of the Portfolio are registered; and provided
further that the Portfolios may invest all of their assets in the securities or
beneficial interests of a singly pooled investment fund having substantially
the same objectives, policies and limitations as the Portfolio.
2. make an investment for the purpose of exercising control or management;
or
3. invest more than 15% of its net assets (determined at the time of
investment) in illiquid securities, including securities subject to legal or
contractual restrictions on resale (which may include private placements and
those 144A securities for which the Trustees, pursuant to procedures adopted by
the Portfolio, have determined there is no liquid secondary market), repurchase
agreements maturing in more than seven days, options traded over the counter
that a Portfolio has purchased, securities being used to cover options a
Portfolio has written, securities for which market quotations are not readily
available, or other securities which legally or in the Adviser's or Trustees'
opinion may be deemed illiquid;
As a fundamental policy, the Portfolios may borrow money from banks to the
extent permitted under the Investment Company Act of 1940. As an operating
(non-fundamental) policy, the Portfolios do not intend to borrow any amount in
excess of 10% of their respective assets, and would do so only for temporary
emergency or administrative purposes. In addition, to avoid the potential
leveraging of assets, the Portfolios will not make additional investments when
its borrowings are in excess of 5% of total assets. If a Portfolio should
determine to expand its ability to borrow beyond the current operating policy,
the Portfolio's Prospectus would be amended and shareholders would be notified.
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Northstar International Value Portfolio. The Portfolio has adopted
investment restrictions numbered one through six as fundamental policies. These
restrictions cannot be changed without approval by the holders of a majority of
the Portfolio's outstanding voting securities (as defined in the 1940 Act as
the lesser of (a) more than 50% of the outstanding shares or (b) 67% or more of
the shares represented at a meeting at which more than 50% of the outstanding
shares are represented). All other investment policies or practices are
considered by the Portfolio to be non-fundamental and accordingly may be
changed without shareholder approval. If a percentage restriction on investment
or use of assets set forth below is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing market values
will not be considered a deviation from this policy. The Portfolio may not:
1. Issue senior securities, except to the extent permitted under the
Investment Company Act of 1940, borrow money or pledge its assets, except that
the Portfolio may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not
exceeding 10% of its total assets (not including the amount borrowed), provided
that it will not make investments while borrowings in excess of 5% of the value
of its total assets are outstanding;
2. Act as underwriter (except to the extent the Portfolio may be deemed to
be an underwriter in connection with the sale of securities in its investment
portfolio);
3. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities), except that the Portfolio reserves the right to invest
all of its assets in shares of another investment company;
4. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although the Portfolio may purchase and sell securities
which are secured by real estate, securities of companies which invest or deal
in real estate and securities issued by real estate investment trusts);
5. Purchase or sell commodities or commodity futures contracts, except
that the Portfolio may purchase and sell stock index futures contracts for
hedging purposes to the extent permitted under applicable federal and state
laws and regulations and except that the Portfolio may engage in foreign
exchange forward contracts;
6. Make loans of cash (except for purchases of debt securities consistent
with the investment policies of the Portfolio and except for repurchase
agreements);
7. Make short sales of securities or maintain a short position, except for
short sales against the box;
8. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
9. Write put or call options, except that the Portfolio may (i) write
covered call options on individual securities and on stock indices; (ii)
purchase put and call options on securities which are eligible for purchase by
the Portfolio and on stock indices; and (iii) engage in closing transactions
with respect to its options writing and purchases, in all cases subject to
applicable federal and state laws and regulations;
10. Purchase any security if as a result the Portfolio would then hold
more than 10% of any class of voting securities of an issuer (taking all common
stock issues as a single class, all preferred stock issues as a single class,
and all debt issues as a single class), except that the Portfolio reserves the
right to invest all of its assets in a class of voting securities of another
investment company;
11. Invest more than 10% of its assets in the securities of other
investment companies or purchase more than 3% of any other investment company's
voting securities or make any other investment in other investment companies
except as permitted by federal and state law;
12. Invest more than 15% of its net assets in illiquid securities.
OTHER INVESTMENT TECHNIQUES
Mortgage-Backed Securities. The Portfolios may invest in mortgage-backed
securities which are securities that directly or indirectly represent an
ownership participation in, or are secured by and payable from, mortgage loans
on real property ("Mortgage-Backed Securities"). Such securities include
mortgage pass-through securities representing participation interests in pools
of residential mortgage loans originated by U.S. governmental or private
lenders and guaranteed, to the extent provided in such securities, by the U.S.
government or one of its agencies or instrumentalities. Mortgage pass-through
securities differ from conventional debt securities, which provide for periodic
payment of interest in fixed amounts (usually
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semi-annually) and principal payments at maturity or on specified call dates.
Mortgage pass-through securities provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments, including any
repayments made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans. The underlying mortgages may be prepaid at any time
and such payments are passed through to the certificate holder as a prepayment
of principal. As a result, if the Portfolio purchases such a Mortgage-Backed
Security at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if
the Portfolio purchases a Mortgage-Backed Security at a discount, faster than
expected prepayments will increase, while slower than expected prepayment will
reduce, yield to maturity.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. Generally, however,
prepayments on fixed rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Mortgage-Backed Securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities from
declining interest rates because of the risk of prepayment. Accelerated
prepayments on Mortgage-Backed Securities purchased by the Portfolio at a
premium also impose a risk of loss of principal because the premium may not
have been fully amortized at the time the principal is repaid in full. See
"Risk Factors" in the current Prospectus.
Reverse Repurchase Agreements and Dollar Roll Agreements. Each Portfolio
may enter into reverse repurchase agreements and dollar roll agreements. A
dollar roll agreement is identical to a reverse repurchase agreement except for
the fact that substantially identical securities may be repurchased. Under a
reverse repurchase agreement or a dollar roll agreement, a Portfolio sells
securities and agrees to repurchase them, or substantially similar securities
in the case of a dollar roll agreement, at a mutually agreed upon date and
price. The Portfolio does not account for dollar rolls as a borrowing. At the
time the Portfolio enters into a reverse repurchase agreement or a dollar roll
agreement, it will establish and maintain a segregated account with its
custodian containing cash, U.S. government securities, or other liquid assets
from its portfolio having a value not less than the repurchase price (including
accrued interest).
While the use of reverse repurchase agreements and dollar roll agreements
creates opportunities for increased income, the use of these agreements may
involve the risk that the market value of the securities to be repurchased by a
Portfolio may decline below the price at which the Portfolio is obligated to
repurchase. Also, in the event the buyer of securities under a reverse
repurchase agreement or a dollar roll agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce the Portfolio's obligation to repurchase
the securities, and the Portfolio's use of the proceeds of the reverse
repurchase agreement or the dollar roll agreement may effectively be restricted
pending such decision. Dollar roll agreements may be treated as sales for tax
purposes.
Securities Lending. Each Portfolio may lend portfolio securities to
broker/dealers or other institutional borrowers (up to 33% of net assets at the
time the loan is made), but only when the borrower pledges cash collateral to
the Portfolio and agrees to maintain such with the Portfolios' custodian so
that it amounts at all times to at least 100% of the value of the securities
loaned. Furthermore, each Portfolio may terminate its loans at any time, and
must receive compensation that, in total and in whatever form, is equivalent to
the sum of reasonable interest on the collateral as well as dividends,
interest, or other distributions paid on the security during the loan period.
The loan agreement shall not reduce the risk of loss or opportunity for gain by
the Portfolio on the securities transferred pursuant to the agreement. Upon
expiration of the loan, the borrower of the securities will be obligated to
return to that Portfolio the same number and kind of securities as those loaned
together with any applicable duly executed stock powers and the Portfolios must
be permitted to exercise all voting rights, if there are any, with respect to
the securities lent. The Portfolios may pay reasonable fees in connection with
the loan, including reasonable fees to the Portfolios' custodian for its
services.
Loan Participations. Each Portfolio may invest up to 10% of its assets in
loan participations denominated in U.S. dollars when the Adviser or Sub-Adviser
believes such an investment is consistent with a Portfolio's investment
objective. Loan participations entail the payment by a Portfolio of a sum to a
U.S. bank or other domestic financial institution which has lent or will lend
money to a U.S. corporation. In exchange for such payment, the bank agrees to
pay to that Portfolio, to the extent it is received, a specified portion of the
principal and interest in respect of such loan. A Portfolio has no contractual
relationship with the borrower. Loan participations may be considered illiquid
investments and may entail the credit risk of both the underlying borrower and
the bank or financial institution which is the intermediary. Loan
participations are typically unrated but the Adviser will limit its investment
in loan participations based upon its opinion of the quality of the investment
and the Portfolio's general limitations with respect to lower rated
investments.
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Zero Coupon, Step Coupon and PIK Bonds. The Portfolios may invest its
assets in any combination of zero coupon bonds, step coupon bonds and bonds on
which interest is payable in kind ("PIK bonds"). A zero coupon bond is a bond
that does not pay interest currently for its entire life. Step coupon bonds
frequently do not entitle the holder to any periodic payments of interest for
some initial period after the issuance of the obligation; thereafter, step
coupon bonds pay interest for fixed periods of time at particular interest
rates (a "step coupon bond"). In the case of a zero coupon bond, the nonpayment
of interest on a current basis may result from the bond having no stated
interest rate, in which case the bond pays only principal at maturity and is
initially issued at a discount from the face value. Alternatively, a zero
coupon obligation may provide for a stated rate of interest, but provide that
such interest is not payable until maturity, in which case the bond may
initially be issued at par. The value to the investor of a zero coupon or step
coupon bond is represented by the economic accretion either of the difference
between the purchase price and the nominal principal amount (if no interest is
stated to accrue) or of accrued, unpaid interest during the bond's life or
payment deferral period. PIK bonds are obligations which provide that the
issuer thereof may, at its option, pay interest on such bonds in cash or in the
form of additional debt securities. Such securities benefit the issuer by
mitigating its need for cash to meet debt service, but also require a higher
rate of return to attract investors who are willing to defer receipt of such
cash. The Portfolio generally will accrue income on such investments for tax
and accounting purposes, which would be distributed to the shareholder
(Variable Account) from available cash or liquidated assets. See also
"Dividends, Distributions and Taxes." The market prices of zero coupon, step
coupon and PIK bonds are more volatile than the market prices of securities
that pay interest periodically in cash, and are likely to respond to changes in
interest rates to a greater degree than do bonds that have similar maturities
and credit quality on which regular cash payments of interest are being made.
Covered Call Options. Each Portfolio may sell covered call options and
purchase options to close out options previously written. The Portfolios, in
return for the premium received upon the sale of a call option, gives up the
opportunity to benefit from a price increase in the underlying security above
the exercise price, but conversely retains the risk of loss should the price of
the security decline. A Portfolio has no control over when it may be required
to sell the underlying securities, since it may be assigned an exercise notice
at any time prior to the expiration of its obligation as a seller.
Because call options give the purchaser the right to purchase a specified
security at a designated strike price for a limited period of time, the option
is likely to be exercised only when and if the market price of the security
exceeds the strike price. If the market price never exceeds the strike price
during the option term, the purchaser's loss will be limited to the cash
premium paid to the seller of the option. However, if the market price does
exceed the strike price during the option term by an amount greater than the
premium paid for the option, the purchaser may exercise the option and purchase
the security at the strike price and realize a profit to the extent the
proceeds exceed the amount of premiums and transaction costs. In either
circumstance, the seller of the option retains the premium received for the
option but forgoes any potential profit from an increase in the market price of
the underlying security over the strike price. The option will be terminated
upon expiration of the option, the purchase of an identical option in a closing
transaction, or delivery of the underlying security upon the exercise of the
option.
Each Portfolio will sell only covered call options, meaning that a
Portfolio will only sell a call option on a security which it already owns. The
Portfolios will not write call options on when-issued securities. In addition,
the Portfolios will not sell a covered call option if, as a result, the
aggregate market value of all portfolio securities of a Portfolio covering call
options or subject to put options exceeds 10% of the market value of the
Portfolio's net assets.
If a Portfolio desires to sell a particular security from its portfolio on
which it has written a call option, or purchased a put option, it will seek to
effect a closing transaction prior to, or concurrently with, the sale of the
security. There is no assurance that the Portfolio will be able to effect such
closing transactions at a favorable price. If the Portfolio cannot enter into
such a transaction, it may be required to hold a security that it might
otherwise have sold, in which case it would continue to be at market risk on
the security.
Short Sales. The Portfolios may each make short sales "against the box." A
short-sale is a transaction in which a party sells a security it does not own
in anticipation of a decline in the market value of that security. A short sale
is "against the box" to the extent that a Portfolio contemporaneously owns or
has the right to obtain securities identical to those sold short.
Over-the-Counter Options. The Portfolios may invest in Over-the-Counter
options ("OTC options") on U.S. Government securities. OTC options are
purchased from or sold (written) to dealers or financial institutions which
have entered into direct agreements with a Portfolio. With OTC options, such
variables as expiration date, exercise price and premium will be agreed upon
between a Portfolio and the transacting dealer, without the intermediation of a
third party such as the Options Clearing Corporation. The Adviser or
Sub-Adviser monitors the creditworthiness of dealers with whom a Portfolio
enters into OTC option transactions under the general supervision of the
Trustees of the Portfolios. If the transaction dealer
7
<PAGE>
fails to make or take delivery of the U.S. Government securities underlying an
option it has written in accordance with the terms of the option as written,
the Portfolios would lose the premium paid for the option as well as any
anticipated benefit of the transaction. The Portfolios will engage in OTC
option transactions only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York.
Stock Index Options. The Portfolios may purchase options to hedge against
risks of broad price movements in the equity markets which in some market
environments may correlate more closely with movements in the value of lower
rated bonds than to changes in interest rates. When a Portfolio sells an option
on a stock index, it will have to establish a segregated account with its
custodian in which the Portfolio will deposit cash or cash equivalents or a
combination of both in an amount equal to the market value of the option, and
will have to maintain the account while the option is open. For some options,
no liquid secondary market may exist or the market may cease to exist.
Privately Issued Collateralized Mortgage-Backed Obligations ("CMOs"),
Interest Obligations ("IOs") and Principal Obligations ("POs"). Each Portfolio
may invest up to 5% of its net assets in Privately Issued Collateralized
Mortgage-Backed Obligations ("CMOs"), Interest Obligations ("IOs") and
Principal Obligations ("POs") when the Adviser or Sub-Adviser believes that
such investments are consistent with the Portfolio's investment objective.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, privately issued CMOs are collateralized by Ginnie Mae, Fannie Mae
or Freddie Mac Certificates, but also may be collateralized by whole loans or
private pass-throughs (such collateral collectively hereinafter referred to as
"Mortgage Assets"). Multi-class pass-through securities are equity interests in
a trust composed of Mortgage Assets. Unless the context indicates otherwise,
all references herein to CMOs include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, are the sources of funds used to pay debt service
on the CMOs or make scheduled distributions on the multi-class pass-through
securities.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. The principal of and interest on the Mortgage Assets may be
allocated among the several classes of a series of a CMO in innumerable ways.
The Portfolios may also invest in, among others, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other
CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. PAC Bonds generally call for
payments of a specified amount of principal on each payment date.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. SMBS are
structured with two or more classes of securities that receive different
proportions of the interest and principal distributions on a pool of Mortgage
Assets. A common type of SMBS will have at least one class receiving only a
small portion of the interest and a larger portion of the principal from the
Mortgage Assets, while the other classes will receive primarily interest and
only a small portion of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying Mortgage
Assets, and a rapid rate of principal payments may have a material adverse
effect on such security's yield to maturity. If the underlying Mortgage Assets
experience greater than anticipated prepayments of principal, a Portfolio may
fail to recoup fully its initial investment in these securities. The
determination of whether a particular government-issued IO or PO backed by
fixed-rate mortgages is liquid is made by the Adviser or Sub-Adviser under
guidelines and standards established by the Board of Trustees. Such a security
may be deemed liquid if it can be disposed of promptly in the ordinary course
of business at a value reasonably close to that used in the calculation of net
asset value per share.
Derivative Instruments. The International Value Portfolio may invest in
derivative instruments for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the International Value
Portfolio to invest than "traditional" securities would. The Portfolio does not
currently intend to make use of any derivatives, including transactions in
currency fowards for hedging purposes.
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<PAGE>
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Portfolio to increase or decrease
the level of risk, or change the character of the risk, to which its portfolio
is exposed in much the same way as the Portfolio can increase or decrease the
level of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (i.e., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, Northstar or the Sub-Adviser will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as it would review the credit quality of a security to be purchased by
the Portfolio. Over-the-counter Derivatives are less liquid than
exchange-traded Derivatives since the other party to the transaction may be the
only investor with sufficient understanding of the Derivative to be interested
in bidding for it.
Futures Contracts, Options on Futures Contracts and Foreign Currency
Transactions. Each Portfolio may enter into futures contracts, options on
futures contracts and foreign currency transactions. The Portfolios will enter
into these transactions solely for the purpose of hedging against the effects
of changes in the value of its portfolio securities or those it intends to
purchase due to anticipated changes in interest rates and currency values, and
not for the purpose of speculation.
Futures Contracts. Each Portfolio may enter into both interest rate
futures contracts and foreign currency futures contracts on domestic and
foreign exchanges. A futures contract to sell a debt security or foreign
currency (a "short" futures position), creates an obligation by the seller to
deliver a specified amount of the underlying security or foreign currency at a
certain future time and price. A futures contract to purchase a debt security
or foreign currency (a "long" futures position) creates an obligation by the
purchaser to take delivery of a specified amount of the underlying security or
foreign currency at a certain future time and price. Although the terms of
futures contracts specify actual delivery or receipt of the underlying
commodity, futures contracts generally are closed out before the delivery date
without making or taking delivery by entering into an opposite position in the
same commodity on the same (or a linked) exchange.
Upon entering into a futures contract, a Portfolio will be required to
deposit with a broker an amount of cash or cash equivalents equal to
approximately 1% to 5% of the contract price, which amount is subject to change
by the exchange on which the contract is traded or by the broker. This amount,
which is known as "initial margin," does not involve the borrowing of funds to
finance the transactions; rather, it is in the nature of a performance bond or
good faith deposit on the contract that will be returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the price of the instrument underlying the
futures contract fluctuates, making the long and short positions in the futures
contract more or less valuable ("marking-to-market").
The International Value Portfolio will engage in futures transactions only
as a hedge against the risk of unexpected changes in the values of securities
held or intended to be held by the Portfolio. As a general rule, the
International Value Portfolio will not purchase or sell futures if, immediately
thereafter, more than 25% of its net assets would be hedged. In addition, the
Portfolio will not purchase or sell futures or related options if, immediately
thereafter, the sum of the amount of margin deposits on the Portfolio's
existing futures positions and premiums paid for such options would exceed 5%
of the market value of the Portfolio's net assets.
Interest Rate Futures Contracts. An interest rate futures contract
provides for the future sale and purchase of a specified amount of a certain
debt security at a stated date, place and price. The Portfolios may enter into
interest rate futures contracts to protect against fluctuations in interest
rates affecting the value of debt securities that a Portfolio either holds or
intends to acquire. Interest rate futures contracts currently are based on
long-term Treasury Bonds, Treasury Notes, three-month Treasury Bills and
Government National Mortgage Association modified pass-through mortgage-backed
securities ("GNMA pass-through securities"), and 90-day commercial paper.
Foreign Currency Futures Contracts. A foreign currency futures contract
provides for the future sale and purchase of a specified amount of a certain
foreign currency at a stated date, place and price. The Portfolios may enter
into foreign currency futures contracts to attempt to establish the rate at
which it would be entitled to make a future exchange of U.S. dollars for
another currency. At present, foreign currency futures contracts are based on
British pounds, German deutsche marks, Canadian dollars, Japanese yen, French
francs, Swiss francs, and ECUs.
9
<PAGE>
Options on Futures Contracts. The Portfolios may purchase and sell put and
call options on interest rate futures contracts as a hedge against changes in
interest rates and on foreign currency futures contracts as a hedge against
fluctuating currency values, in lieu of purchasing and writing options directly
on the underlying security or currency or purchasing and selling the underlying
futures contracts.
The purchase of an option on an interest rate futures contract will give
the Portfolios the right to enter into a futures contract to purchase (in the
case of a call option) or to enter into a futures contract to sell (in the case
of a put option) a particular debt security at a specified exercise price at
any time prior to the expiration date of the option. The potential loss related
to the purchase of an option on a futures contract is limited to the premium
paid for the option plus related transaction costs. A call option sold by a
Portfolio exposes the Portfolio during the term of the option to the possible
loss of an opportunity to realize appreciation in the market price of the
underlying security or to the possible continued holding of a security which
might otherwise have been sold to protect against depreciation in the market
price of the security. In selling puts, there is a risk that a Portfolio may be
required to buy the underlying security at a disadvantageous price. Options on
interest rate futures contracts currently are available with respect to
Treasury Bonds, Treasury Notes, and Eurodollars.
Options on Interest Rate Futures. Each Portfolio may purchase a put option
on an interest rate futures contract to hedge against a decline in the value of
its portfolio securities as a result of rising interest rates. Each Portfolio
may purchase a call option on an interest rate futures contract to hedge
against the risk of an increase in the price of securities it intends to
purchase resulting from declining interest rates. The Portfolios may sell put
and call options on interest rates futures contracts as part of closing sale
transactions to terminate its option positions.
Options on Foreign Currency Futures. The purchase of options on foreign
currency futures contracts gives each Portfolio the right to enter into a
futures contract to purchase (in the case of a call option) or to sell (in the
case of a put option) a particular currency at a specified price at any time
during the period before the option expires. Options on foreign currency
futures currently are available with respect to British pounds, German deutsche
marks and Swiss francs. The Portfolios may purchase options on foreign currency
futures as a hedge against fluctuating currency values.
Foreign Currency Exchange Transactions. The Portfolios may engage in
foreign currency exchange transactions to hedge against uncertainty in the
level of future exchange rates. The Portfolios may conduct its currency
exchange transactions on a "spot" (i.e., cash) basis at the rate then
prevailing in the currency exchange market, or on a forward basis, by entering
into futures or forward contracts to purchase or sell currency. The Portfolio's
dealings in foreign currency exchange contracts is limited to hedging.
Forward Foreign Currency Contracts. A forward foreign currency contract
involves an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract as
agreed upon by the parties, at a price set at the date of the contract. Forward
currency contracts are entered into in the interbank market on a principal
basis directly between currency dealers, which usually are large commercial
banks and brokerage houses, and their customers, and therefore generally
involve no margin, commissions or other fees. Forward currency contracts will
establish a rate of exchange that can be achieved in the future and thus limit
the risk of loss due to a decline in the value of the hedged currency but also
limit any potential gain that might result in the event the value of the
currency increases.
Options on Foreign Currency. The Portfolios may also purchase and sell put
and call options for the purpose of hedging against changes in future currency
exchange rates. An option on a foreign currency gives the purchaser, in return
for a premium paid plus related transaction costs, the right to sell (in the
case of a put option) or to buy (in the case of a call option) the underlying
currency at a specified price until the option expires. The value of an option
on foreign currency depends upon the value of the foreign currency when
compared to the value of the U.S. dollar. Currency options traded on United
States or other exchanges may be subject to position limits, which may affect
the ability of the Portfolio to hedge its positions. The Portfolios will
purchase and sell options on foreign exchanges to the extent permitted by the
Commodity Futures Trading Commission ("CFTC").
The Portfolios may purchase or sell options on currency only when the
Adviser believes that a liquid secondary markets exists for these options;
however, no assurance can be given that a liquid secondary market will exist
for a particular option at any specific time.
Risk Factors and Special Considerations. Futures Contracts and Related
Options. A Portfolio will not use leverage when it enters into long futures
contracts or related options. For each long position that a Portfolio enters
into, it will segregate cash or cash equivalents having a value equal to the
market value of the contract as collateral with the custodian of the Portfolio.
A Portfolio will not enter into futures contracts and related options if as a
result the aggregate of the initial
10
<PAGE>
margin deposits on a Portfolio's existing futures and premiums paid for
unexpired options exceeds 5% of the fair market value of that Portfolio's
assets.
Using futures contracts and related options involves certain risks,
including (1) the risk of imperfect correlation between fluctuations in the
value of a futures contract and the portfolio security that is being hedged;
(2) the risk that a Portfolio may underperform a fund that does not make use of
these instruments; (3) the risk that no active market will be available to
offset a position; and (4) the risk that the Adviser or Sub-Adviser will not be
able to predict correctly movements in the direction of the interest rate and
foreign currency markets. Loss from futures transactions is potentially
unlimited.
Certain exchanges on which futures are traded may establish daily limits
in the amount that the price of a futures or related option contract may
fluctuate from the previous day's settlement price. When a daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. If a daily limit were reached, a Portfolio might be
prevented from liquidating unfavorable positions and thus incur losses. In
certain situations, a Portfolio might be unable to close a position and might
also have to make daily cash payments of variation margin.
Foreign Currency Exchange Transactions. Foreign currency futures contracts
and related options, forward foreign currency contracts and options on foreign
currency may be traded on foreign exchanges. The regulation of transactions on
these exchanges may be less extensive than the regulation of transactions on
U.S. exchanges. The Portfolios will trade only those options approved by the
CFTC.
Transactions on foreign exchanges also may not involve a clearing
mechanism and related guarantees and may be subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities. The value
of such positions also could be affected adversely by (1) other, foreign
political, legal and economic factors; (2) a lack of information on which to
make trading decisions compared to that which is available in the United
States; (3) a delay in the ability to act on significant events occurring in
the foreign markets during non-business hours in the United States; (4)
different exercise and settlement terms from those imposed in the United
States; and (5) less trading volume than occurs on U.S. exchanges.
In addition, foreign exchanges offer less protection against defaults in
the forward trading of currencies than is available on U.S. exchanges. Because
a forward foreign currency contract is not guaranteed by an exchange or
clearing house, a default on the contract would deprive the Portfolio of
unrealized profits or would force the Portfolio to cover its commitments for
purchase or resale, if any, at the current market price.
Risks of International Investing. Investments in foreign securities
involve special risks, including currency fluctuations, political or economic
instability in the country of issue and the possible imposition of exchange
controls or other laws or restrictions. In addition, security prices in foreign
markets are generally subject to different economic, financial, political and
social factors than are the prices of securities in U.S. markets. With respect
to some foreign countries there may be the possibility of expropriation or
confiscatory taxation, limitations on liquidity of securities of political or
economic developments which could affect the foreign investments of the
Portfolio. Moreover, securities of foreign issuers generally will not be
registered with the SEC, and such issuers will generally not be subject to the
SEC's reporting requirements. Accordingly, there is likely to be less publicly
available information concerning certain of the foreign issuers of securities
held by the Portfolio than is available concerning U.S. companies. Foreign
companies are also generally not subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to U.S. companies. There may also be less government
supervision and regulation of foreign broker-dealers, financial institutions
and listed companies than exists in the U.S. These factors could make foreign
investments, especially those in developing countries, more volatile. All of
the above issues should be considered before investing in the Portfolio.
Emerging Markets and Related Risks. The International Value Portfolio may
invest up to 25% of its assets in securities of companies located in countries
with emerging securities markets. Emerging markets are the capital markets of
any country that in the opinion of the Sub-Adviser is generally considered a
developing country by the international financial community. Currently, these
markets include, but are not limited to, the markets of Argentina, Brazil,
Chile, China, Colombia, Czech Republic, Greece, Hungary, India, Indonesia,
Israel, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland,
Portugal, Slovak Republic, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela and
countries that comprise the former Soviet Union. As opportunities to invest in
other emerging markets countries develop, the International Value Portfolio
expects to expand and diversify further the countries in which it invests.
Investing in emerging market securities involves risks which are in
addition to the usual risks inherent in foreign investments. Some emerging
markets countries may have fixed or managed currencies that are not
free-floating against the U.S. dollar. Further, certain currencies may not be
traded internationally. Certain of these currencies have experienced a steady
11
<PAGE>
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Portfolio's portfolio securities are denominated may have a
detrimental impact on the Portfolio.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be
greater difficulties or restrictions with respect to investments made in
emerging markets countries.
Emerging securities markets typically have substantially less volume than
U.S. markets, securities in many of such markets are less liquid, and their
prices often are more volatile than securities of comparable U.S. companies.
Such markets often have different clearance and settlement procedures for
securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets which the Portfolio desires to invest in
emerging markets may be uninvested. Settlement problems in emerging markets
countries also could cause the Portfolio to miss attractive investment
opportunities. Satisfactory custodial services may not be available in some
emerging markets countries, which may result in the Portfolio incurring
additional costs and delays in the transportation and custody of such
securities.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser, and the Sub-Advisers in the case of the Growth Portfolio and
International Value Portfolio, places orders for the purchase and sale of
securities, supervises their execution and negotiates brokerage commissions on
behalf of each Portfolio. For purposes of this section, discussion of the
Adviser includes the Sub-Advisers, but only with respect to the Growth
Portfolio and International Value Portfolio. It is the practice of the Adviser
to seek the best prices and best execution of orders and to negotiate brokerage
commissions which in the Adviser's opinion are reasonable in relation to the
value of the brokerage services provided by the executing broker. Brokers who
have executed orders for the Portfolios are asked to quote a fair commission
for their services. If the execution is satisfactory and if the requested rate
approximates rates currently being quoted by the other brokers selected by the
Adviser, the rate is deemed by the Adviser to be reasonable. Brokers may ask
for higher rates of commission if all or a portion of the securities involved
in the transaction are positioned by the broker, if the broker believes it has
brought a Portfolio an unusually favorable trading opportunity, or if the
broker regards its research services as being of exceptional value, and payment
of such commissions is authorized by the Adviser after the transaction has been
consummated. If the Adviser more than occasionally differs with the broker's
appraisal of opportunity or value, the broker would not be selected to execute
trades in the future. The Adviser believes that each Portfolio benefits with a
securities industry comprised of many and diverse firms and that the long-term
interest of shareholders of the Portfolios is best served by its brokerage
policies which include paying a fair commission rather than seeking to exploit
its leverage to force the lowest possible commission rate. The primary factors
considered in determining the firms to which brokerage orders are given are the
Adviser's appraisal of the firm's ability to execute the order in the desired
manner, the value of research services provided by the firm, and the firm's
attitude toward and interest in mutual funds in general, including the sale of
mutual funds managed and sponsored by the Adviser. The Adviser does not offer
or promise to any broker an amount or percentage of brokerage commissions as an
inducement or reward for the sale of shares of the Portfolios. Over-the-counter
purchases and sales are transacted directly with principal market-makers except
in those circumstances where in the opinion of the Adviser better prices and
execution are available elsewhere.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry
groups, and individual issues. Research services will vary from firm to firm,
with broadest coverage generally from the large full-line firms. Smaller firms
in general tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor
federal, state, local and foreign political developments; many of the brokers
also provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff since the brokers as a group tend to
monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, it provides the Adviser with a diverse
perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to the Adviser and is available
for the benefit of other accounts advised by the Adviser and its affiliates and
not all of this information will be used in connection with the Portfolios.
While this information may be useful in varying degrees and may tend to reduce
the Adviser's expenses, it is not possible to estimate its value and in the
opinion of the Adviser it does
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<PAGE>
not reduce the Adviser's expenses in a determinable amount. The extent to which
the Adviser makes use of statistical, research and other services furnished by
brokers is considered by the Adviser in the allocation of brokerage business
but there is no formula by which such business is allocated. The Adviser does
so in accordance with its judgment of the best interest of the Portfolios and
their shareholders.
Purchases and sales of fixed-income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. Each
Portfolio will also purchase such securities in underwritten offerings and
will, on occasion, purchase securities directly from the issuer. Generally,
fixed-income securities are traded on a net basis and do not involve brokerage
commissions. The cost of executing fixed-income securities transactions
consists primarily of dealer spreads and underwriting commissions.
In purchasing and selling fixed-income securities, it is the policy of
each Portfolio to obtain the best results taking into account the dealer's
general execution and operational facilities, the type of transaction involved
and other factors, such as the dealer's risk in positioning the securities
involved. While the Adviser generally seeks reasonably competitive spreads or
commissions, the Portfolios will not necessarily pay the lowest spread or
commission available.
Each Portfolio may, in circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to the Portfolios. By
allocating transactions in this manner, the Adviser is able to supplement its
research and analysis with the views and information of other securities firms.
During the fiscal years ended December 31, 1997, 1996 and 1995,
respectively, each of the Portfolios listed below paid total brokerage
commission indicated below.
Brokerage Commissions Paid During Most Recent Fiscal Years
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Northstar Growth Portfolio ....................... $80,568 $32,066 $8,327
Northstar International Value Portfolio .......... $15,426 -- --
Northstar Income and Growth Portfolio ............ $19,044 $20,592 $8,469
Northstar Multi-Sector Bond Portfolio ............ $ -- $ -- $ 375
Northstar High Yield Bond Portfolio .............. $ -- $ 204 $ --
</TABLE>
Portfolio Turnover. A change in securities held in the portfolio of a
Portfolio is known as "Portfolio Turnover" and may involve the payment by a
Portfolio of dealer mark-ups or brokerage or underwriting commissions and other
transaction costs on the sale of securities, as well as on the reinvestment of
the proceeds in other securities. Portfolio turnover rate for a fiscal year is
the percentage determined by dividing the lesser of the cost of purchases or
proceeds from sales of portfolio securities by the average of the value of
portfolio securities during such year, all excluding securities whose
maturities at acquisition were one year or less. A Portfolio cannot accurately
predict its turnover rate, however the rate will be higher when a Portfolio
finds it necessary to significantly change its portfolio to adopt a temporary
defensive position or respond to economic or market events. A high turnover
rate would increase commission expenses and may involve realization of gains.
Each Fund's historical turnover rates are included in the Financial Highlights
tables in the prospectus.
SERVICES OF THE ADVISER AND ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with the Portfolios,
Northstar Investment Management Corporation acts as the investment adviser to
each Portfolio. In this capacity, the Adviser, subject to the authority of the
Trustees, and subject to certain responsibilities being delegated to the
Sub-Adviser for the Growth Portfolio and the Sub-Adviser for the Income and
Growth Portfolio, is responsible for furnishing continuous investment
supervision to the Portfolios and is responsible for the management of the
Portfolios.
The Adviser is an indirect, wholly-owned subsidiary of ReliaStar Financial
Corporation ("ReliaStar"). ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the insurance business. Through the Affiliated
Insurance Companies and other subsidiaries, ReliaStar issues and distributes
individual life insurance and annuities, employee benefit
13
<PAGE>
contracts, retirement contracts and life and health reinsurance, and mutual
funds and provides related investment management services. The address of the
Adviser is Two Pickwick Plaza, Greenwich, CT 06830. The address of ReliaStar is
20 Washington Avenue South, Minneapolis, MN 55401.
The Adviser charges each of the Growth, Income and Growth, Multi-Sector
and High Yield Portfolios, a fee at the annual rate of 0.75% on the first
$250,000,000 of aggregate average daily net assets of each of these Portfolios,
0.70% on the next $250,000,000 of such assets, 0.65% on the next $250,000,000
of such assets; 0.60% on the next $250,000,000 of such assets, and 0.55% on the
remaining aggregate daily net assets of each of these Portfolios, in excess of
$1 billion.
The Adviser charges the International Value Portfolio a fee at the annual
rate of 1.00% of aggregate average daily net assets of this Portfolio.
Northstar Administrators Corporation ("Administrator") serves as
administrator for the Portfolios pursuant to an Administrative Services
Agreement with the Portfolios. The Administrator is an affiliate of the
Adviser. The address of the Administrator is Two Pickwick Plaza, Greenwich,
Connecticut 06830. Subject to the supervision of the Board of Trustees, the
Administrator provides the overall business management and administrative
services necessary to the proper conduct of the Portfolios' business, except
for those services performed by the Portfolios' Adviser under the Investment
Advisory Agreement, and the custodian and accounting agent for the Portfolios
under the Custodian Agreement.
The Administrator acts as liaison among these service providers to the
Portfolios. The Administrator is also responsible for ensuring that the
Portfolios operate in compliance with applicable legal requirements and for
monitoring the Adviser for compliance with requirements under applicable law
and with the investment policies and restrictions of the Portfolios.
The Administrator's fee is accrued daily against the value of each
Portfolio's net assets and is payable by each Portfolio monthly. The fee is
computed daily and payable monthly, at an annual rate of 0.10% of each
Portfolio's average daily net assets.
The Investment Advisory Agreement for the Growth, Income and Growth,
Multi-Sector and High Yield Portfolios was approved by the Trustees of the
Trust on January 26, 1994, and by the sole Shareholder of the Growth, Income
and Growth, Multi-Sector, and High Yield Portfolios on April 15, 1994. This
Agreement became effective on May 2, 1994 and continued in effect for a period
of two years, was renewed by the Trustees for one year on April 25, 1996 and
again renewed by the Trustees on April 24, 1997. The Investment Advisory
Agreement will continue in effect from year to year if specifically approved
annually by (a) the Trustees, acting separately on behalf of the Growth, Income
and Growth, Multi-Sector and High Yield Portfolios, including a majority of the
Disinterested Trustees, or (b) a majority of the outstanding voting securities
of each class of the Growth, Income and Growth, Multi-Sector, and High Yield
Portfolios as defined in the 1940 Act.
The Investment Advisory Agreement for the International Value Portfolio
was approved by the Trustees of the Trust on April 24, 1997, and by the sole
Shareholder of the International Value Portfolio on April 30, 1997. The
Investment Advisory Agreement became effective on May 1, 1997 and will continue
in effect for a period of two years. Thereafter, the Investment Advisory
Agreement will continue in effect from year to year if specifically approved
annually by (a) the Trustees, acting separately on behalf of the International
Value Portfolio, including a majority of the Disinterested Trustees, or (b) a
majority of the outstanding voting securities of each class of the
International Value Portfolio as defined in the 1940 Act.
The Investment Advisory Agreements may be terminated without penalty at
any time by a similar vote upon 60 day notice or by the Adviser upon 60 day
written notice and will automatically terminate in the event of its assignment
as defined in Section 2(a)(4) of the 1940 Act.
The Administrative Services Agreement for the Growth, Income and Growth,
Multi-Sector and High Yield Portfolios was approved by the Trustees of the
Trust on January 26, 1994 and became effective on May 2, 1994. This Agreement
continued in effect for a period of two years and was renewed by the Trustees
for one year on April 25, 1996, and from year to year thereafter, provided such
continuance is approved annually by a majority of the Trustees of the Trust.
The Administrative Services Agreement for the Northstar International
Value Portfolio was approved by the Trustees of the Trust on April 24, 1997.
The Administrative Services Agreement for the International Value Portfolio
became effective on May 1, 1997 and will continue in effect for a period of two
years. Thereafter, it will continue from year to year provided such continuance
is approved annually by a majority of the Trustees of the Trust.
14
<PAGE>
During the fiscal years ended December 31, 1997, 1996 and 1995, the
Portfolios(1) paid the Adviser and Administrator the following investment
advisory and administrative fees, respectively:
<TABLE>
<CAPTION>
Advisory Fees Administrative Fees
--------------------------------- ------------------------------
1997 1996 1995 1997 1996 1995
----------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio(2) .................. $187,902 $57,245 $23,854 $25,053 $ 7,633 $3,180
International Value Portfolio(3) ..... $ 18,050 -- -- $ 1,805 -- --
Income and Growth Portfolio(4) ....... $134,697 $75,425 $40,195 $17,960 $10,057 $5,359
Multi-Sector Portfolio(5) ............ $ 65,503 $37,217 $23,984 $ 8,734 $ 4,962 $3,198
High Yield Portfolio(6) .............. $ 73,225 $38,770 $27,922 $ 9,763 $ 5,169 $3,723
</TABLE>
- ---------
(1) The International Value Portfolio commenced operations on August 8, 1997.
(2) Does not reflect expense reimbursements, respectively, of $72,598, $68,758,
$39,351.
(3) Does not reflect expense reimbursements during 1997 of $32,742.
(4) Does not reflect expense reimbursements, respectively, of $56,065, $60,664,
$50,661.
(5) Does not reflect expense reimbursements, respectively, of $49,206, $43,785,
$40,437.
(6) Does not reflect expense reimbursements, respectively, of $55,011, $48,170,
$48,482.
SERVICES OF THE SUB-ADVISERS
Pursuant to a Sub-Advisory Agreement between the Adviser and Navellier
Portfolio Management, effective February 1, 1996, Navellier Portfolio
Management, Inc. serves as Sub-Adviser to the Growth Portfolio. In this
capacity, Navellier, subject to the supervision and control of the Adviser and
the Trustees of the Growth Portfolio, will manage the Growth Portfolio's
portfolio investments, consistently with such Portfolio's investment objective,
and will execute any of the Growth Portfolio's investment policies that it
deems appropriate to utilize from time to time. Fees payable under the
Sub-Advisory Agreement will accrue daily and be paid monthly by the Adviser. As
compensation for its services, the Adviser will pay the Sub-Adviser at the
annual rate of 0.48 of 1% of the average daily net assets of the Growth
Portfolio.
The Sub-Adviser is wholly owned and controlled by its sole stockholder,
Louis G. Navellier. The Sub-Adviser's address is 1 East Liberty, Third Floor,
Reno, NV 89301. The Sub-Advisory Agreement was approved by the Trustees of the
Portfolio on December 1, 1995, and by vote of shareholders of the Portfolio on
January 31, 1996. The Sub-Advisory Agreement may be terminated without payment
of any penalty by the Adviser, the Sub-Adviser, the Trustees of the Portfolio
or the shareholders on not more than 60 nor less than 30 days prior written
notice. Otherwise, the Sub-Advisory Agreement will remain in effect for two
years and will, thereafter, continue in effect from year to year, subject to
the annual approval of the Trustees of the Growth Portfolio, or the vote of a
majority of the outstanding voting securities of the Growth Portfolio, and the
vote, cast in person at a meeting duly called and held, of a majority of the
Trustees of Growth Portfolio who are not parties to the Sub-Advisory Agreement
or "interested persons" (as defined in the 1940 Act) of any such party.
Pursuant to a Sub-Advisory Agreement between Northstar and Brandes
Investment Partners, L.P. ("Brandes"), dated July 24, 1997, Brandes acts as
Sub-Adviser to the Portfolio. In this capacity, Brandes, subject to the
supervision and control of Northstar and the Trustees of the Portfolio, will
manage the Portfolio's portfolio investments, consistently with their
investment objective, and will execute any of the Portfolio's investment
policies that it deems appropriate to utilize from time to time. Fees payable
under the Sub-Advisory Agreement will accrue daily and be paid monthly by
Northstar. As compensation for its services, Northstar will pay Brandes at the
annual rate of 50% of the management fee that the Portfolio pays Northstar.
Brandes' address is 12750 High Bluff Drive, San Diego, California 92130.
Charles Brandes, who controls the general partner of Brandes, serves as one of
the managing directors of Brandes. The Sub-Advisory Agreement for the Portfolio
was approved by the Trustees of the Portfolio on April 24, 1997. The
Sub-Advisory Agreement may be terminated without payment of any penalty by
Northstar, Brandes, the Trustees of the Portfolio, or the shareholders of the
Portfolio on not more than 60 days and not less than 30 days prior written
notice. Otherwise, the Sub-Advisory Agreement will remain in effect for two
years and will, thereafter, continue in effect from year to year, subject to
the annual approval of the Trustees of the Portfolio, or the vote of a majority
of the outstanding voting securities of the Portfolio, and the vote, cast in
person at a meeting duly called and held, of a majority of the Trustees of the
Portfolio who are not parties to the Sub-Advisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such Party.
15
<PAGE>
NET ASSET VALUE
The net asset value per share of each Portfolio will be determined at the
close of the general trading session of the New York Stock Exchange (the
"Exchange"), on each business day the Exchange is open. The Exchange is
scheduled to be closed on New Year's Day, President's Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The net asset value per share of each Portfolio is computed by dividing
the value of such Portfolio's securities, plus any cash and other assets
(including dividends and interest accrued but not collected) less all
liabilities (including accrued expenses) by the number of shares of the
Portfolio outstanding. See the Trust's current Prospectus for more information.
PURCHASES, REDEMPTIONS AND EXCHANGE TRANSACTIONS
For information on purchases and redemptions of shares, see "Purchase of
Shares" and "Redemption of Shares" in the Trust's Prospectus. The Trust may
suspend the right of redemption of shares of any Portfolio and may postpone
payment for more than seven days for any period: (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings or
during which trading on the New York Stock Exchange is restricted; (ii) when
the Securities and Exchange Commission determines that a state of emergency
exists which may make payment or transfer not reasonably practicable; (iii) as
the Securities and Exchange Commission may by order permit for the protection
of the security holders of the Portfolios; or (iv) at any other time when the
Portfolios may, under applicable laws and regulations, suspend payment on the
redemption of their shares.
Shares of any Portfolio may be exchanged for shares of any other
Portfolios. Exchanges are treated as a redemption of shares of one Portfolio
and a purchase of shares of one or more of the other Portfolios and are
effected at the respective net asset value per share of each Portfolio on the
date of the exchange. The Trust reserves the right to modify or discontinue its
exchange privilege at any time without notice.
Variable Contract Owners do not deal directly with the Trust with respect
to the purchase, redemption, or exchange of shares of a Portfolio, and should
refer to the prospectus for the Variable Contract for information on allocation
of premiums and on transfers of account value among divisions of the insurance
company separate account that invest in the Portfolios.
The Trust reserves the right to discontinue offering shares of one or more
Portfolios at any time. In the event that a Portfolio ceases offering its
shares, any investments allocated by the insurance company to such Portfolio
will be invested in the fixed account portfolio or any successor to such
portfolio.
DIVIDENDS AND DISTRIBUTIONS
Net investment income of the Northstar High Yield and Multi-Sector Bond
Portfolios is declared as dividends daily and paid quarterly. For the Northstar
Growth, International Value and Income and Growth Portfolios, net investment
income will be declared and paid quarterly. Any net realized long-term capital
gains (the excess of net long-term capital gains over net short-term capital
losses) for any Portfolio will be declared and paid at least once annually. Net
realized short-term capital gains may be declared and paid more frequently.
FEDERAL INCOME TAX STATUS
Each Portfolio intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code").
Accordingly, a Portfolio generally expects not to be subject to federal income
tax if it meets certain source of income, diversification of assets, income
distribution, and other requirements, to the extent it distributes its
investment company taxable income and its net capital gains.
Distributions of investment company taxable income (which includes among
other items, interest, dividends, and net realized short-term capital gains in
excess of net realized long-term capital losses) and of net realized capital
gains, whether received in cash or additional shares, are included in the gross
income of the shareholder (Variable Account). Distributions of investment
company taxable income are treated as ordinary income for tax purposes in the
hands of a separate account. Net capital gains designated as capital gain
distributions by a Portfolio will, to the extent distributed, be treated as
long-term capital gains in the hands of the Variable Account regardless of the
length of time the Variable Account may have held the shares. A distribution
will be treated as paid on December 31 of the calendar year if it is declared
by a Portfolio in October, November, or December of that year to the
shareholder of record on a date in such a month and paid by the Portfolio
during January of the following calendar year. Such distributions will be
taxable to the Variable Account in the calendar year
16
<PAGE>
in which they are declared, rather than the calendar year in which they are
received. Tax consequences to the Variable Contract Owners are described in the
prospectus for the Variable Account.
If a Portfolio invests in stock of certain foreign corporations that
generate largely passive investment-type income, or which hold a significant
percentage of assets that generate such income (referred to as "passive foreign
investment companies" or "PFICs"), these investments would be subject to
special tax rules designed to prevent deferral of U.S. taxation of the
Portfolio's share of the PFIC's earnings. In the absence of certain elections
to report these earnings on a current basis, regardless of whether the
Portfolio actually receives any distributions from the PFIC, investors in the
Portfolio would be required to report certain "excess distributions" from, and
any gain from the disposition of stock of, the PFIC as ordinary income. This
ordinary income would be allocated ratably to the Portfolio's holding period
for the stock. Any amounts allocated to prior years would be taxable at the
highest rate of tax applicable in that year, increased by an interest charge
determined as though the amounts were underpayments of tax.
Certain requirements relating to the qualification of a Portfolio as a
regulated investment company under the Code may limit the extent to which a
Portfolio will be able to engage in transactions in options, futures contracts,
or forward contracts. In addition, certain Portfolio investments may generate
income for tax purposes which must be distributed even though cash representing
such income is not received until a later period. To meet its distribution
requirements, the Portfolio may in those circumstances be forced to raise cash
by other means, including borrowing or disposing of assets at a time when it
may not otherwise be advantageous to do so.
To comply with regulations under Section 817(h) of the Code, each
Portfolio generally will be required to diversify its investments, so that on
the last day of each quarter of a calendar year, no more than 55% of the value
of its assets is represented by any one investment, no more than 70% is
represented by any two investments, no more than 80% is represented by any
three investments, and no more than 90% is represented by any four investments.
For this purpose, securities of a single issuer are treated as one investment
and each U.S. Government agency or instrumentality is treated as a separate
issuer. Any security issued, guaranteed, or insured (to the extent so
guaranteed or insured) by the U.S. or an agency or instrumentality of the U.S.
is treated as a security issued by the U.S. Government or its agency or
instrumentality, whichever is applicable. These regulations will limit the
ability of a Portfolio to invest more than 55% of its assets in direct
obligations of the U.S. Treasury or in obligations which are deemed to be
issued by a particular agency or instrumentality of the U.S. Government. If a
Portfolio fails to meet the diversification requirements under Code Section
817(h), income with respect to Variable Contracts invested in the Portfolio at
any time during the calendar quarter in which the failure occurred could become
currently taxable to the owners of such Variable Contracts and income for prior
periods with respect to such Contracts also would be taxable, most likely in
the year of the failure to achieve the required diversification. Other adverse
tax consequences also could ensue.
In connection with the issuance of the regulations governing
diversification under Section 817(h) of the Code, the Treasury Department
announced that it would issue future regulations or rulings addressing the
circumstances in which a Variable Contract owner's control of the investments
of a separate account may cause the contract owner, rather than the insurance
company, to be treated as the owner of the assets held by a separate account.
If the Variable Contract Owner is considered the owner of the securities
underlying a separate account, income and gains produced by those securities
would be included currently in the Variable Contract owner's gross income.
Although it is not known what standards will be incorporated in future
regulations or other pronouncements, the Treasury staff has indicated
informally that it is concerned that there may be too much contract owner
control where the Portfolio underlying a separate account invests solely in
securities issued by companies in a specific industry. Similarly, the ability
of a contract owner to select a Portfolio representing a specific economic risk
may also be prescribed. These future rules and regulations proscribing
investment control may adversely affect the ability of the Portfolios to
operate as described in this Prospectus. There is, however, no certainty as to
what standard, if any, Treasury will ultimately adopt, and there can be no
certainty that the future rules and regulations will not be given retroactive
application. In the event that unfavorable rules or regulations are adopted,
there can be no assurance that these or other Portfolios will be able to
operate as currently described in the Prospectus, or that a Portfolio will not
have to change its investment objectives, investment policies, or investment
restrictions. While a Portfolio's investment objective is fundamental and may
be changed only by a vote of a majority of its outstanding shares, the Trustees
have reserved the right to modify the investment policies of a Portfolio as
necessary to prevent any such prospective rules and regulations from causing
the Variable Contract Owners to be considered the owners of the Portfolios
underlying the Variable Account.
Reference is made to the prospectus of the Variable Account for
information regarding the federal income tax treatment of distributions to the
Variable Account.
17
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal Officers of the Portfolios and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and Officers of the Portfolios is
c/o Northstar Investment Management Corporation, Two Pickwick Plaza, Greenwich,
CT 06830. "A" signifies a member of the Audit Committee, and "V" signifies a
member of the Valuation Committee, of the Board.
John Turner* -- Trustee and Chairman. Age: 58.
Chairman and Chief Executive Officer of ReliaStar Financial Corp. and
ReliaStar Life Insurance Co. ("ReliaStar Life") since May 1993, and Chairman of
other ReliaStar affiliated insurance companies since 1995. Prior to May 1993,
President and Chief Executive Officer of ReliaStar Financial Corp. and
ReliaStar Life. Director of Northstar and affiliates and Trustee and Chairman
of other Northstar affiliated investment companies.
Mark L. Lipson* -- Trustee and President. Age: 48
Director, Chairman and Chief Executive Officer of Northstar Investment
Management Corporation and Northstar Holding, Inc. Director and President of
Northstar Administrators Corporation and Northstar Funding, Inc. and Director,
Chairman, Chief Executive Officer of Northstar Distributors, Inc. Trustee and
President of other Northstar affiliated investment companies. Prior to August,
1993, Director, President and Chief Executive Officer of National Securities &
Research Corporation and President and Director/Trustee of the National
Affiliated Investment Companies and certain of National's subsidiaries.
Paul S. Doherty -- Trustee. (A). Age: 63
President, Doherty, Wallace, Pillsbury and Murphy, P.C., Director, Tambrands,
Inc. Trustee of other Northstar affiliated investment companies.
Robert B. Goode, Jr. -- Trustee. (V). Age: 67
Retired. From 1990 to 1991, Chairman of The First Reinsurance Company of
Hartford. From 1987 to 1989, President and Director of American Skandia Life
Assurance Company. Trustee of other Northstar affiliated investment companies.
Alan R. Gosule -- Trustee. (A). Age: 57
Partner, Rogers & Wells. Director, F.L. Putnam Investment Management Company.
Walter H. May, Jr. -- Trustee. (A). Age: 61
Retired. Former Marketing Director for Piper Jaffray, Inc.
David W.C. Putnam -- Trustee. (V). Age: 58
President and Director of F.L. Putnam Securities Company F.L. Putnam
Investment Management Co., Interstate Power Co., Trust Realty Corp. and Bow
Ridge Mining Co; Director of Anchor Investment Management Corp; President and
Trustee of Anchor Capital Accumulation Trust, Anchor International Bond Trust,
Anchor Gold and Currency Trust, Anchor Resources and Commodities Trust and
Anchor Strategic Assets Trust.
John R. Smith -- Trustee. (A). Age: 74
President (since 1991) of New England Fiduciary Company; Chairman (since
1987) Massachusetts Educational Financing Authority; Vice Chairman of
Massachusetts Health and Education Authority, and former Financial Vice
President of Boston College (1970-1991).
David W. Wallace -- Trustee. (A)(V). Age: 73
Chairman of FECO Engineered Systems, Inc., Lone Star Industries and Putnam
Trust Company. He is also President and Trustee of Robert R. Young Foundation
and Governor of the New York Hospital. Director of UMC Electronics and Zurn
Industries, Inc. Former Chairman and Chief Executive Officer, Todd Shipyards
and Bangor Punta Corporation, and former Chairman and Chief Executive Officer
of National Securities & Research Corporation, and Chairman and
Director/Trustee of the National Affiliated Investment Companies. Trustee of
other Northstar affiliated investment companies.
18
<PAGE>
Thomas Ole Dial -- Vice President. Age: 41
Executive Vice President and Chief Investment Officer- Fixed Income of
Northstar Investment Management Corporation. From 1989 to August 1993,
Executive Vice President and Chief Investment Officer- Fixed Income of National
Securities & Research Corporation. From 1988 to 1989, President, Dial Capital
Management. Vice President of other Northstar affiliated investment companies.
Geoffrey Wadsworth -- Vice President. Age: 54
Vice President of Northstar Investment Management Corporation and Portfolio
Manager. Former Vice President and Portfolio Manager of National Securities &
Research Corp. Vice President of other Northstar affiliated investment
companies.
Agnes Mullady -- Vice President and Treasurer. Age: 39
Senior Vice President and Chief Financial Officer of NIMC, Senior Vice
President and Treasurer of Northstar Administrators Corporation, and Vice
President and Treasurer of Northstar Distributors, Inc. From 1987 to 1993
Treasurer and Vice President of National Securities & Research Corporation.
Vice President and Treasurer of other Northstar affiliated investment
companies.
- ---------
* Messrs. Turner and Lipson are each deemed to be an "interested person"
within the meaning of the 1940 Act.
NIMC and Northstar Administrators Corporation makes their personnel
available to serve as Officers and "Interested Trustees" of the Portfolio. All
Officers and Interested Trustees of the Portfolio are compensated by NIMC or
Northstar Administrators Corporation. Trustees who are not "interested persons"
of the adviser are paid an annual retainer fee of $500, meeting fees of $500
and committee fees of $500. The Funds also reimburse the Trustees for expenses
incurred by them in connection with such meetings. Such fees are allocated
evenly among the Portfolios. The Portfolios currently have an Audit Committee
(members noted by (a), a Valuation Committee (members noted by (v), and a
Nominating Committee consisting of all of the Independent Trustees. On March ,
1998, no Officer or Trustee of the Portfolios, owned beneficially or of record
or had an interest in shares of any Portfolio.
Compensation Table
Period Ended December 31, 1997
<TABLE>
<CAPTION>
Pension Benefits Estimated Annual Total Compensation
Compensation Accrued as Part of Benefits upon from Funds (17) in
from Funds Fund Expenses Retirement Northstar Complex(b)
-------------- -------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Robert B. Goode, Jr ......... (a)14,500 0 0 15,000
Paul S. Doherty ............. (a)13,239 0 0 13,750
David W. Wallace ............ (a)13,239 0 0 13,750
Mark L. Lipson .............. (a)0 0 0 --
John G. Turner .............. (a)0 0 0 --
Alan L. Gosule .............. (a)14,988 0 0 15,500
David W.C. Putnam ........... (a)12,625 0 0 13,125
John R. Smith ............... (a)14,989 0 0 15,500
Walter H. May ............... (a)14,989 0 0 15,500
</TABLE>
19
<PAGE>
Individual Portfolio
Fiscal Year Compensation Tables
<TABLE>
<CAPTION>
Income and High Total Growth + International High Total
Growth Return Value Value Return Portfolio II Growth(c) Special(c)
------------ ------------ ---------- --------------- --------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert B. Goode, Jr ..... 1,501 2,377 1,073 659 659 1,349 1,604
Paul S. Doherty ......... 1,401 2,395 915 500 500 1,229 1,518
David W. Wallace ........ 1,401 2,395 915 500 500 1,229 1,518
Mark L. Lipson .......... 0 0 0 0 0 0 0
John G. Turner .......... 0 0 0 0 0 0 0
Alan L. Gosule .......... 1,560 2,554 1,074 659 659 1,388 1,677
David W.C. Putnam ....... 1,330 2,207 902 489 489 1,179 1,434
John R. Smith ........... 1,560 2,554 1,074 659 659 1,388 1,677
Walter H. May ........... 1,560 2,554 1,074 659 659 1,388 1,677
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Government
Opportunities(c) High Yield(c) Strategic Income(c) Securities(c)
------------------ --------------- --------------------- --------------
<S> <C> <C> <C> <C>
Robert B. Goode, Jr ......... 1,193 1,528 1,223 1,334
Paul S. Doherty ............. 1,052 1,432 1,085 1,212
David W. Wallace ............ 1,052 1,432 1,085 1,212
Mark L. Lipson .............. 0 0 0 0
John G. Turner .............. 0 0 0 0
Alan L. Gosule .............. 1,211 1,591 1,244 1,371
David W.C. Putnam ........... 1,022 1,357 1,052 1,164
John R. Smith ............... 1,211 1,591 1,244 1,371
Walter H. May ............... 1,211 1,591 1,244 1,371
</TABLE>
OTHER INFORMATION
Independent Accountants. Coopers & Lybrand L.L.P. has been selected as the
independent accountants for the Trust. Coopers & Lybrand L.L.P. will audit the
Trust's annual financial statements and express an opinion thereon.
Custodian/Accounting Services Agent. State Street Bank and Trust Company
acts as custodian of the Portfolio's assets and performs fund accounting
services.
Reports to Shareholders. The fiscal year of the Trust ends on December 31.
Each Portfolio will send financial statements to its shareholders at least
semi-annually. An annual report containing financial statements audited by the
independent accountants will be sent to shareholders each year.
Shareholder and Trustee Responsibility. Shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. The risk of a shareholder incurring
any financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its
obligations. The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides that
notice of the disclaimer must be given in each agreement, obligation or
instrument entered into or executed by the Trust or Trustees. The Declaration
of Trust provides for indemnification of any shareholder held personally liable
for the obligations of the Trust and also provides for the Trust to reimburse
the shareholder for all legal and other expenses reasonably incurred in
connection with any such claim or liability.
Under the Declaration of Trust, the trustees or officers are not liable
for actions or failure to act; however, they are not protected from liability
by reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Trust
provides indemnification to its trustees and officers as authorized by the 1940
Act and the rules and regulations thereunder.
Financial Statements. The Northstar Variable Trust's audited financial
statements dated December 31, 1997 and the report of the independent
accountants, Coopers & Lybrand, L.L.P. with respect to such financial
statements, are hereby incorporated by reference to the Annual Report to
Shareholders of the Northstar Variable Trust for the year ended December 31,
1997.
Registration Statement. A registration statement has been filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act. The
Prospectus and this Statement of Additional Information do not contain all
information set forth in the registration statement, its amendments and
exhibits thereto that the Trust has filed with the Securities and Exchange
Commission, Washington, D.C., to all of which reference is hereby made.
20
<PAGE>
Year 2000 Compliance. The services provided to the Portfolios by the
Adviser, the Sub-Advisers, the Administrator and the Portfolios' other service
providers are dependent on those service providers' computer systems. Many
computer software and hardware systems in use today cannot distinguish between
the year 2000 and the year 1900 because of the way dates are encoded and
calculated (the "Year 2000 Issue"). The failure to make this distinction could
have a negative implication on handling securities trades, pricing and account
services. The Adviser, the Sub-Advisers, the Administrator and the Portfolios'
other service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems
that they use. Although there can be no assurances, the Portfolios believe
these steps will be sufficient to avoid any material adverse impact on the
Portfolios. The costs or consequences of incomplete or untimely resolution of
the Year 2000 Issue are unknown to the Adviser, Sub-Advisers, Administrator and
the Portfolios' other service providers at this time but could have a material
adverse impact on the operations of the Portfolios and the Adviser,
Sub-Adviser, Administrator and the Portfolios' other service providers.
PERFORMANCE INFORMATION
Each Portfolio may, from time to time, include its total return and the
Northstar Multi-Sector Bond and Northstar High Yield Bond Portfolios may
include their yields in advertisements or reports to shareholders or
prospective investors. Performance information for the Portfolios will not be
advertised or included in sales literature unless accompanied by comparable
performance information for a Separate Account to which the Portfolios offer
their shares.
A. Total Return. Standardized quotations of average annual total return
for a Portfolio will be expressed in terms of the average annual compounded
rate of return for a hypothetical investment in the Portfolio over periods of
1, 5 and 10 years (or up to the life of the Portfolio), calculated pursuant to
the following formula: P(1 + T) to the power of n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return, n
= the number of years, and ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period). All total return figures
reflect the deduction of Portfolio expenses (on an annual basis), and assume
that all dividends and distributions on shares are reinvested when paid.
The total return for each Portfolio, so calculated, for the period since
inception of each Portfolio (May 6, 1994 for all Portfolios other than the
International Value Portfolio, inception being August 8, 1997) and for the one
year period ended December 31, 1997 is set forth below:
<TABLE>
<CAPTION>
Since
Inception
One Year ----------
<S> <C> <C>
Growth Portfolio ...................... 14.66% 17.79%
International Value Portfolio ......... 1.30% 4.10%
Income and Growth ..................... 15.81% 14.24%
Multi-Sector .......................... 6.15% 9.47%
High Yield ............................ 9.00% 11.34%
</TABLE>
Performance information for the Portfolios may be compared in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so
that investors may compare each Portfolio's results with those of a group of
unmanaged securities widely regarded by investors as representative of the
securities markets in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm which
ranks mutual funds by overall performance, investment objectives, and assets,
or tracked by other services, companies, publications, or persons who rank
mutual funds on overall performance or other criteria; and (iii) the Consumer
Price Index (measure for inflation) to assess the real rate of return from an
investment in the Portfolio; (iv) well known monitoring sources of certficates
of deposit performance rates such as Salomon Brothers, Federal Reserve
Bulletin, American Bankers, Tower Data/The Wall Street Journal. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
The Portfolio also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and as
a dollar amount based on a hypothetical $10,000 investment for various periods
other than
21
<PAGE>
those noted below. Such data will be computed as described above, except that
the rates of return calculated will not be average annual rates, but rather,
actual annual, annualized or aggregate rates of return.
B. Yield. Yield is the net annualized yield based on a specified 30-day
(or one month) period assuming a semiannual compounding of income. Yield is
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield = 2[(a-b + 1)6 -1]
---------
cd
Where:
a = dividends and interest earned during the period, including the
amortization of market premium or accretion of market discount
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, each Portfolio computes the yield to maturity of each obligation
held by the Portfolio based on the market value of the obligation (including
actual accrued interest) at the close of the last business day of the month,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). The yield to maturity is then divided by 360
and the quotient is multiplied by the market value of the obligation (including
actual accrued interest) to determine the interest income on the obligation for
each day of the subsequent month that the obligation is in the Portfolio's
portfolio.
Solely for the purpose of computing yield, the Portfolios recognize
dividend income by accruing 1/360 of the stated dividend rate of a security in
the portfolio.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price.
Undeclared earned income is the net investment income which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected to
be declared as a dividend shortly thereafter.
The yield for each of the Northstar Income and Growth Portfolio, Northstar
Multi-Sector Bond Portfolio and Northstar High Yield Bond Portfolio,
calculated, for the one month period ended December 31, 1997 was 3.83%, 7.60%
and 7.54%, respectively.
Quotations of yield or total return for the Portfolios will not take into
account charges and deductions against the Variable Account to which the
Portfolios' shares are sold or charges and deductions against the Variable
Contracts issued by Northwestern National or its affiliates. The Portfolios'
yield and total return should not be compared with mutual funds that sell their
shares directly to the public since the figures provided do not reflect charges
against the Variable Account or the Variable Contracts. Performance information
for any Portfolio reflects only the performance of a hypothetical investment in
the Portfolio during the particular time period in which the calculations are
based. Performance information should be considered in light of the Portfolios'
investment objectives and policies, characteristics and quality of the
portfolios and the market conditions during the given time period, and should
not be considered as a representation of what may be achieved in the future.
22
<PAGE>
APPENDIX
Description of Moody's Investors Service, Inc. ("MOODY'S") Corporate Bond
Ratings
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which made the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Description of Standard & Poor's Corporation's ("S&P") Corporate Debt Ratings
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-1
<PAGE>
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-) -- The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A: Financial Highlights for a share outstanding throughout
the period May 6, 1994 (commencement of operations) through December 31,
1997.
Included in Part B: The Audited Financial Statements as of December 31,
1997 for the fiscal year ended December 31, 1997, and the report of the
Independent Accountants, including the following:
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Portfolio of Investments
Notes to Financial Statements
are incorporated in the Statement of Additional Information for the
Trust by reference to the Annual Report to Shareholders for the Trust
for the fiscal year ended December 31, 1997.
(b) EXHIBITS - NORTHSTAR VARIABLE TRUST
8(a) Amendment of Custody Agreement
(10) Opinion of Counsel
(11) Consent of Independent Public Accountants
(12) Annual Report to Shareholders
(16) Performance Information
(27) Financial Data Schedule (Ex-27)
- ----------------------------
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
ReliaStar Life Insurance Company (formerly "Northwestern National Life Insurance
Company") and Northern Life Insurance Company, and ReliaStar Bankers Security
Life Insurance Co., which are affiliated through a common parent company,
ReliaStar Financial Corp., on behalf of their respective separate accounts,
together own a majority of the outstanding shares of the Trust. These
insurance companies will vote shares of the Trust in accordance with
instructions of contract owners having interests in these separate accounts.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 31, 1997, the Trust had three security holders.
ITEM 27. INDEMNIFICATION
Section 4.3 of Registrant's Declaration of Trust provides the following:
(a) Subject to the exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the Trust
shall be indemnified by the Trust to the fullest extent permitted by
law against all liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by
virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof; and
(ii) the word "claim", "action", "suit" or "proceeding" shall apply to all
claims, actions or suits or proceedings (civil, criminal,
administrative or other including appeals), actual or threatened; and
the words "liability" and "expenses" shall include without limitation,
attorneys fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust, a series thereof, or the
Shareholders by reason of a final adjudication by a court or other
body before which a proceeding was brought or that he engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in reasonable belief that
his action was in the best interest of the Trust; and
(iii)in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraph (b) (i) or (b) (ii)
resulting in a payment by a Trustee or officer, unless there has been
a determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the settlement or other disposition;
or
(B) based upon the review of readily available facts (as opposed to full trial-
type inquiry) by (x) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter) or (y) written opinion of
independent legal counsel.
<PAGE>
(C) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a person who has ceased to be such Trustee
or officer and shall inure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing contained herein shall
affect any rights to indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by contract or otherwise under
law.
(D) Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not entitled to
indemnification under this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other appropriate
security provided by the recipient or the Trust shall be insured
against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the
matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that
the recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is not (i) an
Interested Person of the Trust (including anyone who has been exempted from
being an Interested Person by any rule, regulation or order of the Commission),
or (ii) involved in the claim, action, suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy, as expressed in the Act and be governed by final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Funds" in the Prospectus and Services of the Adviser and
Administrator" Services of the Subadvisers, and "Trustees and Officers" in the
Statement of Additional Information, each of which is included in the
Registration Statement.
<PAGE>
Set forth is a list of each officer and director of the Adviser indicating each
business, profession, vocation or employment of a substantial nature in which
each such person has been engaged since July 31, 1994.
<TABLE>
<CAPTION>
Position with Other Substantial
Investment Business, Profession
Name Adviser Vocation or Employment
- ----------------------------------------------------------------------------
<S> <C> <C>
John Turner Director Chairman and CEO, ReliaStar Financial
Corp; Director of Northstar Affiliates;
Trustee and Chairman, Northstar
Affiliated Investment Companies.
<PAGE>
John Flittie Director President, ReliaStar Financial Corp.
Director, Northstar Affiliates.
Mark L. Lipson Chairman/CEO Director and Officer of Northstar
Director Distributors, Inc., Northstar Administrators
Corp. and Northstar, Inc. Trustee
and President, Northstar Affiliated
Investment Companies.
Robert J. Adler Executive Vice President, Northstar Distributors, Inc.
President, Sales
& Marketing
Thomas Ole Dial Executive Vice Vice President, Northstar Affiliated
President - Chief Investment Companies, and Principal, TD
Investment Officer, Associates Inc.
Fixed Income
Geoffrey Wadsworth Vice President/ Vice President - Northstar Affiliated
Investments and Investment Companies.
Portfolio Manager
Ryan Johanson Vice President- Vice President - Northstar Affiliated
Investments Investment Companies and Portfolio
Manager, Director of Global Market
Risk Management, and Senior Manager
of Banque Indosuez.
Jeffrey Aurigemma Vice President - Vice President - Northstar Affiliated
Investments Investment Companies and Portfolio
Manager.
Michael Graves Vice President Vice President - Northstar Affiliated
Investments Investment Companies and Portfolio
Manager.
Agnes Mullady Sr. Vice President Vice President & Treasurer of Northstar
and CFO Affiliates and the Northstar Affiliated
Investment Companies.
Gertrude Purus Vice President Vice President Northstar Distributors and
Operations Northstar Administrators Corp.
<PAGE>
Stephen Vondrak Vice President Vice President - Northstar Distributors, Inc.
Sales/Marketing Former Regional Marketing
Manager with Roger Engemann
and Associates from 1991-1994.
Mark Sfarra Vice President - Vice President - Northstar Distributors, Inc.
Marketing
</TABLE>
Set forth below is a list of each officer and director of the subadvisers
indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since
July 31, 1994.
<TABLE>
<CAPTION>
Name and
Principal
Business Address Principal Occupations During Past Two Years
- ---------------- --------------------------------------------
<S> <C>
Brandes Investment
Partners, L.P.
The following are senior members of the investment committee:
Charles Howard Business: Managing Partner, Brandes Investment
Brandes, CFA Partners, L.P., 5/96 to present; Managing Director,
12750 High Bluff Dr. Brandes Investment Partners, Inc., 4/93 to 4/96.
San Diego, CA 92130
Jeffrey Atwood Busby, Business: Managing Partner, Brandes Investment
CFA Partners, L.P., 5/96-present; Managing Director,
12750 High Bluff Dr. Brandes Investment Partners, Inc., 4/93- 4-96.
San Diego, CA 92130
Glenn Richard Carlson, Business: Managing Partner, Brandes
CFA Investment Partners, L.P., 5/96-present; Managing
12750 High Bluff Dr. Director, Brandes Investment Partners, Inc., 4/93-4/96.
San Diego, CA 92130
William Andrew Business: Principal, Brandes Investment Partners, L.P.,
Pickering, CFA 5/1/96-present; Vice President, Brandes Investment
12750 High Bluff Dr. Partners, Inc. 4/1/93-4/30/96.
San Diego, CA 92130
The following is a Managing Partner:
Barry Paul O'Neil Business: Managing Partner, Brandes Investment
12750 High Bluff Dr. Partners, L.P., 5/1/96-present; Managing Director,
San Diego, CA 92130 Brandes Investment Partners, Inc., 4/1/93-4/30/96.
Navellier and
Associates, Inc.
Louis Navellier Principal, Director and President of Navellier Fund
1 East Liberty, Management, Inc. Mr. Navellier is and has been the CEO
Third Floor and President of Navellier & Associates Incorporated, an
Reno, NV 89501 investment management company since 1988, and has been publisher
and editor of MPT Review from August 1987 to the present, and
was publisher and editor of the predecessor investment advisory
newsletter OTC Insight, which he began in 1980 and wrote through
July 1987. Mr. Navellier is also Trustee, President, and Treasurer
of the Navellier Series Fund and CEO, President, Treasurer, and
Secretary of Navellier Management Inc., the Investment Adviser to
the Navellier Series Fund. Mr. Navellier is also CEO, President,
Secretary, and Treasurer of Navellier & Associates, Inc.,
Navellier Publications, Inc., MPT Review Inc., and Navellier
International Management Inc.
</TABLE>
<PAGE>
ITEM 29 . PRINCIPAL UNDERWRITER
There is no principal underwriter for Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
State Street Bank and Trust Co., located at 225 Franklin Street, Boston, MA
02110-2804 maintains such records as Custodian, Transfer Agent and Fund
Accounting Agent, for the Trust and each Series:
(1) Receipts and delivery of securities including certificate numbers;
(2) Receipts and disbursement of cash;
(3) Records of securities in transfer, securities in physical possession,
securities owned and securities loaned.
(4) Shareholder Records
All other records required by item 30(a) are maintained at the office of the
Administrator, Two Pickwick Plaza, Greenwich, CT 06830 and the offices of the
Subadvisers.
The addresses of the Subadvisers are as follows: Brandes Investment Partners,
L.P., 12750 High Bluff Drive, San Diego, CA 92130 and Navellier and Associates,
Inc., 1 East Liberty, 3rd Floor, Reno, NV 89501.
ITEM 31. Management Services
Not Applicable
<PAGE>
ITEM 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees when
requested in writing to do so by the holders of at least 10% of the Trusts'
outstanding shares of beneficial interest and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
(b) Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Greenwich and the State of Connecticut on the 26th day of February,
1998.
REGISTRANT
By: MARK L. LIPSON
--------------------------------------
Mark L. Lipson, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
SIGNATURES TITLE DATE
JOHN G. TURNER Chairman and February 26, 1998
John G. Turner* Trustee
MARK L. LIPSON President and February 26, 1998
Mark L. Lipson* Trustee
JOHN R. SMITH Trustee February 26, 1998
John R. Smith*
PAUL S. DOHERTY Trustee February 26, 1998
Paul S. Doherty*
DAVID W. WALLACE Trustee February 26, 1998
David W. Wallace*
ROBERT B. GOODE, JR. Trustee February 26, 1998
Robert B. Goode, Jr.*
WALTER MAY Trustee February 26, 1998
Walter May*
<PAGE>
ALAN L. GOSULE Trustee February 26, 1998
Alan L. Gosule*
DAVID W.C. PUTNAM Trustee February 26, 1998
David W.C. Putnam*
AGNES MULLADY Principal Financial February 26, 1998
Agnes Mullady and Accounting
Officer
By: /s/ AGNES MULLADY*
Agnes Mullady
Attorney-in-fact
*Executed pursuant to powers of attorney filed with PEA No. 4.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Under
Part C of Form N-1A Name of Exhibit Page Number Herein
------------------- --------------- ------------------
1 Form of Declaration of Trust (1)
(a) Form of Amendment to Declaration of Trust (2)
(b) Form of Amendment to Declaration of Trust (3)
2 Form of By-Laws (1)
5(a) Form of Advisory Agreement (1)
(b) Form of Subadvisory Agreement for Northstar Growth
Fund (1)
(c) Form of Subadvisory Agreement for Northstar
Income and Growth Fund (2)
(d) Form of Amendment to Investment Advisory
Agreement (3)
(e) Form of Subadvisory Agreement for Northstar
International Value Fund (3)
8 Form of Custody Agreement (1)
(a) Amendment to Custody Agreement
9 Form of Administrative Services
Agreement (1)
(a) Form of Amendment to Administrative Services
Agreement (3)
10 Opinion of Counsel
11 Consent of Independent Accountants
12 Annual Report to Shareholders
16 Performance Information
17 Powers of Attorney (1)
27 Financial Data Schedule (EX-27)
(1) Filed as part of PEA No. 4 and incorporated herein by reference.
(2) Filed as part of PEA No. 6 and incorporated herein by reference.
(3) Filed as part of PEA No. 8 and incorporated herein by reference.
AMENDMENT TO CUSTODIAN CONTRACT
This Amendment to the Custodian Contract is made as of February 28,
1998 by and between Northstar Variable Trust (formerly Northstar/NWNL Trust, the
"Fund") and State Street Bank and Trust Company (the "Custodian"). Capitalized
terms used in this Amendment without definition shall have the respective
meanings given to such terms in the Custodian Contract referred to below.
WHEREAS, the Fund and the Custodian entered into a Custodian Contract
dated as of April 15, 1994 (as amended and in effect from time to time, the
"Contract"); and
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets, and the Fund has made Northstar Growth Fund
Northstar High Yield Bond Fund, Northstar Income and Growth Fund, Northstar
Multi-Sector Bond Fund and Northstar International Value Fund subject to the
Contract (each such series, together with all other series subsequently
established by the Fund and made subject to the Contract in accordance with the
terms thereof, shall be referred to as a "Portfolio", and, collectively, the
"Portfolios"); and
WHEREAS, the Fund and the Custodian desire to amend certain provisions
of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated
under the Investment Company Act of 1940, as amended; and
WHEREAS, the Fund and the Custodian desire to amend and restate certain
other provisions of the Contract relating to the custody of assets of each of
the Portfolios held outside of the United States.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereby agree to
amend the Contract, pursuant to the terms thereof, as follows:
I. Article 3 of the Contract is hereby deleted, and Articles 4 through 20
of the Contract are hereby renumbered, as of the effective date of this
Amendment, as Articles 5 through 21, respectively.
II. New Articles 3 and 4 of the Contract are hereby added, as of the
effective date of this Amendment, as set forth below.
3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
-----------------------------------------
3.1. DEFINITIONS.
------------
Capitalized terms in this Article 3 shall have the following meanings:
<PAGE>
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
operating in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and recovery
of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, except that the term does not include Mandatory Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Portfolios'
transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with prevailing or
developing custodial or market practices.
3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
-------------------------------------------------------
The Fund, by resolution adopted by its Board of Trustees (the "Board"), hereby
delegates to the Custodian, subject to Section (b) of Rule 17f-5, the
responsibilities set forth in this Article 3 with respect to Foreign Assets held
outside the United States, and the Custodian hereby accepts such delegation, as
Foreign Custody Manager of each Portfolio.
3.3. COUNTRIES COVERED.
------------------
The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
arrangements for each such country listed on Schedule A to this Contract, which
may be amended from time to time by the Foreign Custody Manager. The Foreign
Custody Manager shall list on Schedule A the Eligible Foreign Custodians
selected by the Foreign Custody Manager to maintain the assets of each
Portfolio. Mandatory Securities Depositories are listed on Schedule B to this
Contract, which Schedule B may be amended from time to time by the Foreign
Custody Manager. The Foreign Custody
2
<PAGE>
Manager will provide amended versions of Schedules A and B in accordance with
Section 3.7 of this Article 3.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account, or to place or maintain Foreign Assets, in a country listed on
Schedule A, and the fulfillment by the Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by the Board responsibility as Foreign Custody Manager with
respect to that country and to have accepted such delegation. Following the
receipt of Proper Instructions directing the Foreign Custody Manager to close
the account of a Portfolio with the Eligible Foreign Custodian selected by the
Foreign Custody Manager in a designated country, the delegation by the Board to
the Custodian as Foreign Custody Manager for that country shall be deemed to
have been withdrawn and the Custodian shall immediately cease to be the Foreign
Custody Manager of the Portfolio with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to a Portfolio with respect
to the country as to which the Custodian's acceptance of delegation is
withdrawn.
3.4. SCOPE OF DELEGATED RESPONSIBILITIES.
------------------------------------
3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS.
-----------------------------------------
Subject to the provisions of this Article 3, the Foreign Custody Manager may
place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical
protections available for certificated securities (if
applicable), its methods of keeping custodial records, and its
security and data protection practices;
3
<PAGE>
(ii) whether the Eligible Foreign Custodian has the financial
strength to provide reasonable care for Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation and
standing and, in the case of a foreign securities depository
or clearing agency which is not a Mandatory Securities
Depository, the foreign securities depository's or clearing
agency's operating history and the number of participants in
the foreign securities depository or clearing agency; and
(iv) whether the Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian, such
as by virtue of the existence of any offices of the Eligible
Foreign Custodian in the United States or the Eligible Foreign
Custodian's consent to service of process in the United
States.
3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS.
-------------------------------------------
The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager will provide reasonable care for the Foreign Assets
held by that Eligible Foreign Custodian based on the standards applicable to
custodians in the particular country. Each such contract shall include
provisions that provide:
(i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Fund will be
adequately protected against the risk of loss of the Foreign
Assets held in accordance with such contract;
(ii) that the Foreign Assets will not be subject to any right,
security interest, or lien or claim of any kind in favor of
the Eligible Foreign Custodian or its creditors except a claim
of payment for their safe custody or administration or, in the
case of cash deposits, liens or rights in favor of creditors
of the Eligible Foreign Custodian arising under bankruptcy,
insolvency, or similar laws;
(iii) that beneficial ownership of the Foreign Assets will be freely
transferable without the payment of money or value other than
for safe custody or administration;
(iv) that adequate records will be maintained identifying the
Foreign Assets as belonging to the Fund or as being held by a
third party for the benefit of the Fund;
4
<PAGE>
(v) that the Fund's independent public accountants will be given
access to those records or confirmation of the contents of
those records; and
(vi) that the Fund will receive periodic reports with respect to
the safekeeping of the Foreign Assets, including, but not
limited to, notification of any transfer of the Foreign Assets
to or from the account of the Portfolio or a third party
account containing the Foreign Assets held for the benefit of
the Portfolio,
or, in lieu of any or all of the provisions set forth in (i) through (vi) above,
such other provisions that the Foreign Custody Manager determines will provide,
in their entirety, the same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through (vi) above in their
entirety.
3.4.3. MONITORING.
-----------
In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event
the Foreign Custody Manager determines that the custody arrangements with an
Eligible Foreign Custodian it has selected are no longer appropriate, the
Foreign Custody Manager shall notify the Board in accordance with Section 3.7
hereunder.
3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY.
---------------------------------------------------
For purposes of this Article 3, the Fund shall be deemed to have considered and
determined to accept such Country Risk as is incurred by placing and maintaining
the Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of a Portfolio, and the Fund's investment advisor (or a delegate
thereof) shall be deemed to be monitoring on a continuing basis such Country
Risk to the extent that the Board considers necessary or appropriate. The Fund,
on behalf of the Portfolios, and the Custodian each expressly acknowledge that
the Foreign Custody Manager shall not be delegated any responsibilities under
this Article 3 with respect to Mandatory Securities Depositories.
3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO.
-----------------------------------------------------------
In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the Investment Company Act of 1940, as amended, would
exercise.
5
<PAGE>
3.7. REPORTING REQUIREMENTS.
------------------------
The Foreign Custody Manager shall report the withdrawal of the Foreign Assets
from an Eligible Foreign Custodian and the placement of such Foreign Assets with
another Eligible Foreign Custodian by providing to the Board amended Schedules A
or B at the end of the calendar quarter in which an amendment to either Schedule
has occurred. The Foreign Custody Manager shall make written reports notifying
the Board of any other material change in the foreign custody arrangements of a
Portfolio described in this Article 3 after the occurrence of the material
change.
3.8. REPRESENTATIONS WITH RESPECT TO RULE 17F-5.
-------------------------------------------
The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.
The Fund represents to the Custodian that the Board has determined that it is
reasonable for the Board to rely on the Custodian to perform the
responsibilities delegated pursuant to this Contract to the Custodian as the
Foreign Custody Manager of each Portfolio.
3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY
------------------------------------------------------------------
MANAGER.
--------
The Board's delegation to the Custodian as Foreign Custody Manager of a
Portfolio shall be effective as of the date of execution of this Amendment and
shall remain in effect until terminated at any time, without penalty, by written
notice from the terminating party to the non-terminating party. Termination will
become effective thirty days after receipt by the non-terminating party of such
notice. The provisions of Section 3.3 of this Article 3 shall govern the
delegation to and termination of the Custodian as Foreign Custody Manager of the
Fund with respect to designated countries.
4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF A PORTFOLIO HELD
---------------------------------------------------------------------
OUTSIDE THE UNITED STATES.
--------------------------
4.1 DEFINITIONS.
------------
Capitalized terms in this Article 4 shall have the following meanings:
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian or a Permissible Foreign Custodian.
6
<PAGE>
"Permissible Foreign Custodian" means any person with whom property of a
Portfolio may be placed and maintained outside of the United States under (i)
section 17(f) or 26(a) of the Investment Company Act of 1940, as amended,
without regard to Rule 17f-5 or (ii) an order of the U.S. Securities and
Exchange Commission.
4.2. HOLDING SECURITIES.
-------------------
The Custodian shall identify on its books as belonging to a Portfolio the
foreign securities held by each Foreign Sub-Custodian or Foreign Securities
System. The Custodian may hold foreign securities for all of its customers,
including the Portfolio, with any Foreign Sub-Custodian in an account that is
identified as belonging to the Custodian for the benefit of its customers,
provided however, that (i) the records of the Custodian with respect to foreign
securities of the Portfolio which are maintained in such account shall identify
those securities as belonging to the Portfolio and (ii) the Custodian shall
require that securities so held by the Foreign Sub-Custodian be held separately
from any assets of such Foreign Sub-Custodian or of other customers of such
Foreign Sub-Custodian.
4.3. FOREIGN SECURITIES SYSTEMS.
----------------------------
Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.
4.4. HOLDING OF FOREIGN ASSETS WITH PERMISSIBLE FOREIGN CUSTODIANS.
--------------------------------------------------------------
Subject to the requirements of Sections 17(f) and 26(a) of the Investment
Company Act of 1940, as amended (and any other applicable law or order), the
Custodian may place and maintain Foreign Assets in the care of any Permissible
Foreign Custodian. Article 3 (other than the definitions in Section 3.1) of this
Contract shall not apply to placement of Foreign Assets by the Custodian with a
Permissible Custodian.
4.5. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
----------------------------------------
4.5.1. DELIVERY OF FOREIGN SECURITIES.
--------------------------------
The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of a Portfolio held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:
(i) upon the sale of such foreign securities for the Portfolio in
accordance with reasonable market practice in the country
where such foreign securities are held or traded, including,
without limitation: (A) delivery against expectation of
receiving later payment; or (B) in the case of a sale
7
<PAGE>
effected through a Foreign Securities System, in accordance
with the rules governing the operation of the Foreign
Securities System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolio;
(iv) to the issuer thereof or its agent when such foreign
securities are called, redeemed, retired or otherwise become
payable;
(v) to the issuer thereof, or its agent, for transfer into the
name of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such
Foreign Sub-Custodian) or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market
custom; provided that in any such case the Foreign
Sub-Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Foreign Sub-Custodian's own negligence or willful
misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts or
temporary securities for definitive securities;
(ix) for delivery as security in connection with any borrowing by
the Fund requiring a pledge of assets by the Portfolio;
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a copy of a resolution of the
Board or of an Executive
8
<PAGE>
Committee of the Board so authorized by the Board, signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary that the resolution was duly adopted and
is in full force and effect (a "Certified Resolution"),
specifying the foreign securities to be delivered, setting
forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper trust purpose, and
naming the person or persons to whom delivery of such
securities shall be made.
4.5.2. PAYMENT OF PORTFOLIO MONIES.
----------------------------
Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Portfolio in the following cases only:
(i) upon the purchase of foreign securities for the Portfolio,
unless otherwise directed by Proper Instructions, by (A)
delivering money to the seller thereof or to a dealer therefor
(or an agent for such seller or dealer) against expectation of
receiving later delivery of such foreign securities; or (B) in
the case of a purchase effected through a Foreign Securities
System, in accordance with the rules governing the operation
of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Portfolio;
(iii) for the payment of any expense or liability of the Portfolio
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Contract, legal fees, accounting fees, and other
operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign
exchange contracts for the Portfolio, including transactions
executed with or through the Custodian or its Foreign
Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(vii) in connection with the borrowing/lending of foreign
securities; and
(viii) for any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a Certified Resolution
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made,
9
<PAGE>
declaring such purpose to be a proper trust purpose, and
naming the person or persons to whom such payment is to be
made.
4.5.3. MARKET CONDITIONS.
------------------
Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of a Portfolio and delivery
of Foreign Assets maintained for the account of a Portfolio may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs, including, without limitation, delivering Foreign Assets to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) with the expectation of receiving later payment for such Foreign Assets
from such purchaser or dealer.
4.6. REGISTRATION OF FOREIGN SECURITIES.
-----------------------------------
The foreign securities maintained in the custody of a Foreign Custodian (other
than bearer securities) shall be registered in the name of the Fund (on behalf
of the applicable Portfolio) or in the name of the Custodian or in the name of
any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and
the Fund agrees to hold any such nominee harmless from any liability as a holder
of record of such foreign securities. The Custodian or a Foreign Sub-Custodian
shall not be obligated to accept securities on behalf of the Fund (on behalf of
the applicable Portfolio) under the terms of this Contract unless the form of
such securities and the manner in which they are delivered are in accordance
with reasonable market practice.
4.7. BANK ACCOUNTS.
--------------
A bank account or bank accounts opened and maintained outside the United States
on behalf of a Portfolio with a Foreign Sub-Custodian shall be subject only to
draft or order by the Custodian or such Foreign Sub-Custodian, acting pursuant
to the terms of this Contract to hold cash received by or from or for the
account of the Portfolio.
4.8. COLLECTION OF INCOME.
---------------------
The Custodian shall use reasonable endeavors to collect all income and other
payments in due course with respect to the Foreign Assets held hereunder to
which a Portfolio shall be entitled and shall credit such income, as collected,
to the Portfolio. In the event that extraordinary measures are required to
collect such income, the Fund and the Custodian shall consult as to such
measures and as to the compensation and expenses of the Custodian relating to
such measures.
10
<PAGE>
4.9. PROXIES.
--------
The Custodian will generally with respect to the foreign securities held under
this Article 4 use its reasonable endeavors to facilitate the exercise of voting
and other shareholder proxy rights, subject always to the laws, regulations and
practical constraints that may exist in the country where such securities are
issued. The Fund acknowledges that local conditions, including lack of
regulation, onerous procedural obligations, lack of notice and other factors may
have the effect of severely limiting the ability of the Fund to exercise
shareholder rights.
4.10. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.
----------------------------------------------
The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of a Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. The Custodian shall not be liable for any untimely exercise of
any tender, exchange or other right or power in connection with foreign
securities or other property of the Portfolio at any time held by it unless (i)
the Custodian or the respective Foreign Sub-Custodian is in actual possession of
such foreign securities or property and (ii) the Custodian receives Proper
Instructions with regard to the exercise of any such right or power, and both
(i) and (ii) occur at least three business days prior to the date on which such
right or power is to be exercised.
4.11. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS.
-------------------------------------------------------------------
Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with such
Foreign Sub-Custodian's performance of such obligations. At the election of the
Fund, the Fund shall be entitled to be subrogated to the rights of the Custodian
with respect to any claims against a Foreign Sub-Custodian as a consequence of
any such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund and any applicable Portfolio has not been made whole for any such
loss, damage, cost, expense, liability or claim.
4.12. TAX LAW.
--------
The Custodian shall have no responsibility or liability for any obligations now
or hereafter imposed on the Fund or the Custodian as custodian of the Portfolios
by the tax
11
<PAGE>
law of the United States or of any state or political subdivision thereof. It
shall be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund with respect to the Portfolios or the Custodian
as custodian of such Portfolios by the tax law of countries other than those
mentioned in the above sentence, including responsibility for withholding and
other taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with regard to
such tax law shall be to use reasonable efforts to assist the Fund with respect
to any claim for exemption or refund under the tax law of countries for which
the Fund has provided such information.
4.13. LIABILITY OF CUSTODIAN.
-----------------------
Except as may arise from the Custodian's own negligence or willful misconduct or
the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be
without liability to the Fund for any loss, liability, claim or expense
resulting from or caused by anything which is (A) part of Country Risk or (B)
part of the "prevailing country risk" of the Fund and the Portfolios, as such
term is used in SEC Release Nos. IC-22658; IS-1080 (May 12, 1997) or as such
term or other similar terms are now or in the future interpreted by the U.S.
Securities and Exchange Commission or by the staff of the Division of Investment
Management of such Securities and Exchange Commission.
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities Depository, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.
III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this Amendment
shall prevail. If the Custodian is delegated the responsibilities of
Foreign Custody Manager pursuant to the terms of Article 3 hereof, in
the event of any conflict between the provisions of Articles 3 and 4
hereof, the provisions of Article 3 shall prevail.
12
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.
WITNESSED BY: STATE STREET BANK AND TRUST
(Signature of Glenn Ciotti) COMPANY
________________________________
Glenn Ciotti By: (Signature of Ronald E. Logue)
________________________________________
VP & Assoc. Counsel Name: Ronald E. Logue
Title: Executive Vice President
WITNESSED BY: NORTHSTAR VARIABLE TRUST
(Signature of Stephanie L. Beckner)
___________________________________
Stephanie L. Beckner By: (Signature of Mark L. Lipson)
_____________________________________
Name: Mark L. Lipson
Title: Director and President
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
<S> <C> <C>
Country Subcustodian Non-Mandatory Depositories
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria Erste Bank der oesterreichischen --
Sparkasen AG
Bahrain The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale Bank --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Bulgaria ING Bank N.V. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. --
People's Republic The Hongkong and Shanghai --
of China Banking Corporation Limited,
Shanghai and Shenzhen branches
Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Croatia Privredana banka Zagreb d.d --
Cyprus Barclays Bank PLC --
Cyprus Offshore Banking Unit
Czech Republic Ceskoslovenska Obchodni --
Banka A.S.
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Ltd. --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A Bank of Greece
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
India Deutsche Bank AG; --
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire
Jamaica Scotiabank Trust and Merchant Bank --
Japan The Daiwa Bank, Limited; Japan Securities Depository
The Fuji Bank, Limited Center;
Jordan The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
Republic of Korea The Hongkong and Shanghai Banking --
Corporation Limited
Latvia Hansabank --
Lebanon The British Bank of the Middle East Custodian and Clearing Center of Financial
(as delegate of the Hongkong and Instruments for Lebanon (MIDCLEAR) S.A.L.;
Shanghai Banking Corporation Limited)
Lithuania Vilniaus Bankas AB --
Malaysia Standard Chartered Bank --
Malaysia Berhad
Mauritius The Hongkong and Shanghai --
Banking Corporation Limited
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa -
The Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group --
(New Zealand) Limited
Norway Christiania Bank og --
Kreditkasse
Oman The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
Poland Citibank Poland S.A. --
Portugal Banco Comercial Portugues --
Romania ING Bank, N.V. --
Russia Credit Suisse First Boston, Zurich --
via Credit Suisse First Boston
Limited, Moscow
Singapore The Development Bank --
of Singapore Ltd.
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Slovak Republic Ceskoslovenska Obchodna --
Banka A.S.
Slovenia Banka Creditanstalt d.d. --
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited
Swaziland Barclays Bank of Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland Union Bank of Switzerland --
Taiwan - R.O.C. Central Trust of China --
Thailand Standard Chartered Bank --
Trinidad & Tobago Republic Bank Ltd. --
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
United Kingdom State Street Bank and Trust --
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)
Cedel (Cedel Bank, societe anonyme)
INTERSETTLE (for EASDAQ Securities)
</TABLE>
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
<TABLE>
<CAPTION>
<S> <C>
Country Mandatory Depositories
Argentina -Caja de Valores S.A.;
-CRYL
Australia -Austraclear Limited;
-Reserve Bank Information and
Transfer System
Austria -Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)
Belgium -Caisse Interprofessionnelle de Depots et
de Virements de Titres S.A.;
-Banque Nationale de Belgique
Brazil - Camara de Liquidacao de Sao Paulo, (Calispa);
-Bolsa de Valores de Rio de Janeiro
- All SSB clients presently use Calispa
-Central de Custodia e de Liquidacao Financeira
de Titulos
-Banco Central do Brasil,
Systema Especial de Liquidacao e
Custodia
Bulgaria - Central Depository AD
Canada -The Canadian Depository
for Securities Limited; West Canada
Depository Trust Company [depositories
linked]
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
People's Republic -Shanghai Securities Central Clearing and
of China Registration Corporation;
-Shenzhen Securities Central Clearing
Co., Ltd.
Croatia Ministry of Finance
Czech Republic --Stredisko cennych
papiru(degree) ;
-Czech National Bank
Denmark -Vaerdipapircentralen - The Danish
Securities Center
Egypt -Misr Company for Clearing, Settlement,
and Central Depository
Estonia - Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities
Depository
France -Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres;
-Banque de France,
Saturne System
Germany -The Deutscher Kassenverein AG
Greece -The Central Securities Depository
(Apothetirion Titlon A.E.);
Hong Kong -The Central Clearing and
Settlement System;
-The Central Money Markets Unit
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Hungary -The Central Depository and Clearing
House (Budapest) Ltd.
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]
India The National Securities Depository Limited
Indonesia -Bank of Indonesia
Ireland -The Central Bank of Ireland,
The Gilt Settlement Office
Israel -The Clearing House of the
Tel Aviv Stock Exchange;
-Bank of Israel
Italy -Monte Titoli S.p.A.;
-Banca d'Italia
Japan -Bank of Japan Net System
Republic of Korea -Korea Securities Depository Corporation
Latvia - The Latvian Central Depository
Lebanon -The Central Bank of Lebanon
Lithuania - The Central Securities Depository of Lithuania
Malaysia -Malaysian Central Depository Sdn.
Bhd.;
-Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping
Systems
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Mauritius -The Central Depository & Settlement
Co. Ltd.
Mexico -S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores);
The Netherlands -Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. ("NECIGEF");
New Zealand -New Zealand Central Securities
Depository Limited
Norway -Verdipapirsentralen - The Norwegian
Registry of Securities
Oman -Muscat Securities Market
Peru -Caja de Valores y Liquidaciones
(CAVALI, S.A.)
Philippines -The Philippines Central Depository Inc.
-The Book-Entry-System of Bangko
Sentral ng Pilipinas;
-The Registry of Scripless Securities of the
Bureau of the Treasury
Poland -The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych);
-National Bank of Poland
Portugal -Central de Valores Mobiliarios
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Romania -National Securities Clearing, Settlement an
Depository Co.;
-Bucharest Stock Exchange;
-National Bank of Romania
Singapore -The Central Depository (Pvt.)
Limited;
-Monetary Authority of Singapore
Slovak Republic -Stredisko Cennych Papierov;
-National Bank of Slovakia
Slovenia - Klirinsko Depotna Bruzba
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y
Liquidacion de Valores, S.A.;
-Banco de Espana,
Anotaciones en Cuenta
Sri Lanka -Central Depository System
(Pvt) Limited
Sweden -Vardepapperscentralen VPC AB -
The Swedish Central Securities Depository
Switzerland -Schweizerische Effekten - Giro AG;
Taiwan - R.O.C. -The Taiwan Securities Central
Depository Company, Ltd.
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Thailand -Thailand Securities Depository
Company Limited
Tunisia -STICODEVAM;
-Central Bank of Tunisia;
-Tunisian Treasury
Turkey -Takas ve Saklama Bankasi A.S.;
-Central Bank of Turkey
United Kingdom -The Bank of England,
The Central Gilts Office;
The Central Moneymarkets Office
Uruguay -Central Bank of Uruguay
Zambia -Lusaka Central Depository
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
</TABLE>
<PAGE>
[LETTERHEAD]
LAW OFFICES OF
DECHERT PRICE & RHOADS
1775 EYE STREET, N.W.
WASHINGTON, DC 20006-2401
February 24, 1998
Northstar Variable Trust
Two Pickwick Plaza
Greenwich, Connecticut 06830
Ladies and Gentlemen:
As counsel to the Northstar Variable Trust (the "Fund"), we are familiar
with the Fund's registration under the Investment Company Act of 1940 and with
the registration statement relating to its shares of beneficial interest under
the Securities Act of 1933 (File No. 33-73140) (the "Registration Statement").
We have also examined such other corporate records, agreements, documents and
instruments as we deemed appropriate.
On the basis of the foregoing, we are of the opinion that the shares of
beneficial interest of the Fund being registered under the Securities Act of
1933 in Post-Effective Amendment No. 11 to the Registration Statement
will be legally and validly issued, fully paid and non-assessable by the
Fund.
We hereby consent to the filing of this opinion with and as part
of Post-Effective Amendment No. 11 to the Registration Statement.
Very truly yours,
/s/ Dechert Price & Rhoads
(Coopers & Lybrand letterhead appears here)
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 11 to the Registration Statement of Northstar Variable Trust on Form N-1A
(File No. 33-73140) of our report dated February 12, 1998, on our audit of the
financial statements and financial highlights of Northstar Variable Trust, which
report is included in the Annual Report to Shareholders for the year ended
December 31, 1997, which is also incorporated by reference in this Post-Effect-
ive Amendment to the Registration Statement.
We also consent to the references to our firm under the caption "Financial
Highlights" in the Prospectus and under the captions "Other Information" and
"Financial Statements" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
New York, New York
February 25, 1998
Northstar Variable Trust
NORTHSTAR GROWTH PORTFOLIO
NORTHSTAR INTERNATIONAL VALUE PORTFOLIO
NORTHSTAR INCOME AND GROWTH PORTFOLIO
NORTHSTAR MULTI-SECTOR BOND PORTFOLIO
NORTHSTAR HIGH YIELD BOND PORTFOLIO
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1997
<PAGE>
Northstar Variable Trust
Annual Report,
December 31, 1997
Dear Shareholders:
We are pleased to provide you with the annual report of the Northstar Funds for
the year ended December 31, 1997. We are gratified with your decision to entrust
your assets to the Northstar Funds and are confident that we can assist you
reaching your financial objectives. Our goal is to provide you with long term
consistent and superior 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 this informative.
During the past year the U.S. financial markets remained quite strong despite
several temporary corrections. The favorable investment returns for both stocks
and bonds were supported by continued growth in the economy, strong gains in
corporate profits, and a reduction in the inflation rate.
As the U.S. economy advanced at a 3.8% rate in real GDP growth, it generated
more jobs, reducing the unemployment rate to an historically low level of 4.7%.
This raised concerns that rising wage pressures would begin to impact and
reverse the favorable trends in both corporate profitability and the inflation
rate. However, despite growing demand, the productive capacity of the
increasingly global economy increased even more due to capital investments and
improved efficiency. There are few, if any, shortages today impacting inflation
and rising employment costs are being more than offset by productivity gains
allowing corporate profit margins to remain at historically high levels.
During the year, intermediate and long term treasury bonds appreciated as the
yields declined about 70 basis points (0.7% points). The total return for 10
year U.S. Treasury bonds was about 11.1%. Stock market returns were stronger,
with the Dow Industrials up 24.9%, benefiting from both higher earnings and
higher valuations due to lower interest rates. High yield bonds also had a very
good year benefiting from both a narrowing in interest rate differentials
compared to treasury bonds and from increases in the underlying equity values.
Going into 1998 the investment environment is more volatile and difficult to
predict, but continues to appear favorable. While the current financial crisis
in Asia has introduced a new major uncertainty which we are monitoring closely,
its dampening effect on global growth and inflation may actually prove to be
positive for U.S. bond and stock prices. Growth in the U.S. economy and
corporate profits should continue in 1998, but at a slower rate. With inflation
remaining low, some further declines in interest rates may be possible as the
expected domestic slowdown is confirmed.
We note with great conviction 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 the
philosophy and look forward to serving your investment needs in the future.
Sincerely,
Mark L. Lipson
President
January 30, 1998
<PAGE>
This page has been left blank intentionally.
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
THE MARKETS
o In 1997 the Russell 2000 was up 22.37%, the S&P 500 rose 33.31%, and the
NASDAQ Composite was up 28.08%.
o It was a strong year for large capitalization stocks as evidenced by a
return of 33.31% for the S&P 500. After flirting with small capitalization
stocks in the second and third quarters, the market once again became a
large capitalization dominated and value oriented market, continuing a
trend that has developed over the last 24 months. A few sobering facts from
the fourth quarter include, a flat Dow Jones, and a 2.5% gain for the S&P
500 compared to a -6.8% return for the NASDAQ and a -3.3% return for the
Russell 2000. The growth vs. value comparison is even more telling as the
Russell 2000 Growth Index lost -8.2% for the fourth quarter while the
Russell 2000 Value Index gained 1.7%. Technology stocks suffered through an
extremely volatile year, with strong second and third quarters sandwiched
between dismal first and fourth quarters. In December, a few technology
stocks disappointed Wall Street with poor quarterly earnings, so the
analyst community immediately blamed the Southeast Asian crisis as the
primary reason that they had grossly overestimated the latest quarterly
earnings. As a result, the analyst community started to slash their 1998
earnings estimates on many leading technology stocks. Then another bomb
fell in December when 3M announced that its earnings would be hindered by
the Southeast Asian crisis. All of a sudden, the Southeast Asian crisis was
encompassing more than just technology stocks, so the entire U.S. stock
market sold off because the analyst community rushed to aggressively cut
earnings estimates on many leading companies. This year the strongest
performing stocks were found in the financial sectors as they continued to
benefit from an excellent interest rate environment.
THE FUND
o In 1997 the Northstar Variable Trust Growth Portfolio was up 14.66 %
compared to the Lipper Small Company Fund Index which was up 15.05%.
o The top performing stocks in the Portfolio for this period included: Mail
Well Inc., Keane Inc., Family Dollar Stores, Herman Miller Inc., and Suiza
Food Corp. Amongst the underperformers were: Federal Mogul Corp., Hayes
Lemmerz International, Catalytica Inc., Cellstar Corp., and Wellsford
Residential.
CURRENT STRATEGY
o What the stock market needs is for leading stocks, such as IBM or Microsoft
to release great fourth quarter earnings to inspire a little confidence in
the overall stock market. Unfortunately, the year-to-year earnings
comparisons make it hard for many stocks, such as Intel, to report fourth
quarter earnings that are higher than they were one year earlier. Intel's
latest quarterly earnings are estimated to fall compared to the same
quarter one year earlier. Fortunately, most of our stocks have been largely
removed from the recent earnings estimate cuts by the analyst community.
One factor that will eventually cause the stock market to rally is that the
Federal Reserve Board will likely cut key interest rates at its next
Federal Open Market Committee (FOMC) meeting. Economists now fear that
deflation may temporarily appear on the consumer level, which is one of the
main reasons that the Federal Reserve Board will likely cut key short-term
interest rates. The strong U.S. dollar is now one of the primary reasons
that deflation is rampant. Our models continue to focus on earnings
surprise earnings momentum screens. The Variable Trust Growth Portfolio
currently has a 7% large cap allocation, 43% mid cap allocation and 48%
small cap allocation.
- --------------------------------------------------------------------------------
Fund Information Total Net Assets
(All data are as of 12/31/97) $32,156,331
- --------------------------------------------------------------------------------
Top 10 Holdings
Name %Fund
(1) Aliant Communications, Inc. 2.4%
(2) Costco Cos., Inc 2.2
(3) Dean foods Co. 2.2
(4) Systems & Computer Technology Corp. 2.1
(5) Exel Ltd. 2.0
(6) Mail-Well, Inc. 2.0
(7) Mercury General Corp. 2.0
(8) Amsouth Bancorp 1.9
(9) Dallas Semiconductor Corp. 1.9
(10) Family Dollar Stores, Inc. 1.9
====
20.6%
====
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Top 5 Industries
(by percentage of net assets)
Banks 14.0%
Food & Beverage 7.6%
Insurance 6.7%
Retail 5.9%
Telecommunications 4.1%
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
------------------------------------
Inception 1 year
-------------------------------
16.89% 7.66%
Cumulative Total Return
(do not reflect sales charge)
------------------------------------------
Inception 1 year
-------------------------------
82.06% 14.66%
2
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
Growth of $10,000 invested in Northstar Variable Trust Growth Portfolio
from inception through the Portfolio's Fiscal Year End.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Variable Trust Growth Portfolio from May 6, 1994 (inception of the
Portfolio) through December 31, 1997, assuming the reinvestment of dividends and
capital gains at net asset value, compared to the S&P 500 Index for the same
period. All performance data shown represents past performance, and should not
be considered indicative of future performance.
Northstar Variable Trust Growth Portfolio
[GRAPHIC OMITTED]
Average Annual Total Return
1-Year 14.66%
Since Inception 17.79%
3
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 97.30%
Advanced Medical Devices - 1.22%
Guidant Corp. 6,300 $ 392,175
----------
Advertising/Marketing - 1.23%
Advo, Inc. @ 20,200 393,900
----------
Air Freight/Couriers - 1.80%
Expeditors International of Washington, Inc. 15,000 577,500
----------
Airlines - 1.53%
Alaska Air Group, Inc. @ 12,700 492,125
----------
Apparel/Fabric - 1.50%
Kellwood Co. 16,100 483,000
----------
Auto Parts & Equipment - 2.50%
Federal-Mogul Corp. 10,200 413,100
Hayes Lemmerz International, Inc. @ 14,000 392,000
----------
805,100
----------
Banks - 13.97%
Amsouth Bancorp 11,500 624,594
Associated Banc-Corp 7,420 409,027
Commerce Bancshares, Inc. 5,685 385,159
Dime Bancorp, Inc. 16,000 484,000
Fifth Third Bancorp 5,700 465,975
First of America Bank Corp. 5,700 439,612
Northern Trust Corp. 6,000 418,500
ONBANCorp, Inc. 7,000 493,500
U.S. Trust Corp. 7,400 463,425
Zions Bancorp 6,800 308,550
----------
4,492,342
----------
Building Materials - 2.76%
Centex Construction Products, Inc. 16,700 503,088
Southdown, Inc. 6,500 383,500
----------
886,588
----------
Catalogue/Specialty Distribution - 1.49%
Fingerhut Cos., Inc. 22,400 478,800
----------
Computer Software/Services - 4.79%
Keane, Inc. @ 15,000 609,375
Microsoft Corp. @ 2,500 323,125
Tandy Corp. 15,800 609,287
----------
1,541,787
----------
4
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Construction/Equipment/Trucks - 1.42%
Wabash National Corp. 16,000 $ 455,000
----------
Construction Materials - 1.63%
PACCAR, Inc. 10,000 525,000
----------
Containers and Packaging - 3.09%
Ball Corp. 15,200 536,750
Owens-Illinois, Inc. @ 12,000 455,250
----------
992,000
----------
EDP Peripherals - 1.37%
Mti Technology Corp. @ 33,200 439,900
----------
EDP Services - 2.16%
Systems & Computer Technology Corp. @ 14,000 694,750
----------
Electronics - 2.10%
CellStar Corp. @ 12,600 250,425
Smart Modular Technologies, Inc. @ 18,400 423,200
----------
673,625
----------
Environmental Control - 3.46%
Catalytica, Inc. @ 35,000 415,625
Eastern Environmental Services, Inc. @ 16,300 358,600
Newpark Resources, Inc. @ 19,400 339,500
----------
1,113,725
----------
Financial Services - 1.30%
20th Century Industries 16,100 418,600
----------
Food & Beverage - 7.60%
Canandaigua Brands, Inc. @ 7,600 420,850
ConAgra, Inc. 14,200 465,937
Dean Foods Co. 12,000 714,000
Smithfield Foods, Inc. @ 7,500 247,500
Suiza Foods Corp. @ 10,000 595,625
----------
2,443,912
----------
Healthcare/Pharmaceutical - 1.58%
ICN Pharmaceuticals, Inc. 10,400 507,650
----------
Home Furnishings - 1.27%
Ethan Allen Interiors, Inc. 10,600 408,763
----------
Hospital /Nursing Management - 1.68%
Universal Health Services, Inc. @ 10,700 539,013
----------
5
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Hotels/Resorts - 1.84%
Carnival Corp. 10,700 $ 592,513
----------
Insurance - 6.70%
CMAC Investment Corp. 9,800 591,675
Exel Ltd. 10,300 652,762
Mercury General Corp. 11,800 651,950
Mutual Risk Management Ltd. 8,600 257,463
----------
2,153,850
----------
Medical/Nursing Services - 0.94%
Lincare Holdings, Inc. @ 5,300 302,100
----------
Multi-Sector Companies - 0.93%
McDermott International, Inc. 8,200 300,325
----------
Office Equipment/Supplies - 1.49%
Herman Miller, Inc. 8,800 480,150
----------
Oil & Gas - 0.43%
Forcenergy, Inc. @ 5,300 138,794
----------
Oil & Gas Exploration - 0.98%
Camco International, Inc. 4,950 315,253
----------
Paper - 1.31%
Buckeye Technologies, Inc. @ 9,100 420,875
----------
Printing - 1.96%
Mail-Well, Inc. @ 15,600 631,800
----------
Publishing - 1.19%
Houghton Mifflin Co. 10,000 383,750
----------
Real Estate Investment Trust - 1.62%
Mack California Realty Corp. 12,700 520,700
----------
Retail - 5.89%
Costco Cos., Inc. @ 16,000 714,000
Family Dollar Stores, Inc. 21,000 615,562
Funco, Inc. @ 18,000 267,750
The Gap, Inc. 8,400 297,675
----------
1,894,987
----------
6
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Shares/
Security Principal Amount Value
- --------------------------------------------------------------------------------
Savings & Loan - 1.44%
Great Financial Corp. 9,100 $ 464,100
-----------
Semiconductor - 1.90%
Dallas Semiconductor Corp. 15,000 611,250
-----------
Supermarkets - 1.56%
Dominick's Supermarkets, Inc. @ 13,700 500,050
-----------
Telecommunications - 4.11%
Aliant Communications, Inc. 24,100 756,137
Portugal Telecom SA ** 12,000 564,000
-----------
1,320,137
-----------
Wholesale Distributors - 1.56%
VWR Scientific Products Corp. @ 17,800 502,850
-----------
Total Common Stocks
(cost $27,534,171) 31,288,739
-----------
Total Investment Securities - 97.30%
(cost $27,534,171) 31,288,739
Repurchase Agreement - 11.46%
Agreement with State Street Bank and
Trust bearing interest at 5.75% dated
12/31/97 to be repurchased 1/02/98 in
the amount of $3,686,177 and
collateralized by $3,760,000 U.S.
Treasury Bills, 5.75% due 12/31/98
value $3,763,527
(cost $3,685,000) $ 3,685,000 3,685,000
Liabilities in excess of other assets - (8.76%) (2,817,408)
------------
Net Assets - 100.00% $ 32,156,331
============
@ Non-income producing security.
** American Depositary Receipts.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
NORTHSTAR VARIABLE TRUST INTERNATIONAL VALUE PORTFOLIO
THE MARKETS
o The environment for stocks during the period was among the most difficult
in recent memory. Widespread currency devaluations in Asia ignited a global
firestorm of volatility, leaving few markets unscathed. The MSCI Europe
Australasia Far East Index (EAFE) fell by 6.92% between August 20 and
December 31, 1997. By comparison, U.S. stocks fared reasonably well. While
volatility increased dramatically, the Standard & Poor's 500 returned a
positive 4.02% over the same time period.
o The largest declines were in Asia itself. Equity markets in Thailand,
Malaysia, South Korea, Indonesia, and Hong Kong each lost more than 32%. In
dollar terms, the MSCI Pacific Free Index (excluding Japan) fell 28.83%
over the period.
o European equity markets were the bright spot for the period. The MSCI
Europe Index gained 6.7%, with many major markets ending the period in
positive territory.
THE FUND
o The Fund returned 1.30% during the period from August 8 through December
31, 1997. The Lipper Index of International Equity Funds returned -7.45%
for the same period.
o The performance of the European holdings far exceeded that of the other
regions, particularly Asia. The strongest performers were those holdings in
Denmark, Italy, and France, which slightly offset the negative performance
of holdings in Hong Kong, Thailand, and Japan.
CURRENT STRATEGY
o The bottom-up, value philosophy used in managing the Fund will be
consistently applied to find the best opportunities available in non-US
markets. There is no focus on top-down macroeconomic evaluations or
forecasts in structuring the Fund. Country and industry exposure are
exclusively a residual of the purchase of individual businesses that meet
the strict value criteria.
o The fundamental valuations of the Fund reflect, and will continue to
reflect, significant discounts to the world market averages. This absolute
value focus has performed very favorably in declining market environments
as well as doing well over long-term market cycles.
o The Fund will endeavor to stay fully invested in non-US equities and will
not attempt to anticipate short-term market movements. We will hold the
best values available without bias to either country or industry.
- --------------------------------------------------------------------------------
Fund Information Total Net Assets
(All data are as of 12/31/97) 5,937,024
- --------------------------------------------------------------------------------
Top 10 Holdings
Name %Fund
(1) Groupe Danone 5.0%
(2) Daimler-Benz AG 4.9
(3) Nestle SA 4.6
(4) Tele Danmark A/S 4.2
(5) Istituto Mobiliare Italiano SpA 4.1
(6) Guinness PLC 4.0
(7) Telecom Italia SpA 3.9
(8) Den Danske Bank A/S 3.8
(9) Hitachi Ltd. Co. 3.7
(10) Tokio Marine & Fire Insurance 3.6
=====
41.8%
=====
[THE FOLLOWING WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Top 5 Countries
(by percentage of net assets)
France 14.6%
Italy 13.0%
United Kingdom 9.4%
Japan 8.5%
Denmark 8.1%
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
-------------------------------------------
Inception 1 year
------------------------------------
-5.70% N/A
Cumulative Total Return
(do not reflect sales charge)
--------------------------------------------
Inception 1 year
-------------------------------------
1.30% N/A
8
<PAGE>
NORTHSTAR VARIABLE TRUST INTERNATIONAL VALUE PORTFOLIO
Growth of $10,000 invested in Northstar Variable Trust
International Value Portfolio from inception
through the Fund's Fiscal Year End.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Variable Trust International Value Portfolio from August 8, 1997
(inception of the Fund) through December 31, 1997, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the Morgan Stanley
EAFE Index for the same period. All performance data shown represents past
performance, and should not be considered indicative of future performance.
[GRAPHIC OMITTED]
Average Annual Total Return
Since Inception 1.30%
9
<PAGE>
NORTHSTAR VARIABLE TRUST INTERNATIONAL VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 93.58%
Automotive - 8.06%
Daimler-Benz AG ( Germany ) 4,110 $ 288,325
PSA Peugeot Citroen SA ( France ) 1,510 190,428
----------
478,753
----------
Banking - 17.44%
Argentaria SA ( Spain ) 2,000 121,693
Banca Commerciale Italiana SpA ( Italy ) 42,300 147,058
Compagnie Financiere de Paribas ( France ) 1,290 112,099
Den Danske Bank A/S ( Denmark ) 1,700 226,521
Development Bank of Singapore Ltd. ( Singapore ) 10,600 90,561
Istituto Mobiliare Italiano SpA ( Italy ) 20,300 240,984
Societe Generale SA ( France ) 710 96,735
----------
1,035,651
----------
Beverages/Tobacco - 7.83%
B.A.T. Industries PLC ( United Kingdom ) 17,000 155,026
Companhia Cervejaria Brahma ** ( Brazil ) 5,200 73,775
Guinness PLC ( United Kingdom ) 25,800 236,037
----------
464,838
----------
Electrical & Electronics - 3.72%
Hitachi Ltd. ( Japan ) 31,000 220,801
----------
Energy - 2.90%
Nippon Oil Co. Ltd. ( Japan ) 11,000 28,391
YPF Sociedad Anonima ** ( Argentina ) 4,200 143,587
----------
171,978
----------
Food & Household Products - 9.64%
Groupe Danone ( France ) 1,660 296,503
Nestle SA ( Switzerland ) 184 275,647
----------
572,150
----------
Health/Personal Care - 0.65%
Ono Pharmaceutical Co., Ltd. ( Japan ) 2,000 38,753
----------
Insurance - 11.74%
Assurances Generales de France ( France ) 3,200 169,557
INA SpA ( Italy ) 75,900 153,817
ING Groep N.V. ( Netherlands ) 3,800 158,361
Tokio Marine & Fire Insurance Co. ( Japan ) 19,000 215,363
----------
697,098
----------
Metals - Steel - 1.20%
Pohang Iron & Steel Co. Ltd. ( South Korea ) 4,100 71,494
----------
10
<PAGE>
NORTHSTAR VARIABLE TRUST INTERNATIONAL VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Shares/ Value
Principal
Amount
- --------------------------------------------------------------------------------
Miscellaneous Materials & Commodities - 2.54%
De Beers Centenary AG ( South Africa ) 7,400 $ 150,539
----------
Multi - Industry - 6.32%
BTR PLC ( United Kingdom ) 54,200 163,803
First Pacific Co. Ltd. ( Hong Kong ) 32,000 15,383
Jardine Matheson Holdings Ltd. ( Singapore ) 38,400 195,840
----------
375,026
----------
Telecommunications - 12.82%
Royal PTT Nederland NV ( Netherlands ) 3,850 160,634
Tele Danmark A/S ( Denmark ) 4,060 251,828
Telecom Italia SpA ( Italy ) 36,000 229,961
Telecomunicacoes Brasileiras SA ** ( Brazil ) 1,020 118,766
----------
761,189
----------
Utilities - Electrical & Gas - 8.72%
Centrais Eletricas Brasileiras SA ** ( Brazil ) 8,200 200,818
EVN Energie-Versorgung Niederoesterreich AG ( Austria ) 670 88,050
Korea Electric Power Corp. ** ( South Korea ) 17,000 171,062
Union Electrica Fenosa, SA ( Spain ) 6,000 57,499
----------
517,429
----------
Total Common Stocks
(cost $5,366,018) 5,555,699
----------
Total Investment Securities - 93.58%
(cost $5,366,018) 5,555,699
Repurchase Agreement - 6.62%
Agreement with State Street Bank and
Trust bearing interest at 5.75% dated
12/31/97, to be repurchased 1/02/98
in the amount of $393,126 and
collateralized by $395,000 U.S.
Treasury Bonds, 5.875% due 1/31/99,
value $405,327
(cost $393,000) $ 393,000 393,000
Liabilities in excess of other assets - (0.20%) (11,675)
-----------
Net Assets - 100.00% $ 5,937,024
===========
** American Depositary Receipts.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
THE MARKETS
o The U.S. financial Markets experienced another year of strong gains. The
Dow industrials had a total return of 24.9%. The S&P 500 posted a 33.31%
gain as relatively few large cap growth stocks such as GE dominated the
index. Smaller cap stocks in Russell 2000 were up 22.2% The total return
for the 10 year U.S. Treasury bond was 11.1%, while the average for the
bond funds followed by Lipper was a gain of 8.7%. By year end, current
yield for 10 and 30 year Treasuries had dropped to 5.74% and 5.92%,
respectively, down from 6.41% and 6.64% at the end of 1996. Quality spreads
for corporate bonds narrowed for most of the year until the crisis is Asia
reversed the trend during the final quarter.
o These favorable returns were driven by a combination of surprisingly strong
economic growth of well over 3% and even more surprisingly, a reduced level
of inflation, down towards 2%. Despite growing global competition, strong
productivity gains allowed corporations to maintain high profit margins and
produce earnings increases of better than 10% for the S&P 500.
o After mid-October the growing crisis in Asia had a dramatic impact causing
the flight to quality within both the bond and stock markets as the U.S.
appreciated and expectations for inflation and economic growth fell.
Investor anticipated problems with demand, price, defaults, and profit
margins sold off many cyclical, technology, commodity, and global financial
stocks bidding up many domestic or consistent growth stocks.
THE FUND
o The return for the portfolio in 1997 was 15.8%. This compares favorably to
the average bond fund in Lipper at 8.7%, which was less than the average
U.S. stock fund at 24.4%, and somewhat lagged the average balanced fund at
19.0%. The holdings of equities concentrated in the yielding Dow stocks
plus investment grade bonds were not the market leaders in the first three
quarters. The stronger than expected stock market was driven by growth
stocks and quality spreads narrowed for bonds. Several of the higher
yielding Dow stocks were actually down for the year (3M, Kodak, Sears).
o Beginning in mid-November the list of stocks was broadened. Some of the
large positions in high dividend low growth Dow stocks were eliminated or
reduced in favor of a more diversified portfolio including some faster
growers. Positions in the major autos and integrated oils were cut, while
some technology, services, and real estate stocks were added. These changes
plus the general flight to quality for stocks and bonds helped performance
in the fourth quarter. Holdings of large-cap growth stocks (GE, Merck, ATT,
Bristol-Myers, Philip Morris) were leaders.
CURRENT STRATEGY
o The Fund remains invested in about 60% dividend paying stocks with an
average dividend yield of 2.6%, about 1% point higher than the S&P 500.
Increased diversification of the equities continues. High quality domestic
bonds are 40% of the portfolio (average rating AA-, coupon 6.9%, maturity
9.4yrs.) and bring the yield of the portfolio up to 4.3% before expenses.
Holdings in GNMA bonds that no longer trade below par and are increasingly
subject to redemption are being switched into corporates where yields have
widened somewhat compared to treasuries.
o More facts will become available concerning the new global environment as
companies report recent operations. Research efforts will focus on
companies with strong fundamentals in beaten down sectors where exaggerated
conceptual fears may have made the stocks true bargains.
- --------------------------------------------------------------------------------
Fund Information Total Net Assets
(All data are as of 12/31/97) $21,530,856
- --------------------------------------------------------------------------------
Top 10 Holdings
Name %Fund
(1) GNMA , 6.50%, due 2/15/26 6.8%
(2) U.S. Treasury Notes, 6.50%, due 10/15/06 6.6
(3) General Electric 3.9
(4) Philip Morris Cos., Inc 3.5
(5) E.I. du Pont De Nemours & Co. 3.4
(6) Bristol-Meyers Squibb Co. 3.0
(7) Minnesota, Mining & Manufacturing 2.7
(8) J.P. Morgan & Co., Inc. 2.7
(9) U.S. Treasury Notes, 6.50%, 2.7
due 5/31/01 2.4
(10) Deere & Co. 2.3
====
40.0%
====
[THE FOLLOWING WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Top 5 Industries
(by percentage of net assets)
Real Estate
Investment Trust 9.3%
Consumer Products 7.9%
Finance & Banking 6.4%
Financial 5.3%
Pharmaceutical 5.0%
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
--------------------------------------------
Inception 1 year
---------------------------------
13.27% 8.81%
Cumulative Total Return
(do not reflect sales charge)
--------------------------------------------
Inception 1 year
----------------------------------
62.78% 15.81%
12
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
Growth of $10,000 invested in Northstar Variable Trust
Income and Growth Portfolio from inception
through the Portfolio's Fiscal Year End.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Variable Trust Income and Growth Portfolio from May 6, 1994 (inception
of the Portfolio) through December 31, 1997, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the S&P 500 Index
and the Lehman Brothers' Government/Corporate Bond Index for the same period.
All performance data shown represents past performance, and should not be
considered indicative of future performance.
Northstar Variable Trust Income And Growth Portfolio
[GRAPHIC OMITTED]
Average Annual Total Return
1-Year 15.81%
Since Inception 14.24%
13
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 60.73%
Aerospace & Defense - 1.09%
Boeing Co. 4,800 $ 234,900
----------
Auto Parts & Equipment - 0.87%
Magna International, Inc. @@ 3,000 188,438
----------
Automotive - 1.19%
Chrysler Corp. 7,300 256,869
----------
Capital Goods Manufacturing - 3.91%
General Electric Co. 11,460 840,877
----------
Chemicals - 4.20%
E.I. du Pont De Nemours & Co. 12,045 723,453
Eastman Chemical Co. 3,050 181,665
----------
905,118
----------
Computers - 1.47%
Compaq Computer Corp. 5,600 316,050
----------
Consumer Products - 7.89%
Kimberly-Clark Corp. 7,490 369,351
Minnesota, Mining & Manufacturing Co. 7,000 574,437
Philip Morris Cos., Inc. 16,650 754,453
----------
1,698,241
----------
Electrical Equipment - 1.07%
AMP, Inc. 5,500 231,000
----------
Energy - 1.58%
Mobil Corp. 4,700 339,281
----------
Finance & Banking - 6.34%
Bankers Trust New York Corp. 2,510 282,218
J. P. Morgan & Co., Inc. 5,085 573,969
Mellon Bank Corp. 4,600 278,875
NationsBank Corp. 3,800 231,088
----------
1,366,150
----------
Forest & Paper Products - 1.39%
International Paper Co. 6,920 298,425
----------
Insurance - 2.09%
Conseco, Inc. 7,500 340,781
Nationwide Financial Services, Inc. 3,000 108,375
----------
449,156
----------
14
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Machinery - 2.27%
Deere & Co. 8,400 $ 489,825
----------
Office Equipment/Supplies - 1.58%
Xerox Corp. 4,600 339,538
----------
Oil & Gas - 2.17%
El Paso Natural Gas Co. 3,400 226,100
ENSCO International, Inc. 7,200 241,200
----------
467,300
----------
Oil & Gas Drilling - 1.22%
Baker Hughes, Inc. 6,000 261,750
----------
Petroleum Services - 1.57%
Schlumberger, Ltd. 4,200 338,100
----------
Pharmaceutical - 4.95%
Bristol-Myers Squibb Co. 6,880 651,020
Merck & Co., Inc. 3,900 414,375
----------
1,065,395
----------
Printing & Publishing - 0.28%
Meredith Corp. 1,700 60,669
----------
Real Estate Investment Trust - 9.22%
CarrAmerica Realty Corp. 11,500 364,406
Developers Diversified Realty Corp. 5,600 214,200
Felcor Suite Hotels, Inc. 6,700 237,850
Glimcher Realty Trust 8,640 194,940
Kilroy Realty Corp. 10,500 301,875
Spieker Properties, Inc. 6,500 278,688
Starwood Lodging Trust 6,800 393,550
----------
1,985,509
----------
Semiconductor - 1.01%
Intel Corp. 3,100 217,775
----------
Technology - 0.67%
Lucent Technologies, Inc. 1,798 143,615
----------
Telecommunications - 1.71%
AT&T Corp. 6,020 368,725
----------
Tobacco - 0.99%
RJR Nabisco Holdings Corp. 5,700 213,750
----------
15
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal
Security Amount Value
- --------------------------------------------------------------------------------
Total Common Stocks
(cost $11,482,982) $13,076,456
-----------
Domestic Corporate Bonds - 16.50%
Aerospace & Defense - 1.17%
Raytheon Co.
6.45%, Notes, 8/15/02 $ 250,000 252,235
-----------
Airlines - 0.74%
Continental Airlines, Inc.
7.82%, Pass-Thru Certificates, 4/15/15 147,059 158,852
-----------
Broadcasting & Media - 1.44%
A.H. Belo Corp.
7.125%, Sr. Notes, 6/01/07 300,000 310,884
-----------
Consumer Products - 1.89%
Avon Products, Inc. #
6.55%, Notes, 8/01/07 400,000 407,116
-----------
Energy Services - 1.92%
Smith International, Inc.
7.00%, Sr. Notes, 9/15/07 400,000 413,860
-----------
Financial - 5.32%
Bear Stearns Co., Inc.
6.75%, Sr. Notes, 12/15/07 400,000 402,884
Chase Manhattan Corp.
7.25%, Subordinated Notes, 6/01/07 300,000 314,784
First Union Corp.
7.50%, Subordinated Notes, 7/15/06 400,000 427,300
-----------
1,144,968
-----------
Insurance - 0.62%
Leucadia National Corp.
8.25%, Sr. Subordinated Notes, 6/15/05 125,000 133,640
-----------
Pharmaceutical - 1.52%
American Home Products
7.90%, Notes, 2/15/05 300,000 326,007
-----------
Technology - 1.88%
International Business Machines Corp.
6.45%, Notes, 8/01/07 400,000 405,132
-----------
Total Domestic Corporate Bonds
(cost $3,424,108) 3,552,694
-----------
16
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal
Security Amount Value
- --------------------------------------------------------------------------------
U.S. Government and Agencies - 21.73%
Fannie Mae, 7.33%, due 6/19/07 $ 400,000 $ 410,580
Fannie Mae, 7.00%, due 7/17/07 400,000 406,960
Federal Home Loan Mortgage Corp., 7.05%,
due 12/03/07 400,000 401,152
GNMA, 6.50%, due 2/15/26 1,548,103 1,533,582
U.S. Treasury Notes, 6.50%, due 5/31/01 500,000 512,175
U.S. Treasury Notes, 6.50%, due 10/15/06 1,350,000 1,414,179
-----------
Total U.S. Government and Agencies
(cost $4,589,182) 4,678,628
-----------
Total Investment Securities - 98.96%
(cost $19,496,272) 21,307,778
Repurchase Agreement - 5.57%
Agreement with State Street Bank and
Trust bearing interest at 5.75% dated
12/31/97, to be repurchased 1/02/98
in the amount of $1,198,383 and
collateralized by $1,200,000 U.S.
Treasury Notes, 5.875% due 8/31/99,
valued $1,225,996
(cost $1,198,000) 1,198,000 1,198,000
Liabilities in excess
of other assets - (4.53%) (974,922)
------------
Net Assets - 100.00% $ 21,530,856
============
@@ Foreign security.
# Sale restricted to qualified institutional investors.
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
THE MARKETS
o U.S. economic growth slowed from an annual rate of 4.3% in the fourth
quarter of 1996 to an estimated rate of 3.2% in the fourth quarter of 1997.
Despite that still unexpectedly high growth, consumer prices rose only 1.7%
in 1997, the smallest increase in 11 years. Low inflation, a very strong
U.S. dollar and foreign turmoil caused our domestic interest rates to fall.
In 1997, yields of 10-year and 30-year Treasury bonds traded in a
moderately wide 130 basis points (bps) range. By December 31, 1997, those
yields were down approximately 70 bps to 5.74% and 5.92%, respectively.
Lower interest rates and strong economic growth combined to propel both
stock and bond prices significantly higher.
o High yield bond returns in 1997 were 12.76%, compared to 9.65% for all
domestic bonds, primarily due to strong demand for high coupons, rising
underlying stock valuations and declining credit concerns. Record-high
small cap stock prices helped increase the credit quality and prices of
high yield bonds. Among high yield bonds, in general, the lower-rated bonds
outperformed the higher-rated bonds (except in the fourth quarter).
o Despite recent economic and financial weakness in some foreign countries,
total returns on bonds from smaller foreign markets still rose 13.18% in
1997. Those returns were based mainly on overall better political and
economic fundamentals in many foreign countries and a continuing worldwide
hunt for yield by investors. However, increasing economic and financial
problems in Asia in the fourth quarter of 1997 caused investors worldwide
to reassess the values of their investments, which interrupted the earlier
strong rise in prices of stocks and bonds here and abroad.
o A strong and rising U.S. dollar made it very difficult to find good values
among bonds denominated in foreign currencies.
THE FUND
o In 1997, the total return of the Fund's shares was 6.15%; the Lipper
average was 8.74%. A strong sales effort helped net assets rise 67% in
1997, from $6.3MM to $10.5MM.
o The Fund cut its cash holdings from 13% to 3% in order to increase its
total return. We raised the Fund's holdings of U.S. government bonds from
18% to 30% to take advantage of declining interest rates and to offset some
of the risk associated with the Fund's emerging market positions. Foreign
investments (both high yield and investment grade) were reduced from their
peak levels to 22% by the end of 1997.
o The requirement that the Fund have no more than 50% of its assets in high
yield continued to constrain our total return in 1997.
CURRENT STRATEGY
o Continue above-average exposure in non-cyclicals; keep duration at or below
6 years to limit volatility.
o Upgrade the credit quality of high-yield holdings. Maintain portfolio
allocations near the permitted limit of 50% high yield. Invest 15% in U.S.
government bonds and 35% in investment grade bonds. We will eliminate
virtually all emerging market exposure until a bottom has clearly occurred,
after which we will position the Fund to participate in the above-average
returns that a recovery in emerging market bond prices should generate.
- --------------------------------------------------------------------------------
Fund Information Total Net Assets
(All data are as of 12/31/97) $10,548,167
- --------------------------------------------------------------------------------
Top 10 Holdings
Name %Fund
(1) U.S.Treasury Notes, 5.875%, due 9/30/02 7.2%
(2) Fannie Mae, 6.50%, due 5/18/26 4.6
(3) Empresa Electrica Del Norte Grande SA 4.2
(4) Fannie Mae, 7.00%, due 6/18/25 4.2
(5) U.S. Treasury Notes, 6.625%, due 4/30/02 3.7
(6) Fannie Mae, 7.50%, due 12/18/27 3.4
(7) Residential Funding Corp. 3.1
(8) Paxson Communications Corp. 2.7
(9) Superior National Insurance Group, Inc. 2.4
(10) Fannie Mae, 7.50%, due 12/18/27 2.4
====
37.9%
====
[THE FOLLOWING WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Sector Allocations
(by percentage of net assets)
High Yield 43.6%
U.S. Government 33.1%
Investment
Grade 16.8%
Equities 3.3%
Cash 3.2%
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
--------------------------------------------
Inception 1 year
----------------------------------
34.27% -0.70%
Cumulative Total Return
(do not reflect sales charge)
-----------------------------------------
Inception 1 year
-----------------------------------
39.27% 6.15%
18
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
Growth of $10,000 invested in Northstar Variable Trust
Multi-Sector Bond Portfolio
from inception through the Portfolio's Fiscal Year End.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Variable Trust Multi-Sector Bond Portfolio from May 6, 1994 (inception
of the Portfolio) through December 31, 1997, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the Lehman Brothers'
Government/Corporate Bond Index for the same period. All performance data shown
represents past performance, and should not be considered indicative of future
performance.
Northstar Variable Trust Multi-sector Bond Portfolio
[GRAPHIC OMITTED]
Average Annual Total Return
1-Year 6.15%
Since Inception 9.47%
19
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal
Security Amount Value
- --------------------------------------------------------------------------------
Investment Grade Securities - 16.81%
Domestic Bonds & Notes - 5.07%
Electric Utilities - 1.06%
Boston Edison Co.
9.375%, Debentures, 8/15/21 $ 100,000 $ 111,632
------------
Oil & Gas - 1.98%
PDV America, Inc.
7.875%, Sr. Notes, 8/01/03 200,000 209,348
------------
Telecommunications - 2.03%
TCI Communications, Inc.
8.00%, Sr. Notes, 8/01/05 200,000 214,372
------------
Total Domestic Bonds & Notes 535,352
------------
Foreign Bonds & Notes - 11.74%
Diversified Financial Services - 1.75%
Guangdong Enterprises Holding Ltd. #
8.875%, Sr. Notes, 5/22/07 200,000 184,694
------------
Electric Utilities - 4.24%
Empresa Electrica Del Norte Grande SA #
7.75%, Notes, 3/15/06 450,000 446,602
------------
Foreign Government Securities - 5.75%
Poland Government $
3.25/7.00%, due 10/27/24 250,000 169,687
Republic of Columbia
7.25%, due 2/23/04 150,000 142,451
Republic of Indonesia
7.75%, due 8/01/06 150,000 120,240
Republic of Italy @@ (1)
12.00%, due 5/01/02 245,000,000 174,187
------------
606,565
------------
Total Foreign Bonds & Notes 1,237,861
------------
Total Investment Grade Securities
(cost $1,764,601) 1,773,213
------------
20
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal
Security Amount Value
- --------------------------------------------------------------------------------
High Yield Securities - 42.67%
Domestic Bonds & Notes - 32.81%
Airlines - 4.28%
Atlantic Coast Airlines, Inc. #
8.75%, Pass Thru Certificates, 1/01/07 $250,000 $251,250
Constellation Finance LLC #
9.80%, Asset Backed Notes, 1/01/01 200,000 200,000
--------
451,250
--------
Broadcasting - 2.41%
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes, 7/15/07 250,000 253,750
--------
Cable Television - 1.86%
Adelphia Communications Corp.
12.50%, Sr. Notes, 5/15/02 26,000 27,560
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Secured Discount Notes, 3/15/04 200,000 169,000
--------
196,560
--------
Diversified Financial Services - 0.97%
Central Rents, Inc.
12.875%, Sr. Notes, 12/15/03 100,000 102,000
--------
Energy - 2.38%
AES Corp. #
8.50%, Sr. Subordinated Notes, 11/01/07 250,000 251,562
--------
Entertainment/Film - 0.96%
Paramount Communications, Inc.
8.25%, Sr. Debentures, 8/01/22 100,000 101,270
--------
Food/Beverage/Tobacco - 1.45%
Richmont Marketing Specialists, Inc. #
10.125%, Sr. Subordinated Notes, 12/15/07 150,000 153,000
--------
Healthcare - 1.90%
Vencor, Inc.
8.625%, Sr. Subordinated Notes, 7/15/07 200,000 200,500
--------
Insurance - 3.42%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 100,000 102,750
Superior National Insurance Group, Inc. #
10.75%, Company Guarantee, 12/01/17 2,500 257,500
--------
360,250
--------
21
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal
Security Amount Value
- --------------------------------------------------------------------------------
Oil & Gas - 0.93%
TransAmerican Energy Corp. #
11.50%, Sr. Secured Notes, 6/15/02 $ 100,000 $ 98,500
----------
Printing & Publishing - 1.91%
Garden State Newspapers, Inc. #
8.75%, Sr. Subordinated Notes, 10/01/09 200,000 201,500
----------
Services - 0.96%
Sabreliner Corp.
12.50%, Sr. Notes, 4/15/03 96,000 101,040
----------
Telecommunications - 9.38%
Hyperion Telecommunications, Inc. $
0/13.00%, Sr. Discount Notes, 4/15/03 150,000 109,500
ICG Holdings, Inc. $
0/12.50%, Sr. Secured Discount Notes, 5/01/06 100,000 75,000
ITC Deltacom, Inc.
11.00%, Sr. Notes, 6/01/07 200,000 217,000
RCN Corp. #
10.00%, Sr. Notes, 10/15/07 200,000 208,500
Transtel Pass-Thru Trust SA #
12.50%, Pass-Thru Trust Certificates, 11/01/07 100,000 95,500
UNIFI Communications, Inc.
14.00%, Sr. Notes, 3/01/04 100,000 90,500
WinStar Communications, Inc. $
0/14.00%, Sr. Discount Notes, 10/15/05 100,000 80,500
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04 100,000 112,750
----------
989,250
----------
Total Domestic Bonds & Notes 3,460,432
----------
Foreign Bonds & Notes - 9.86%
Foreign Government Securities - 2.39%
Republic of Turkey #
10.00%, Notes, 9/19/07 250,000 252,813
----------
Paper - 1.53%
APP Finance II Mauritius Ltd. $
0/12.00%, Notes, 2/15/04 200,000 162,000
----------
Services - 1.70%
Guangzhou-Shen Superhighway Holdings Ltd. #
10.25%, Sr. Notes, 8/15/07 200,000 179,000
----------
22
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Units/
Principal Amount/
Security Shares Value
- --------------------------------------------------------------------------------
Telecommunications - 3.27%
Colt Telecom Group PLC $(2)
0/12.00%, Units, 12/15/06 200 $ 156,000
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 $ 250,000 188,750
-----------
344,750
-----------
Utilities - 0.97%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 100,000 102,000
-----------
Total Foreign Bonds & Notes 1,040,563
-----------
Total High Yield Securities
(cost $4,377,879) 4,500,995
-----------
Convertible Bonds - 0.85%
Telecommunications - 0.85%
SA Telecommunications, Inc. # *
10.00%, Notes, 8/15/06 125,000 37,500
Winstar Communications, Inc. # $
0/14.00%, Sr. Discount Notes, 10/15/05 50,000 51,750
-----------
Total Convertible Bonds
(cost $163,159) 89,250
-----------
Preferred Stocks - 3.16%
Broadcasting - 2.66%
Paxson Communications Corp., 12.50% & 2,763 280,394
-----------
Energy - 0.50%
Enron Capital Resources L.P., 9.00% 2,000 53,376
-----------
Total Preferred Stocks
(cost $322,159) 333,770
-----------
Warrants - 0.18% @
Consumer Products - 0.02%
Chattem, Inc., (expires 6/17/99) 50 2,155
-----------
Steel - 0.01%
Sheffield Steel Corp., (expires 11/01/01) 500 1,000
-----------
Supermarkets - 0.00%
Dairy Mart Convenience Stores, Inc.,
(expires 12/01/01) 666 500
-----------
23
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Shares/
Principal
Security Amount Value
- --------------------------------------------------------------------------------
Telecommunications - 0.15%
Clearnet Communications, Inc., (expires 9/15/05) 660 $ 6,270
Hyperion Telecommunications, Inc., (expires 4/15/01) 150 9,000
UNIFI Communications, Inc., (expires 2003)# 100 0
-----------
15,270
-----------
Total Warrants
(cost $2,000) 18,925
-----------
U.S. Government and Agencies - 33.13%
Fannie Mae, 0%, due 4/25/27 $ 242,606 224,309
Fannie Mae, 7.00%, due 6/18/25 - 4/18/27 1,159,755 1,139,633
Fannie Mae, 7.50%, due 12/18/27 623,211 614,542
Residential Funding Corp., 7.25%, due 9/25/27 337,409 330,028
Resolution Trust Corp., 8.00%, due 6/25/26 43,801 43,977
United States Treasury Notes, 5.875%, due 9/30/02 750,000 754,710
United States Treasury Notes, 6.625%, due 4/30/02 375,000 387,608
-----------
Total U.S. Government and Agencies
(cost $3,464,435) 3,494,807
-----------
Total Investment Securities - 96.80%
(cost $10,094,233) 10,210,960
Other assets less liabilities - 3.20% 337,207
-----------
Net Assets - 100.00% $10,548,167
===========
# Sale restricted to qualified institutional investors.
$ Step Bond.
@@ Foreign Security.
* Defaulted Security.
& Payment-in-kind security.
@ Non-income producing security.
(1) The principal amount shown is shown in the respective country's currency.
(2) A unit consists of $1,000 par value Sr. Discount Notes, 12.00% due 12/15/06
and 1 warrant.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
THE MARKETS
o U.S. economic growth slowed from an annual rate of 4.3% in the fourth
quarter of 1996 to an estimated rate of 3.2% in the fourth quarter of 1997.
Despite that still unexpectedly high growth, consumer prices rose only 1.7%
in 1997, the smallest increase in 11 years. Low inflation, a very strong
U.S. dollar and foreign turmoil caused our domestic interest rates to fall.
In 1997, yields of 10-year and 30-year Treasury bonds traded in a
moderately wide 130 basis points (bps) range. By December 31, 1997, those
yields were down approximately 70 bps to 5.74% and 5.92%, respectively.
Lower interest rates and strong economic growth combined to propel both
stock and bond prices significantly higher.
o High yield bond returns in 1997 were 12.76%, compared to 9.65% for all
domestic bonds, primarily due to strong demand for high coupons, rising
underlying stock valuations and declining credit concerns. Record-high
small cap stock prices helped increase the credit quality and prices of
high yield bonds. Among high yield bonds, in general, the lower-rated bonds
outperformed the higher-rated bonds (except in the fourth quarter).
o Despite recent economic and financial weakness in some foreign countries,
total returns on bonds from smaller foreign markets still rose 13.18% in
1997. Those returns were based mainly on overall better political and
economic fundamentals in many foreign countries and a continuing worldwide
hunt for yield by investors. However, increasing economic and financial
problems in Asia in the fourth quarter of 1997 caused investors worldwide
to reassess the values of their investments, which interrupted the earlier
strong rise in prices of stocks and bonds here and abroad.
THE FUND
o In 1997, the total return of the Fund's shares was 9.00%; the Lipper
average was 12.96%. A strong sales effort helped net assets rise 90% during
1997, from $6.6MM to $12.6MM.
o The Fund's performance in 1997 was affected by its significant holdings of
cash, by an increase in higher-rated high yield bonds, and by price
declines in some of the high-quality emerging market bonds it owns.
However, the NAV protection that the large cash position gave the Fund in
an increasingly volatile environment largely offset the restraining effects
of cash on the yield component of the Fund's total return. The Fund also
benefited from increases in the values of its telecommunications and
broadcasting holdings.
o Due to the decline in small stock prices in the fourth quarter, on a
full-year basis, hardly any of the stocks or equity rights attached to
bonds ("equity kickers") held by the Fund were able to boost its returns in
1997. However, many of these positions are poised to make contributions to
the Fund's total return in 1998 as their issuers keep growing.
CURRENT STRATEGY
o Continue above-average exposure in non-cyclical industries and in bonds
that have equity kickers. Focus on investments in undervalued bonds that
have high yields and above-average potential for capital appreciation.
o Given the significant increase in market volatility and a continuing flight
to quality, we will maintain high cash reserves and upgrade the average
credit quality of the Fund's other holdings as a defensive measure.
- --------------------------------------------------------------------------------
Fund Information Total Net Assets
(All data are as of 12/31/97) $12,606,164
- --------------------------------------------------------------------------------
Top 10 Holdings
Name %Fund
(1) EchoStar Communications Corp. 2.5%
(2) RNC Corp. 2.5
(3) Hyperion Telecommunications, Inc. 2.4
(4) Statia Terms International, Inc. 2.1
(5) Pindo Deli
Finance Mauritius Ltd. 2.1
(6) Ameriserve Food Dist., Inc. 2.0
(7) Localiza Rent A Car SA 2.0
(8) Transamerican Refining Corp. 2.0
(9) Intracel Corp. 1.8
(10) ITC Deltacom, Inc. 1.7
====
21.1%
====
[THE FOLLOWING WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Top 5 Industries
(by percentage of net assets)
Telecommunications 21.3%
Broadcasting 9.9%
Services 8.9%
Food/Beverages/Tobacco 6.5%
Healthcare 6.0%
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
--------------------------------------------
Inception 1 year
-------------------------------
10.30% 2.00%
Cumulative Total Return
(do not reflect sales charge)
-------------------------------------------
Inception 1 year
-------------------------------
48.15% 9.00%
25
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
Growth of $10,000 invested in Northstar Variable Trust
High Yield Bond Portfolio from inception through
the Portfolio's Fiscal Year End.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Variable Trust High Yield Bond Portfolio from May 6, 1994 (inception
of the Portfolio) through December 31, 1997, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the Lehman Brothers'
Government/Corporate Bond Index for the same period. All performance data shown
represents past performance, and should not be considered indicative of future
performance.
Northstar Variable Trust High Yield Bond Portfolio
[GRAPHIC OMITTED]
Average Annual Total Return
1-Year 9.00%
Since Inception 11.34%
26
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
Domestic Bonds & Notes - 51.71%
Airlines - 1.59%
Atlantic Coast Airlines, Inc. #
8.75%, Pass Thru Certificates, 1/01/07 $200,000 $201,000
--------
Auto Parts & Equipment - 0.83%
Titan Wheel International, Inc.
8.75%, Sr. Subordinated Notes, 4/01/07 100,000 105,000
--------
Automotive - 1.63%
Walbro Corp. #
10.125%, Sr. Notes, 12/15/07 200,000 206,000
--------
Broadcasting - 3.90%
Brill Media Company LLC $ (1)
0/7.50%, Units, 12/15/07 200 187,500
Capstar Broadcasting Partners, Inc.
9.25%, Sr. Subordinated Notes, 7/01/07 100,000 103,250
Sinclair Broadcast Group, Inc.
8.75%, Sr. Subordinated Notes, 12/15/07 200,000 200,500
--------
491,250
--------
Cable Television - 1.55%
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Secured Discount Notes, 3/15/04 200,000 169,000
Heartland Wireless Communications, Inc.
13.00%, Sr. Notes, 4/15/03 75,000 25,875
--------
194,875
--------
Capital Goods Manufacturing - 1.20%
Roller Bearing Co. of America, Inc. #
9.625%, Sr. Subordinated Notes, 6/15/07 150,000 151,875
--------
Chemicals - 1.65%
Hydrochem Industrial Services, Inc.
10.375%, Sr. Subordinated Notes, 8/01/07 200,000 208,000
--------
Computers - 1.62%
Axiohm Transaction, Inc. #
9.75%, Sr. Subordinated Notes, 10/01/07 200,000 204,000
--------
Consumer Products - 2.40%
Packaged Ice Inc.
12.00%, Sr. Notes, 4/15/04 150,000 153,750
Packaged Ice, Inc. #
12.00%, Notes, 4/15/04 145,000 148,625
--------
302,375
--------
27
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
Diversified Financial Services - 0.81%
Central Rents, Inc.
12.875%, Sr. Notes, 12/15/03 $100,000 $102,000
--------
Entertainment/Film - 2.43%
Paramount Communications, Inc.
8.25%, Sr. Debentures, 8/01/22 100,000 101,270
Speedway Motorsports, Inc.
8.50%, Sr. Subordinated Notes, 8/15/07 200,000 205,000
--------
306,270
--------
Food/Beverage/Tobacco - 4.05%
Ameriserve Food Distribution, Inc. #
8.875%, Sr. Notes, 10/15/06 250,000 253,750
Aurora Foods, Inc.
9.875%, Sr. Subordinated Notes, 2/15/07 95,000 100,700
North Atlantic Trading, Inc.
11.00%, Sr. Notes, 6/15/04 100,000 105,000
Standard Commercial Corp. #
8.875%, Company Guarantee, 8/01/05 150,000 151,500
Toms Foods, Inc. #
10.50%, Sr. Notes, 11/01/04 200,000 201,000
--------
811,950
--------
Healthcare - 4.17%
Alaris Medical Systems, Inc.
9.75%, Sr. Subordinated Notes, 12/01/06 100,000 105,500
Alliance Imaging, Inc.
9.625%, Sr. Subordinated Notes, 12/15/05 200,000 204,000
Dade International, Inc.
11.125%, Sr. Subordinated Notes, 5/01/06 100,000 111,000
Fresenius Medical Care Capital Trust
9.00%, Company Guarantee, 12/01/06 1,000 105,000
--------
525,500
--------
Insurance - 0.82%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 100,000 102,750
--------
28
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
Oil & Gas - 4.17%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 $ 100,000 $ 111,000
Crown Central Petroleum Corp.
10.875%, Sr. Notes, 2/01/05 100,000 106,000
HS Resources, Inc.
9.875%, Sr. Subordinated Notes, 12/01/03 50,000 52,000
Transamerican Refining Corp. (2)
16.00%, Units, 6/30/03 250 256,250
---------
525,250
---------
Services - 1.70%
Allied Waste North America, Inc.
10.25%, Sr. Subordinated Notes, 12/01/06 100,000 110,250
La Petite Holdings Corp.
9.625%, Sr. Secured Notes, 8/01/01 100,000 104,500
---------
214,750
---------
Shipping - 1.09%
Unisite $(3)
0/13.00%, Units, 12/15/04 138 138,000
---------
Steel - 0.82%
WCI Steel, Inc.
10.00%, Sr. Notes, 12/01/04 100,000 103,000
---------
Supermarkets - 0.86%
Quality Foods
8.70%, Sr. Subordinated Notes, 3/15/07 100,000 108,750
---------
Telecommunications - 12.03%
Cellnet Data Systems, Inc. # $
0/14.00%, Sr. Discounted Notes, 10/01/07 150,000 72,750
Hyperion Telecommunications, Inc. $
0/13.00%, Sr. Discount Notes, 4/15/03 150,000 109,500
ICG Holdings, Inc. $
0/12.50%, Sr. Secured Discount Notes, 5/01/06 100,000 75,000
Intercel, Inc. $
0/12.00%, Sr. Discount Notes, 5/01/06 150,000 108,562
ITC Deltacom, Inc.
11.00%, Sr. Notes, 6/01/07 200,00 217,000
PriCellular Wireless Corp.
10.75%, Sr. Notes, 11/01/04 100,000 109,250
RCN Corp.
10.00%, Sr. Notes, 10/15/07 300,000 312,750
29
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
UNIFI Communications, Inc.
14.00%, Sr. Notes, 3/01/04 $ 100,000 $ 90,500
Verio, Inc. # (4)
13.50%, Units, 6/15/04 100 119,500
Western Wireless Corp.
10.50%, Sr. Subordinated Notes, 6/01/06 100,000 108,000
WinStar Communications, Inc. $
0/14.00%, Sr. Discount Notes, 10/15/05 100,000 80,500
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04 100,000 112,750
----------
1,516,062
----------
Total Domestic Bonds & Notes
(cost $6,267,773) 6,518,657
----------
Foreign Bonds & Notes - 20.46%
Aerospace & Defense - 0.84%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 100,000 105,500
----------
Broadcasting - 1.59%
Antenna TV SA #
9.00%, Sr. Notes, 8/01/07 200,000 200,750
----------
Cable Television - 0.60%
Pratama Datakom Asia BV #
12.75%, Company Guarantee, 7/15/05 125,000 75,625
----------
Consumer Products - 0.27%
International Semi-Tech Corp. $
0/11.50%, Sr. Secured Discount Notes, 8/15/03 100,000 34,500
----------
Paper - 3.56%
APP International Finance Co.
11.75%, Company Guarantee, 10/01/05 150,000 141,750
Indah Kiat International Finance Corp.
12.50%, Company Guarantee, 6/15/06 50,000 47,750
Pindo Deli Finance Mauritius Ltd. #
10.75%, Sr. Notes, 10/01/07 300,000 259,500
----------
449,000
----------
Printing & Publishing - 0.54%
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 60,000 67,650
----------
30
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
Services - 6.39%
Autopistas Del Sol SA #
10.25%, Sr. Notes, 8/01/09 $ 200,000 $ 181,500
Intertek Finance PLC
10.25%, Sr. Subordinated Notes, 11/01/06 100,000 105,500
Localiza Rent A Car SA #
10.25%, Sr. Notes, 10/01/05 300,000 256,500
Statia Terms International, Inc.
11.75%, Mortgage Notes, 11/15/03 250,000 262,500
-----------
806,000
-----------
Shipping - 1.35%
Navigator Gas Transport # (5)
12.00%, Units, 6/30/07 150 169,500
-----------
Telecommunications - 4.51%
Colt Telecom Group PLC $ (6)
0/12.00%, Units, 12/15/06 100 78,000
Ionica PLC $
0/15.00%, Sr. Discount Notes, 5/01/07 200,000 79,000
Microcell Telecommunications # $
0/11.125%, Sr. Discount Notes, 10/15/07 250,000 98,842
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 150,000 113,250
Rogers Cantel, Inc.
8.80%, Sr. Subordinated Notes, 10/01/07 200,000 199,500
-----------
568,592
-----------
Utilities - 0.81%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 100,000 102,000
-----------
Total Foreign Bonds & Notes
(cost $2,741,004) 2,579,117
-----------
Convertible Bonds - 0.71%
Telecommunications - 0.71%
SA Telecommunications, Inc. # *
10.00%, Notes, 8/15/06 125,000 37,500
WinStar Communications, Inc. # $
0/14.00%, Sr. Discount Notes, 10/15/05 50,000 51,750
-----------
89,250
-----------
Total Convertible Bonds
(cost $161,723) 89,250
-----------
31
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 0.22% @
Broadcasting - 0.04%
Pegasus Communications Corp. 225 $ 4,669
---------
Cable Television - 0.06%
EchoStar Communications Corp. 450 7,537
---------
Diversified Financial Services - 0.05%
Central Rents, Inc. # 100 6,050
---------
Services - 0.07%
Coinstar, Inc. 1,050 9,581
---------
Total Common Stocks
(cost $7,334) 27,837
---------
Convertible Preferred Stocks - 1.77%
Healthcare - 1.77%
Intracel Corp., 8.00% 14,390 223,045
---------
Total Convertible Preferred Stocks
(cost $108,526) 223,045
---------
Preferred Stocks - 9.97%
Broadcasting - 2.93%
Chancellor Media Corp., 12.25%& 1,000 130,500
Paxson Communications Corp., 12.50%& 1,137 115,393
SFX Broadcasting, Inc., 12.625%& 1,063 123,057
---------
368,950
---------
Cable Television - 2.51%
EchoStar Communications Corp., 12.125%#& 3,000 316,500
---------
Services - 0.71%
La Petite Academy, Inc., 12.125% 2,000 90,000
---------
Telecommunications - 3.82%
Hyperion Telecommunications, Inc., 12.875%#& 3,000 303,750
Jordan Telecommunication Products, 13.25%#& 1,500 177,750
---------
481,500
---------
Total Preferred Stocks
(cost $1,122,816) 1,256,950
---------
32
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Shares
Security Principal Amount/ Value
- --------------------------------------------------------------------------------
Warrants - 0.98% @
Broadcasting - 0.29%
Benedek Communications Corp., (expires 7/01/07) 1,000 $ 2,250
Spanish Broadcasting Systems, Inc.,
(expires 6/30/99) 100 35,000
-----------
37,250
-----------
Cable Television - 0.00%
Heartland Wireless Communications, Inc.,
(expires 4/15/00)# 450 5
-----------
Consumer Products - 0.25%
Chattem, Inc., (expires 6/17/99) 50 2,156
Packaged Ice, Inc., (expires 4/15/04) 150 15,037
Packaged Ice, Inc., (expires 4/15/04)# 145 14,500
-----------
31,693
-----------
Paper - 0.27%
SD Warren Holdings Corp., (expires 12/15/06) 6,400 33,600
-----------
Steel - 0.01%
Sheffield Steel Corp., (expires 11/01/01) 500 1,000
-----------
Supermarkets - 0.00%
Dairy Mart Convenience Stores, Inc., (expires 12/01/01) 666 499
-----------
Telecommunications - 0.16%
Cellnet Data Systems Inc., (expires 9/15/2007)# 150 0
Clearnet Communications, Inc., (expires 9/15/05) 660 6,270
Geotek Communications, Inc., (expires 6/20/01) # 3,000 4,500
Hyperion Telecommunications, Inc., (expires 4/15/01) 150 9,000
Occidente Y Caribe Celular SA, (expires 3/15/04) # @@ 600 6
UNIFI Communications, Inc., (expires 2003) # 100 0
-----------
19,776
-----------
Total Warrants
(cost $75,833) 123,823
-----------
Total Investment Securities - 85.82%
(cost $10,485,009) 10,818,679
Repurchase Agreement - 11.76%
Agreement with State Street Bank and
Trust bearing interest at 5.75% dated
12/31/97, to be repurchased 1/02/98
in the amount of $1,482,473 and
collateralized by $1,480,000 U.S.
Treasury Notes, 5.875% due 8/31/99,
value $1,512,061
(cost $1,482,000) $ 1,482,000 1,482,000
33
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Value
- --------------------------------------------------------------------------------
Other assets less liabilities - 2.42% 305,485
-----------
Net Assets - 100.00% $12,606,164
===========
# Sale restricted to qualified institutional investors.
$ Step Bond.
* Defaulted Security.
@ Non-income producing security.
& Payment-in-kind security.
@@ Foreign security.
(1) A unit consist of $1,000 par value Sr. Notes, 7.50% due 12/15/07 and $3,000
appreciated notes.
(2) A unit consist of $ 1,000 par value Sr. Notes, 16.00% due 6/30/03 and 1
warrant.
(3) A unit consist of $ 1,000 par value Notes, 13.00% due 6/15/01 and .4858
warrant and .0146 2nd Series warrant.
(4) A unit consist of $1,000 par value Sr. Notes, 13.50% due 6/15/04 and 8
warrants.
(5) A unit consist of $1,000 par value 2nd Priority Mortgage Notes,12.00% due
6/30/07 and 7.66 warrants.
(6) A unit consist of $1,000 par value Sr. Discounted Notes, 12.00% due
12/15/06 and 1 warrant.
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
Northstar Variable Trust
Statement of Assets and Liabilities
December 31, 1997
<TABLE>
<CAPTION>
Northstar Northstar Northstar Northstar
Northstar International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value
(cost $27,534,171, $5,366,018, $19,496,272,
$10,094,233, and $10,485,009, respectively) ........... $31,288,739 $5,555,699 $21,307,778 $10,210,960 $10,818,679
Repurchase agreements .................................... 3,685,000 393,000 1,198,000 0 1,482,000
Cash ..................................................... 993 96,748 859 209,367 184,608
Receivable for investments sold .......................... 811,946 0 542,525 0 120,000
Receivable for shares of beneficial interest sold ........ 99,026 10,138 4,079 26,184 60,183
Dividends and interest receivable ........................ 43,344 3,727 175,702 147,657 174,205
Prepaid expenses ......................................... 975 0 996 898 918
--------------------------------------------------------------------
Total Assets ....................................... 35,930,023 6,059,312 23,229,939 10,595,066 12,840,593
--------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased ........................ 3,725,274 96,577 1,655,136 0 184,400
Management fees payable .................................. 19,624 4,759 14,000 6,727 8,001
Audit fees payable ....................................... 13,030 15,639 12,994 13,003 13,017
Printing fees payable .................................... 8,534 599 3,517 1,917 2,338
Custodian & fund accounting fees payable ................. 3,959 3,433 3,486 3,660 3,959
Administrative services fees payable ..................... 2,617 450 1,867 897 1,067
Payable for fund shares repurchased ...................... 0 0 6,982 6,246 1,552
Income distribution payable .............................. 0 0 0 13,709 19,265
Other liabilities ........................................ 654 831 1,101 740 830
--------------------------------------------------------------------
Total Liabilities ............................. 3,773,692 122,288 1,699,083 46,899 234,429
--------------------------------------------------------------------
NET ASSETS ............................................... $32,156,331 $5,937,024 $21,530,856 $10,548,167 $12,606,164
====================================================================
NET ASSETS WERE COMPOSED OF:
Capital paid in for shares of beneficial
interest,
$.01 par value outstanding (unlimited shares
authorized) ........................................... $28,091,077 $5,916,503 $18,955,487 $10,535,305 $12,245,112
Undistributed net investment income ...................... 2,199 2,715 0 0 0
Accumulated net realized gain (loss) on
investments ........................................... 308,487 (171,873) 763,863 (103,797) 27,382
Net unrealized appreciation of investments
and foreign currency transactions ..................... 3,754,568 189,679 1,811,506 116,659 333,670
--------------------------------------------------------------------
Net assets ..................................... $32,156,331 $5,937,024 $21,530,856 $10,548,167 $12,606,164
====================================================================
Net Asset Value Per Share ($32,156,331/2,028,344 shares,
$5,937,024/587,958 shares, $21,530,856/1,655,748 shares,
$10,548,167/2,051,294 shares, and $12,606,164/2,378,751
shares, respectively) .................................. $ 15.85 $ 10.10 $ 13.00 $ 5.14 $ 5.30
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
Northstar Variable Trust
Statement of Operations
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Northstar Northstar Northstar Northstar
Northstar International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio* Portfolio Portfolio Portfolio
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $4,043,
$1,385, $0, $0, and $0, respectively) ................... $ 270,156 $ 17,102 $ 345,268 $ 35,905 $ 45,418
Interest (net of withholding tax of $0, $0, $0
$2,161, and $0, respectively) ........................... 106,203 14,812 467,333 759,618 855,644
--------------------------------------------------------------------
Total investment income .................................... 376,359 31,914 812,601 795,523 901,062
--------------------------------------------------------------------
EXPENSES:
Investment advisory and management fees .................... 187,902 18,050 134,697 65,503 73,225
Custodian and fund accounting fees ......................... 26,294 10,800 20,320 22,030 26,158
Administrative services fees ............................... 25,053 1,805 17,960 8,734 9,763
Audit fees ................................................. 16,874 15,639 16,976 16,894 16,855
Printing expense ........................................... 12,381 603 6,057 3,177 3,478
Trustee fees and expenses .................................. 1,910 303 1,571 930 975
Insurance expense .......................................... 1,506 0 1,440 235 1,191
Miscellaneous expenses ..................................... 1,139 22 742 1,560 583
--------------------------------------------------------------------
273,059 47,222 199,763 119,063 132,228
Less expenses reimbursed by investment adviser ............. 72,598 32,742 56,065 49,206 55,011
--------------------------------------------------------------------
Total expenses ...................................... 200,461 14,480 143,698 69,857 77,217
--------------------------------------------------------------------
Net investment income ...................................... 175,898 17,434 668,903 725,666 823,845
--------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN
CURRENCY:
Net realized gain(loss) on investments ..................... 614,190 (171,873) 857,103 (31,218) 121,780
Net realized gain(loss) on foreign currency ................ 0 308 0 (14,057) 0
Net change in unrealized appreciation
(depreciation) of investments ........................... 2,581,053 189,681 990,107 (87,510) 34,739
Net change in unrealized depreciation of foreign
currency ................................................ 0 (2) 0 (68) 0
--------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments .................................... 3,195,243 18,114 1,847,210 (132,853) 156,519
--------------------------------------------------------------------
Increase in net assets resulting from
operations ................................................. $3,371,141 $ 35,548 $2,516,113 $ 592,813 $ 980,364
====================================================================
</TABLE>
*Commenced operations on August 8, 1997.
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
Northstar Variable Trust
Statement of Changes in Net Assets
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Northstar Northstar Northstar Northstar
Northstar International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio* Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 175,898 $ 17,434 $ 668,903 $ 725,666 $ 823,845
668,903
Net realized gain(loss) on investments 614,190 (171,873) 857,103 (31,218) 121,780
Net realized gain(loss) on foreign currency . 0 308 0 (14,057) 0
Net change in unrealized appreciation
(depreciation) of investments 2,581,053 189,681 990,107 (87,510) 34,739
Net change in unrealized depreciation on
foreign currency 0 (2) 0 (68) 0
-----------------------------------------------------------------------------
Increase in net assets resulting
from operations 3,371,141 35,548 2,516,113 592,813 980,364
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income (182,697) (15,027) (668,201) (725,666) (823,845)
Net realized gain on investments (345,682) 0 (141,496) (58,611) (89,480)
-----------------------------------------------------------------------------
(528,379) (15,027) (809,697) (784,277) (913,325)
-----------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 22,327,151 6,277,674 10,664,273 6,950,510 11,264,988
Net asset value of shares issued to
shareholders in reinvestment of
dividends 528,379 15,027 809,697 775,014 902,994
-----------------------------------------------------------------------------
22,855,530 6,292,701 11,473,970 7,725,524 12,167,982
Cost of shares redeemed (9,105,693) (376,198) (4,228,685) (3,262,690) (6,248,155)
-----------------------------------------------------------------------------
Net increase in net assets derived from
capital share transactions 13,749,837 5,916,503 7,245,285 4,462,834 5,919,827
-----------------------------------------------------------------------------
Net increase in net assets 16,592,599 5,937,024 8,951,701 4,271,370 5,986,866
NET ASSETS:
Beginning of period 15,563,732 0 12,579,155 6,276,797 6,619,298
-----------------------------------------------------------------------------
End of period $ 32,156,331 $ 5,937,024 $ 21,530,856 $ 10,548,167 $ 12,606,164
=============================================================================
Undistributed net investment income $ 2,199 $ 2,715 $ 0 $ 0 $ 0
</TABLE>
*Commenced operations on August 8, 1997.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
Northstar Variable Trust
Statement of Changes in Net Assets
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Northstar Northstar Northstar
Northstar Income and Multi-Sector High Yield
Growth Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income $ 49,702 $ 368,977 $ 415,844 $ 450,587
Net realized gain on investments 46,193 875,927 125,074 141,662
Net change in unrealized appreciation of investments 824,112 211,159 97,621 177,347
---------------------------------------------------------------
Increase in net assets resulting from operations 920,007 1,456,063 638,539 769,596
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income (53,026) (375,181) (418,626) (454,312)
Net realized gain on investments (42,112) (827,993) (111,901) (103,694)
---------------------------------------------------------------
(95,138) (1,203,174) (530,527) (558,006)
---------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 13,457,465 5,570,265 3,341,543 2,731,211
Net asset value of shares issued to
shareholders in reinvestment of dividends 95,138 1,203,174 526,080 549,072
---------------------------------------------------------------
13,552,603 6,773,439 3,867,623 3,280,283
Cost of shares redeemed (2,627,034) (1,857,666) (1,464,570) (1,646,044)
---------------------------------------------------------------
Net increase in net assets derived from capital
share transactions 10,925,569 4,915,773 2,403,053 1,634,239
---------------------------------------------------------------
Net increase in net assets 11,750,438 5,168,662 2,511,065 1,845,829
NET ASSETS:
Beginning of year 3,813,294 7,410,493 3,765,732 4,773,469
---------------------------------------------------------------
End of year $ 15,563,732 $ 12,579,155 $ 6,276,797 $ 6,619,298
================================================================
Undistributed net investment income $ 7,314 $ 0 $ 0 $ 0
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Northstar Variable Trust
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period
<TABLE>
<CAPTION>
Net Asset Net realized Dividends Distribution
Value, Net investment & unrealized Total from declared from net declared from
beginning of income gain(loss)on investment invest- net realized Total
Period ended period investments operations ment income gains distributions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Northstar Growth Portfolio
05/06/94-
12/31/94 $10.00 $0.16 $0.19 $0.35 ($0.16) ($0.15) ($0.31)
12/31/95 10.04 0.20 2.27 2.47 (0.19) (0.76) (0.95)
12/31/96 11.56 0.08 2.57 2.65 (0.09) (0.04) (0.13)
12/31/97 14.08 0.09 1.95 2.04 (0.10) (0.17) (0.27)
Northstar International Value Portfolio
08/08/97-
12/31/97 10.00 0.03 0.10 0.13 (0.03) -- (0.03)
Northstar Income and Growth Portfolio
05/06/94-
12/31/94 10.00 0.20 (0.01) 0.19 (0.20) (0.07) (0.27)
12/31/95 9.92 0.37 1.73 2.10 (0.37) (0.26) (0.63)
12/31/96 11.39 0.40 1.15 1.55 (0.41) (0.81) (1.22)
12/31/97 11.72 0.44 1.36 1.80 (0.44) (0.08) (0.52)
Northstar Multi-Sector Bond Portfolio
05/06/94-
12/31/94 5.00 0.23 (0.15) 0.08 (0.23) -- (0.23)
12/31/95 4.85 0.42 0.29 0.71 (0.42) -- (0.42)
12/31/96 5.14 0.41 0.21 0.62 (0.41) (0.10) (0.51)
12/31/97 5.25 0.40 (0.08) 0.32 (0.40) (0.03) (0.43)
Northstar High Yield Bond Portfolio
05/06/94-
12/31/94 5.00 0.28 (0.31) (0.03) (0.28) -- (0.28)
12/31/95 4.69 0.50 0.34 0.84 (0.49) -- (0.49)
12/31/96 5.04 0.45 0.32 0.77 (0.45) (0.09) (0.54)
12/31/97 5.27 0.40 0.07 0.47 (0.40) (0.04) (0.44)
</TABLE>
* For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
(1) Annualized
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
<TABLE>
<CAPTION>
Ratio of
expense Ratio of net
Ratio of reimburse- investment
Net Asset Net Assets, end expenses to ment to income to
Value, end of of period average net average net average net Portfolio Average
period Total Return (000's) assets assets assets turnover commissions*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.04 3.47 % $ 2,701 1.00 %(1) 1.45 %(1) 2.31 %(1) 61 % N/A
11.56 24.78 3,813 0.80 1.24 1.77 123 N/A
14.08 22.99 15,564 0.80 0.90 0.65 161 $0.0414
15.85 14.66 32,156 0.80 0.29 0.70 178 0.0359
10.10 1.30 5,937 0.80 1.81 0.97 5 0.0263
9.92 2.02 3,595 1.00 (1) 1.43 (1) 3.11 (1) 45 N/A
11.39 21.39 7,410 0.80 0.94 3.63 74 N/A
11.72 13.80 12,579 0.80 0.60 3.67 129 0.0401
13.00 15.81 21,531 0.80 0.31 3.72 55 0.0598
4.85 1.41 2,716 1.00 (1) 1.41 (1) 7.03 (1) 29 N/A
5.14 14.97 3,766 0.80 1.26 8.52 83 N/A
5.25 12.53 6,277 0.80 0.88 8.38 121 --
5.14 6.15 10,548 0.80 0.56 8.31 163 --
4.69 (0.95) 2,588 1.00 (1) 1.55 (1) 8.62 (1) 62 N/A
5.04 18.55 4,773 0.80 1.31 10.61 157 N/A
5.27 15.75 6,619 0.80 0.93 8.72 159 0.0547
5.30 9.00 12,606 0.79 0.56 8.44 152 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
NORTHSTAR VARIABLE TRUST
- ------------------------
Notes to Financial Statements - December 31, 1997
Note 1. Organization and Significant Accounting Policies
Organization. The Northstar Variable Trust, is a business trust organized under
the laws of the Commonwealth of Massachusetts on December 17, 1993. The names of
the five investment series which comprise the Trust (the "Funds") and their
respective investment objectives are set forth below.
Northstar Variable Trust Growth Portfolio ("Growth Portfolio") is a
diversified portfolio with an investment objective of long-term growth of
capital through investments in common stocks and convertible securities
that the Adviser believes provide above average potential for capital
appreciation.
Northstar Variable Trust International Value Portfolio ("International
Value Portfolio") is a diversified portfolio with the investment objective
of long-term capital appreciation. The Fund invests primarily in foreign
companies with a market valuation greater than $1 billion, but may hold up
to 25% of its assets in companies with smaller market capitalization.
Portfolio managers apply the technique of "value investing".
Northstar Variable Trust Income and Growth Portfolio ("Income and Growth
Portfolio") is a diversified portfolio with the investment objective of
current income balanced with the objective of achieving capital
appreciation. The Fund will seek to achieve its objective through
investments in a diversified group of securities selected for their
prospects of current yield and capital appreciation.
Northstar Variable Trust Multi-Sector Bond Portfolio ("Multi-Sector
Portfolio") is a diversified portfolio whose investment objective is to
maximize current income. The Fund seeks to achieve its objective by
investing in U.S. Government Bonds, Foreign Government Bonds, Investment
Grade Bonds and High Yield Bonds, each as defined in the Prospectus for the
Trust.
Northstar Variable Trust High Yield Bond Portfolio ("High Yield Portfolio")
is a diversified portfolio whose investment objective is to seek high
income consistent with the preservation of capital. The Fund invests
primarily in a diversified group of high yield - high risk fixed income
securities, convertible securities, securities issued by U.S. companies in
foreign currencies, and securities issued by foreign governments and
companies.
Security Valuation. Equity securities are valued at closing sales prices
reported on recognized securities exchanges or lacking any sales, at the last
available bid price. Prices of long-term debt securities are valued on the basis
of last reported sales price, or if no sales are reported, the value is
determined based upon the mean of representative quoted bid or asked prices for
such securities, or if such prices are not available, at prices provided by
market makers, or at prices for securities of comparable maturity, quality and
type. Short-term debt instruments with remaining maturities of less than 60 days
are valued at amortized cost, unless the Trustees determine that amortized cost
does not reflect the fair value of such obligations. Securities for which market
quotations are not readily available are valued at fair value determined in good
faith by or under direction of the Trustees of the Trust. The books and records
of the Funds are maintained in U.S. dollars. Securities quoted in foreign
currencies are translated into U.S. dollars based on the prevailing exchange
rates on that day. The Adviser uses an independent pricing service to price the
Funds' securities.
Security Transactions, Investment Income, Expenses and Distribution to
Shareholders. Security transactions are recorded on the trade date. Realized
gains or losses on sales of investments are calculated on the identified cost
basis. Interest income is recorded on the accrual basis except when collection
is not expected; discounts are accrued, and premiums amortized to par at
maturity; dividend income is recorded on the ex-dividend dates. Dividends from
net investment income are declared and paid quarterly by the Funds.
Distributions of net realized capital gains, if any, are declared annually;
however, to the extent that a net realized capital gain can be reduced by a
capital loss carryover, such gain will not be distributed. Distributions to
shareholders from net investment income and net realized gain from security
transactions are reinvested at net asset value by each Fund on the ex-dividend
date. The Funds may periodically make reclassifications among certain of their
capital accounts as a result of the timing and characterization of certain
income and capital gains distributions determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles.
41
<PAGE>
As of December 31, 1997, the following amounts have been reclassified from
undistributed net investment income to accumulated net realized gain(loss) on
investments.
Undistributed Accumulated Net
Net Investment Realized Gain on Paid-In
Income Investments -Captial
-------------- ----------------- --------
Growth Portfolio $1,684 $(1,684) $0
International Value Portfolio 308 (308) 0
Income and Growth Portfolio (702) 702 0
These restatements did not affect net investment income, net realized gain on
investments, or net assets for the year ended December 31, 1997.
Repurchase Agreements. The Funds' custodian takes possession of collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to assure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default on the obligation to repurchase, the Funds have the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. If the
seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Funds may be delayed or limited.
Federal Income Taxes. The Trust intends to comply with the special provisions of
the Internal Revenue Code available to investment companies and to distribute
all of the taxable net income to respective shareholders. Therefore, no Federal
income tax provision is required.
Organization Costs. Costs incurred by the Trust in connection with its
organization of each Fund have been deferred and are being amortized over a
period of five years from the date the Funds commenced operations.
Management's Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Note 2. Investment Adviser and Administrator.
Northstar Investment Management Corporation (the "Adviser") serves as each
Fund's investment adviser. The Adviser receives an investment advisory fee
calculated at an annual rate of 0.75% of average daily net assets from the
Growth Portfolio, Income and Growth Portfolio, Multi-Sector Portfolio, and High
Yield Portfolio. The Adviser receives an investment advisory fee calculated at
an annual rate of 1.00% of average daily net assets from the International Value
Portfolio. For the period ended December 31, 1997, the Adviser earned $479,377
in investment advisory fees. Northstar Administrators Corporation (the
"Administrator"), an affiliate of the Adviser, serves as each Fund's
administrator. Each Portfolio pays the Administrator a fee calculated at an
annual rate of 0.10% of average daily net assets. For the period ended December
31, 1997, the Administrator earned $63,315 in administrative fees. The Adviser
has agreed that if a Portfolio's total operating expenses exceed 0.80% of
average net assets on an annual basis, the Adviser will reimburse the Portfolio
for amounts in excess of such limit. For the period ended December 31, 1997, the
Adviser has reimbursed the Growth Portfolio $72,598, the Income and Growth
Portfolio $56,065, the Multi-Sector Portfolio $49,206, the High Yield Portfolio
$55,011, and the International Value Portfolio $32,742. Wilson/Bennett Capital
Management, Inc., a registered investment advisor, serves as a subadvisor to the
Income and Growth Portfolio pursuant to a Subadvisory Agreement dated August 1,
1996. For its services, Willison/Bennett Capital Management, Inc. receives, from
the Advisor, an annual fee equal to 0.20% of the first $125 million of the
average daily net asset value of the Fund; 0.25% of the average daily net asset
value of the Fund exceeding $125 million up to $250 million; and 0.30% of the
average daily net asset value of the Portfolio exceeding $250 million.
Wilson/Bennett Capital Management, Inc. has waived their adviory fee until the
Portfolio reaches $50 million. Navellier Fund Management, Inc. ("Navellier"), a
registered investment adviser, serves as subadvisor to the Growth Portfolio
pursuant to a Subadvisory Agreement dated February 1, 1996, between the Adviser
and Navellier. For its services, Navellier receives, from the Advisor, an annual
fee equal to 0.48% of the average daily net assets of the Portfolio. For the
period ended December 31, 1997, Navellier received $84,784 in subadvisory fees
from the Adviser. Brandes Investment Partners. L.P. ("Brandes"), a registered
investment advisor, serves as a subadvisor to the International Value Portfolio
pursuant to a Subadvisory Agreement dated June 24, 1997. For its services,
Brandes receives, from the Advisor, an annual fee equal to 0.50% of the average
daily net asset value of the Portfolio. Brandes has waived their advisory fee
until the Portfolio reaches $50 million or until April 1, 1998.
42
<PAGE>
Note 3. Purchases and Sale of Investment Securities
The aggregate cost of purchases, and proceeds from sales of investments
(excluding short-term investments) for the period ended December 31, 1997 were
as follows:
<TABLE>
<CAPTION>
International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $54,363,767 $5,781,340 $16,990,077 $19,435,128 $17,491,350
Aggregate sales $40,919,524 $243,819 $9,107,532 $12,662,705 $12,809,779
</TABLE>
U.S. Government Securities included above were as follows:
<TABLE>
<CAPTION>
International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $0 $0 $3,445,234 $7,419,934 $0
Aggregate sales $0 $0 $415,250 $3,066,528 $0
</TABLE>
Note 4. Portfolio Securities (Tax Basis)
The cost of securities for Federal income tax purposes and the aggregate
appreciation and depreciation of securities at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cost (tax basis) $27,534,171 $5,366,018 $19,494,779 $10,097,983 $10,485,009
------------------------------------------------------------------------------------
Appreciated Securities 4,450,315 520,295 1,885,210 330,179 737,845
Depreciated Securities (695,747) (330,614) (72,211) (217,202) (404,175)
------------------------------------------------------------------------------------
Net Unrealized
Appreciation $3,754,568 $189,681 $1,812,999 $112,977 $333,670
------------------------------------------------------------------------------------
</TABLE>
Note 5. Capital Share Transactions
Transactions in capital shares of each Fund for the period ended December 31,
1997 were as follows:
<TABLE>
<CAPTION>
International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Shares Sold 1,496,702 623,938 852,005 1,331,921 2,101,836
Reinvested Dividends 34,861 1,453 64,053 148,545 169,530
Shares Repurchased (608,428) (37,433) (333,990) (625,037) (1,148,386)
=================================================================================
Net Increase 923,135 587,958 582,068 855,429 1,122,980
=================================================================================
</TABLE>
43
<PAGE>
Transactions in capital shares of each Fund for the year ended December 31, 1996
were as follows:
<TABLE>
<CAPTION>
Income and Multi-Sector High Yield
Growth Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares Sold 968,805 476,604 641,205 519,989
Reinvested Dividends 6,917 102,180 100,988 105,109
Shares Repurchased (200,241) (155,956) (278,987) (315,859)
--------------------------------------------------------------------
Net Increase 775,481 422,828 463,206 309,239
====================================================================
</TABLE>
Note 6. Credit risk and Defaulted Securities
Although the Funds have a diversified portfolio, the High Yield Bond Fund had
72.88% of its portfolio invested in lower rated and comparable quality unrated
high yield securities. Investments in higher yield securities are accompanied by
a greater degree of credit risk and such lower rated securities tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities, because such securities are generally unsecured and
are often subordinated to other creditors of the issuer. At December 31, 1997,
the Multi-Sector Bond Portfolio and High Yield Bond Portfolio held SA
Telecommunications, Inc., a security in default. 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.
44
<PAGE>
NORTHSTAR VARIABLE TRUST
Report of Independent Accountants
-------------------
To the Shareholders and Trustees
of Northstar Variable Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolios of investments, of the Northstar Variable Trust (the "Trust"),
comprising Northstar Growth Portfolio, Northstar Income and Growth Portfolio,
Northstar Multi-Sector Bond Portfolio, Northstar High Yield Bond Portfolio
(formerly the Northstar Growth Fund, Northstar Income and Growth Fund, Northstar
Multi-Sector Bond Fund, and Northstar High Yield Bond Fund, respectively) and
the Northstar International Value Portfolio as of December 31, 1997, the related
statement of operations for the year then ended, except for the International
Value Fund for which the period was August 8, 1997 (commencement of operations)
through December 31, 1997, the statements of changes in net assets for each of
the two years in the period then ended, except for the International Value Fund
for which the period was August 8, 1997 (commencement of operations) through
December 31, 1997, and the financial highlights for each of the periods
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, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds constituting the Northstar Variable Trust as of December
31, 1997, the results of their operations, the changes in their net assets 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
February 12, 1998
Northstar Growth V/A
Total Return Calculation Since 5/6/94
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Price Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ---- ------ ----- --------- ---------- --------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/6/94 1,000.00 10.0000 100.000 100.000 1,000.00
6/24/94 9.9100 100.396 0.039 3.92 0.000 0.00 0.396 994.92
9/26/94 10.3300 101.246 0.087 8.78 0.000 0.00 0.850 1,045.87
12/23/94 9.9800 103.056 0.031 3.11 0.148 14.95 1.810 1,028.50
12/31/94 10.0400 103.056 1,034.68
3/23/95 10.2300 103.675 0.061 6.33 0.000 0.00 0.619 1,060.60
6/26/95 11.6400 104.096 0.047 4.90 0.000 0.00 0.421 1,211.68
9/26/95 12.2300 104.417 0.038 3.92 0.000 0.00 0.321 1,277.02
12/29/95 11.5500 111.685 0.040 4.20 0.764 79.75 7.268 1,289.96
12/31/95 11.5600 111.685 1,291.08
3/26/96 12.1500 112.036 0.038 4.27 0.000 0.00 0.351 1,361.24
6/25/96 13.9100 112.259 0.028 3.10 0.000 0.00 0.223 1,561.52
9/25/96 14.1400 112.308 0.006 0.69 0.000 0.00 0.049 1,588.04
12/27/96 14.0800 112.780 0.020 2.20 0.040 4.44 0.472 1,587.94
12/31/96 14.0800 112.780 1,587.94
3/26/97 14.1200 112.992 0.027 3.00 0.000 0.00 0.212 1,595.45
6/26/97 14.8200 113.232 0.032 3.56 0.000 0.00 0.240 1,678.10
9/26/97 16.5500 113.347 0.017 1.90 0.000 0.00 0.115 1,875.89
12/23/97 15.2200 114.867 0.030 3.35 0.174 19.78 1.520 1,748.28
12/31/97 15.8500 114.867 1,820.64
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 17.79%
ERV = Ending Redeemable Value: $1,820.64 Overall Total Return: 82.06%
n = Number of Time Periods: 3.66
</TABLE>
<PAGE>
Northstar Growth V/A
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Price Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ---- ------ ----- --------- ---------- --------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 14.0800 71.023 71.023 1,000.00
3/26/97 14.1200 71.157 0.027 1.89 0.000 0.00 0 134 1,004.74
6/26/97 14.8200 71.308 0.032 2.24 0.000 0.00 0.151 1,056.78
9/26/97 16.5500 71.381 0.017 1.20 0.000 0.00 0.073 1,181.36
12/23/97 15.2200 72.338 0.030 2.11 0.174 12.45 0.957 1,100.98
12/31/97 15.8500 72.338 1,146.56
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 14.66%
ERV = Ending Redeemable Value: $1,146.56 Overall Total Return: 14.66%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Growth V/A
Total Return Calculation Since 8/8/97
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Price Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ---- ------ ----- --------- ---------- --------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/8/97 1,000.00 10.0000 100.000 100.000 1,000.00
9/26/97 10.6100 100.200 0.021 2.12 0.000 0.00 0.200 1,063.12
12/23/97 9.8800 100.613 0.009 0.92 0.032 3.16 0.413 994.06
12/31/97 10.1000 100.613 1.016.19
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 4.10%
ERV = Ending Redeemable Value: $1,016.19 Overall Total Return: 1.62%
n = Number of Time Periods: 0.40
</TABLE>
<PAGE>
Northstar Growth V/A
Total Return Calculation Since 5/6/94
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Price Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ---- ------ ----- --------- ---------- --------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/6/94 1,000.00 10.0000 100.000 100.000 1,000.00
6/24/94 9.9600 100.428 0.043 4.26 0.000 0.00 0.428 1,000.26
9/26/94 10.1900 101.513 0.110 11.06 0.000 0.00 1.085 1,034.42
12/23/94 9.8800 102.740 0.045 4.61 0.074 7.51 1.227 1,015.07
12/31/94 9.9200 102.740 1,019.18
3/23/95 10.0900 103.547 0.079 8.14 0.000 0.00 0.807 1,044.79
6/26/95 11.0000 104.463 0.097 10.08 0.000 0.00 0.916 1,149.09
9/26/95 11.3000 105.264 0.087 9.05 0.000 0.00 0.801 1,189.48
12/29/95 11.3900 108.621 0.104 10.91 0.260 27.33 3.357 1,237.19
12/31/95 11.3900 108.621 1,237.19
3/26/96 11.4600 109.412 0.084 9.07 0.000 0.00 0.791 1,253.86
6/25/96 11.6400 110.257 0.090 9.83 0.000 0.00 0.845 1,283.39
9/25/96 11.7500 111.180 0.098 10.85 0.000 0.00 0.923 1,306.37
12/27/96 11.8100 120.130 0.137 15.21 0.814 90.49 8.950 1,418.74
12/31/96 11.7000 120.130 1,405.52
3/26/97 11.9400 121.084 0.095 11.39 0.000 0.00 0.954 1,445.74
6/26/97 12.5700 122.178 0.114 13.75 0.000 0.00 1.094 1,535.78
9/26/97 12.9300 123.197 0.108 13.17 0.000 0.00 1.019 1,592.94
12/23/97 12.7900 125.217 0.127 15.62 0.083 10.21 2.020 1,601.53
12/31/97 13.0000 125.217 1,627.82
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 14.24%
ERV = Ending Redeemable Value: $1,627.82 Overall Total Return: 62.78%
n = Number of Time Periods: 3.66
</TABLE>
<PAGE>
Northstar Growth V/A
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Price Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ---- ------ ----- --------- ---------- --------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 11.7000 85.470 85.470 1,000.00
3/26/97 11.9400 86.148 0.095 8.10 0.000 0.00 0.678 1,028.61
6/26/97 12.5700 86.927 0.114 9.79 0.000 0.00 0.779 1,092.67
9/26/97 12.9300 87.652 0.108 9.37 0.000 0.00 0.725 1,133.34
12/23/97 12.7900 89.088 0.127 11.11 0.083 7.26 1.436 1,139.44
12/31/97 13.0000 89.088 1,158.14
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 15.81%
ERV = Ending Redeemable Value: $1,158.14 Overall Total Return: 15.81%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Growth V/A
Total Return Calculation Since 5/6/94
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Price Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ---- ------ ----- --------- ---------- --------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/6/94 1.000.00 5.0000 200.000 200.000 1,000.00
6/24/94 5.0000 201.318 0.033 6.59 0.000 0.00 1.318 1,006.59
9/26/94 4.8900 205.148 0.093 18.73 0.000 0.00 3.830 1,003.17
12/23/94 4.6900 211.189 0.138 28.33 0.000 0.00 6.041 990.48
12/31/94 4.6900 211.189 990.48
3/23/95 4.7900 216.304 0.116 24.50 0.000 0.00 5.115 1,036.10
6/26/95 4.9200 220.944 0.106 22.83 0.000 0.00 4.640 1,087.04
9/26/95 4.9700 226.940 0.135 29.80 0.000 0.00 5.996 1,127.89
12/29/95 5.0400 232.986 0.134 30.47 0.000 0 00 6.046 1,174.25
12/31/95 5.0400 232.986 1,174.25
3/26/96 5.1400 238.712 0.126 29.43 0.000 0.00 5.726 1,226.98
6/25/96 5.2100 244.361 0.123 29.43 0.000 0.00 5.649 1,273.12
9/25/96 5.2300 249.156 0.103 25.08 0.000 0.00 4.795 1,303.09
12/27/96 5.2700 257.911 0.100 24.97 0.085 21.17 8.755 1,359.19
12/31/96 5.2700 257.911 1,359.19
3/26/97 5.2300 262.720 0.098 25.15 0.000 0.00 4.809 1,374.03
6/26/97 5.3000 267.992 0.106 27.94 0.000 0.00 5.272 1,420.36
9/26/97 5.4400 272.538 0.092 24.73 0.000 0.00 4.546 1,482.61
12/23/97 5.3100 279.529 0.100 27.12 0.037 10.00 6.991 1,484.30
12/31/97 5.3000 279.529 1,481.50
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 11.34%
ERV = Ending Redeemable Value: $1,481.50 Overall Total Return: 48.15%
n = Number of Time Periods: 3.66
</TABLE>
<PAGE>
Northstar Growth V/A
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Price Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ---- ------ ----- --------- ---------- --------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 5.2700 189.753 189.753 1,000.00
3/26/97 5.2300 193.290 0.098 18.50 0.000 0.00 3.537 1,010.91
6/26/97 5.3000 197.169 0.106 20.56 0.000 0.00 3.879 1,045.00
9/26/97 5.4400 200.515 0.092 18.20 0.000 0.00 3.346 1,090.80
12/23/97 5.3100 205.660 0.100 19.96 0.037 7.36 5.145 1,092.05
12/31/97 5.3000 205.660 1,090.00
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 9.00%
ERV = Ending Redeemable Value: $1,090.00 Overall Total Return: 9.00%
n = Number of Time Periods: 1.00
</TABLE>
<PAGE>
Northstar Growth V/A
Total Return Calculation Since 5/6/94
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Price Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ---- ------ ----- --------- ---------- --------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/6/94 1,000.00 5.0000 200.000 200.000 1,000.00
6/24/94 4.9900 201.395 0.035 6.96 0.000 0.00 1.395 1,004.96
9/26/94 4.9600 204.772 0.083 16.75 0.000 0.00 3.377 1,015.67
12/23/94 4.8500 209.098 0.102 20.98 0.000 0.00 4.326 1,014.13
12/31/94 4.8500 209.098 1,014.13
3/23/95 4.9500 213.146 0.096 20.04 0.000 0.00 4.048 1,055.07
6/26/95 5.1400 217.057 0.094 20.10 0.000 0.00 3.911 1,115.67
9/26/95 5.0900 222.185 0.120 26.10 0.000 0.00 5.128 1,130.92
12/29/95 5.1400 226.839 0.108 23.92 0.000 0.00 4.654 1,165.95
12/31/95 5.1400 226.839 1,165.95
3/26/96 5.1500 231.309 0.102 23.02 0.000 0.00 4.470 1,191.24
6/25/96 5.1600 236.427 0.114 26.41 0.000 0.00 5.118 1,219.96
9/25/96 5.2200 240.747 0.095 22.55 0.000 0.00 4.320 1,256.70
12/27/96 5.2500 249.905 0.102 24.58 0.098 23.50 9.158 1,312.00
12/31/96 5.2500 249.905 1,312.00
3/26/97 5.1600 254.672 0.098 24.60 0.000 0.00 4.767 1,314.11
6/26/97 5.2300 259.703 0.103 26.31 0.000 0.00 5.031 1,358.25
9/26/97 5.3400 264.684 0.102 26.60 0.000 0.00 4.981 1,413.41
12/23/97 5.1500 270.954 0.094 24.83 0.028 7.46 6.270 1,395.41
12/31/97 5.1400 270.954 1,392.70
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 9.47%
ERV = Ending Redeemable Value: $1,392.70 Overall Total Return: 39.27%
n = Number of Time Periods: 3.66
</TABLE>
<PAGE>
Northstar Growth V/A
Total Return Calculation Since 1/1/97
$1,000.00 Investment
Dividends Reinvested
No Sales Charge Included
<TABLE>
<CAPTION>
Unit Units Cumulative Dividends Reinvested Capital Gains Reinvested Reinvested Total
Date Amount Price Purchased Units per Unit Dividends per Unit Capital Gains Units Market Value
- ---- ------ ----- --------- ---------- --------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,000.00 5.2500 190.476 190.476 1,000.00
3/26/97 5.1600 194.110 0.098 18.75 0.000 0.00 3.634 1,001.61
6/26/97 5.2300 197.944 0.103 20.05 0.000 0.00 3.834 1,035.25
9/26/97 5.3400 201.740 0.102 20.27 0.000 0.00 3.796 1,077.29
12/23/97 5.1500 206.519 0.094 18.92 0.028 5.69 4.779 1,063.57
12/31/97 5.1400 206.519 1,061.51
FORMULA -- Average Annual Total Return: ERV = P(1 + T)^n
Overall Total Return: ERV/P - 1
Where: P = Initial Investment: $1,000.00 T = Average Annual Total Return: 6.15%
ERV = Ending Redeemable Value: $1,061.51 Overall Total Return: 6.15%
n = Number of Time Periods: 1.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000916403
<NAME> NORTHSTAR VARIABLE TRUST
<SERIES>
<NUMBER> 1
<NAME> NORTHSTAR GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 27534171
<INVESTMENTS-AT-VALUE> 31288739
<RECEIVABLES> 954316
<ASSETS-OTHER> 3685993
<OTHER-ITEMS-ASSETS> 975
<TOTAL-ASSETS> 35930023
<PAYABLE-FOR-SECURITIES> 3725274
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48418
<TOTAL-LIABILITIES> 3773692
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28091077
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2199
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 308487
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3754568
<NET-ASSETS> 32156331
<DIVIDEND-INCOME> 270156
<INTEREST-INCOME> 106203
<OTHER-INCOME> 0
<EXPENSES-NET> 200461
<NET-INVESTMENT-INCOME> 175898
<REALIZED-GAINS-CURRENT> 614190
<APPREC-INCREASE-CURRENT> 2581053
<NET-CHANGE-FROM-OPS> 3371141
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (182697)
<DISTRIBUTIONS-OF-GAINS> (345682)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22327151
<NUMBER-OF-SHARES-REDEEMED> (9105693)
<SHARES-REINVESTED> 528379
<NET-CHANGE-IN-ASSETS> 16592599
<ACCUMULATED-NII-PRIOR> 7314
<ACCUMULATED-GAINS-PRIOR> 41663
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 187902
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 273059
<AVERAGE-NET-ASSETS> 24972506
<PER-SHARE-NAV-BEGIN> 14.08
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 1.95
<PER-SHARE-DIVIDEND> (.10)
<PER-SHARE-DISTRIBUTIONS> (.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.85
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000916403
<NAME> NORTHSTAR VARIABLE TRUST
<SERIES>
<NUMBER> 5
<NAME> NORTHSTAR INTERNATIONAL VALUE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 5366018
<INVESTMENTS-AT-VALUE> 5555699
<RECEIVABLES> 13865
<ASSETS-OTHER> 489748
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6059312
<PAYABLE-FOR-SECURITIES> 96577
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25711
<TOTAL-LIABILITIES> 122288
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5916503
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2715
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (171873)
<ACCUM-APPREC-OR-DEPREC> 189679
<NET-ASSETS> 5937024
<DIVIDEND-INCOME> 17102
<INTEREST-INCOME> 14812
<OTHER-INCOME> 0
<EXPENSES-NET> 14480
<NET-INVESTMENT-INCOME> 17434
<REALIZED-GAINS-CURRENT> (171565)
<APPREC-INCREASE-CURRENT> 189679
<NET-CHANGE-FROM-OPS> 35548
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15027)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6277674
<NUMBER-OF-SHARES-REDEEMED> (376198)
<SHARES-REINVESTED> 15027
<NET-CHANGE-IN-ASSETS> 5937024
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18050
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 47222
<AVERAGE-NET-ASSETS> 4672596
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .10
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000916403
<NAME> NORTHSTAR VARIABLE TRUST
<SERIES>
<NUMBER> 2
<NAME> NORTHSTAR INCOME & GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 19496272
<INVESTMENTS-AT-VALUE> 21307778
<RECEIVABLES> 722306
<ASSETS-OTHER> 1198859
<OTHER-ITEMS-ASSETS> 996
<TOTAL-ASSETS> 23229939
<PAYABLE-FOR-SECURITIES> 1655136
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 43947
<TOTAL-LIABILITIES> 1699083
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18955487
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 763863
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1811506
<NET-ASSETS> 21530856
<DIVIDEND-INCOME> 345268
<INTEREST-INCOME> 467333
<OTHER-INCOME> 0
<EXPENSES-NET> 143698
<NET-INVESTMENT-INCOME> 668903
<REALIZED-GAINS-CURRENT> 857103
<APPREC-INCREASE-CURRENT> 990107
<NET-CHANGE-FROM-OPS> 2516113
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (668201)
<DISTRIBUTIONS-OF-GAINS> (141496)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10664273
<NUMBER-OF-SHARES-REDEEMED> (4228685)
<SHARES-REINVESTED> 809697
<NET-CHANGE-IN-ASSETS> 8951701
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 47554
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 134697
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 199763
<AVERAGE-NET-ASSETS> 17964901
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