<PAGE>
File No. 33-73140
811-8220
As filed with the Securities and Exchange Commission on April 30, 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. 12
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13
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
--------------
(Registrant's telephone number)
Mark L. Lipson
c/o Northstar Investment Management Corporation
300 First Stamford Place, Stamford, Connecticut 06902
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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:
X immediately upon filing pursuant to paragraph (b)
----
on [date] pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)(1)
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on [date] pursuant to paragraph (a)(1)
----
75 days after filing pursuant to paragraph (a)(2)
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on [date] pursuant to paragraph (a)(2) of Rule 485.
----
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.
__________________________________________________________________________
<PAGE>
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
300 First Stamford Place (203) 602-7950
Stamford, Connecticut 06902 (800) 595-7827
The 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 all 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 Portfolios and the Trust 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 ("SEC") 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>
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 .......... 9
Performance Information ............................. 11
How Net Asset Value is Determined ................... 11
Management of the Portfolios ........................ 12
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
<PAGE>
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
Growth Portfolio Portfolio
------------------------------------------------ --------------
1997 1996 1995 1994(1) 1997(1)
----------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period ................................ $ 14.08 11.56 10.04 10.00 10.00
Income from investment
operations:
Net investment income ................. 0.09 0.08 0.20 0.16 0.03
Net realized and unrealized gain
(loss) ............................... 1.95 2.57 2.27 0.19 0.10
--------- ------ ----- ----- -----
Total from investment
operations ........................... 2.04 2.65 2.47 0.35 0.13
--------- ------ ----- ----- -----
Less distributions:
Dividends declared from net
investment income .................... (0.10) (0.09) (0.19) (0.16) (0.03)
Dividends from net realized
gains ................................ (0.17) (0.04) (0.76) (0.15) 0.00
--------- ------ ------ ------ ------
Total distributions ................... (0.27) (0.13) (0.95) (0.31) (0.03)
--------- ------ ------ ------ ------
Net Asset Value, end of period ......... $ 15.85 14.08 11.56 10.04 10.10
========= ====== ====== ====== ======
Total Return ........................... % 14.66 22.99 24.78 3.47 1.30
========= ====== ====== ====== ======
Ratios/supplemental data:
Net assets end of period
(thousands) .......................... $32,156 15,564 3,813 2,701 5,937
========= ====== ====== ====== ======
Ratio of expenses to average
net assets ........................... % 0.80 0.80 0.80 1.00(2) 0.80(2)
========= ====== ====== ======= ======
Ratio of expense reimbursement
to average net assets ................ % 0.29 0.90 1.24 1.45(2) 1.81(2)
========= ====== ====== ======= ======
Ratio of net investment income
to average net assets ................ % 0.70 0.65 1.77 2.31(2) 0.97(2)
========= ====== ====== ======= ======
Portfolio Turnover Rate ............... % 178 161 123 61 5
========= ====== ====== ======= =======
Average Commissions Per Share .......... 0.0359 0.0414 -- -- 0.0263
<CAPTION>
Period Ended December 31,
-----------------------------------------------
Income and Growth Portfolio
----------------------------------------------
1997 1996 1995 1994(1)
---------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of
period ................................ 11.72 11.39 9.92 10.00
Income from investment
operations:
Net investment income ................. 0.44 0.40 0.37 0.20
Net realized and unrealized gain
(loss) ............................... 1.36 1.15 1.73 (0.01)
------ ------ ----- ------
Total from investment
operations ........................... 1.80 1.55 2.10 0.19
------ ------ ----- ------
Less distributions:
Dividends declared from net
investment income .................... (0.44) (0.41) (0.37) (0.20)
Dividends from net realized
gains ................................ (0.08) (0.81) (0.26) (0.07)
------ ------ ------ ------
Total distributions ................... (0.52) (1.22) (0.63) (0.27)
------ ------ ------ ------
Net Asset Value, end of period ......... 13.00 11.72 11.39 9.92
====== ====== ====== ======
Total Return ........................... 15.81 13.80 21.39 2.02
====== ====== ====== ======
Ratios/supplemental data:
Net assets end of period
(thousands) .......................... 21,531 12,579 7,410 3,595
====== ====== ====== ======
Ratio of expenses to average
net assets ........................... 0.80 0.80 0.80 1.00(2)
====== ====== ====== =======
Ratio of expense reimbursement
to average net assets ................ 0.31 0.60 0.94 1.43(2)
====== ====== ====== =======
Ratio of net investment income
to average net assets ................ 3.72 3.67 3.63 3.11(2)
====== ====== ====== =======
Portfolio Turnover Rate ............... 55 129 74 45
====== ====== ====== =======
Average Commissions Per Share ......... 0.0598 0.0401 -- --
<CAPTION>
Period Ended December 31,
-------------------------------------- ---------------------------------------------
Multi-Sector Portfolio High Yield Portfolio
-------------- ----------------------- ---------------------------------------------
1997 1996 1995 1994(1) 1997 1996 1995 1994(1)
-------- ------- --------- ------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period ................................ 5.25 5.14 4.85 5.00 5.27 5.04 4.69 5.00
Income from investment
operations:
Net investment income ................. 0.40 0.41 0.42 0.23 0.40 0.45 0.50 0.28
Net realized and unrealized gain
(loss) ............................... (0.08) 0.21 0.29 (0.15) 0.07 0.32 0.34 (0.31)
------ ----- ----- ------- ------ ----- ----- -----
Total from investment
operations ........................... 0.32 0.62 0.71 0.08 0.47 0.77 0.84 (0.03)
------ ----- ----- ------- ------ ----- ----- -----
Less distributions:
Dividends declared from net
investment income .................... (0.40) (0.41) (0.42) (0.23) (0.40) (0.45) (0.49) (0.28)
Dividends from net realized
gains ................................ (0.03) (0.10) -- -- (0.04) (0.09) -- --
------ ----- ----- ------ ------ ------ ------ ------
Total distributions ................... (0.43) (0.51) (0.42) (0.23) (0.44) (0.54) (0.49) (0.28)
------ ----- ----- ------ ------ ------ ------ ------
Net Asset Value, end of period ......... 5.14 5.25 5.14 4.85 5.30 5.27 5.04 4.69
====== ===== ===== ====== ====== ====== ====== ======
Total Return ........................... 6.15 12.53 14.97 1.41 9.00 15.75 18.55 (0.95)
====== ===== ===== ====== ====== ====== ====== ======
Ratios/supplemental data:
Net assets end of period
(thousands) ..........................10,548 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 0.80 1.00(2) 0.79 0.80 0.80 1.00(2)
====== ===== ====== ======= ======= ====== ====== =======
Ratio of expense reimbursement
to average net assets ................ 0.56 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 ................ 8.31 8.38 8.52 7.03(2) 8.44 8.72 10.61 8.62(2)
====== ===== ====== ======= ======= ====== ====== =======
Portfolio Turnover Rate ............... 163 121 83 29 152 159 157 62
====== ===== ====== ======= ======= ====== ====== =======
Average Commissions Per Share ..........0.0000 -- -- -- -- 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
<PAGE>
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 U.S. 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, 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.
4
<PAGE>
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
will purchase ADRs for foreign securities which are actively traded in a U.S.
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".
5
<PAGE>
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 7. 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".
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
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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 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
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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 or 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
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
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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.
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.
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 and International Value 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.
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DERIVATIVE SECURITIES. The International Value Portfolio does not
currently intend to make use of any derivatives, including transactions in
currency forwards for hedging purposes.
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 and International Value 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.
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 and International Value 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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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. Eastern Time) 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.
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.
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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, the management
of the Portfolios' portfolios and overseeing the investment management of the
Sub-Advisers. The Adviser 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, wholly-owned subsidiaries of
ReliaStar Financial Corp. ("ReliaStar"). 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 and International
Value 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 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 Multi-Sector Bond Portfolio
since May 1998 and 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.
12
<PAGE>
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.
Thomas Ole Dial
Thomas Ole Dial has co-managed the Northstar Multi-Sector Bond Portfolio
since November 1997 and has co-managed the Northstar High Yield Bond Portfolio
since May 1998. 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.
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.
13
<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 Northstar and Brandes. The
company was formed in May 1996 as the successor to its general partner, Brandes
Investment Partners, Inc. Brandes currently manages in excess of $20 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.
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 Northstar 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. 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.
14
<PAGE>
PERFORMANCE
PROFILE:
Brandes
Investment Partners
These figures demonstrate 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 verified or audited by Northstar. They do not indicate
how the Northstar International Value Portfolio or Brandes Investment Partners,
L.P. will perform in the future.
(a) The annual returns presented (right) were calculated on a time-weighted and
asset-weighted, total return basis, including reinvestments of all dividends,
interest and income, realized and unrealized gain or losses and are net of all
fees and expenses. Fees were not materially different from the International
Value Portfolio's expense ratio, but were generally higher than the Portfolio's
expense ratio after reimbursement. 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, strategies and
restrictions to those of the Northstar International Value Portfolio. The
weighted-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 cash 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 1996, the composite has
been examined by a Big Six accounting firm in accordance with AIMR Level II
verification standards. The examination for calendar year 1997 has not yet been
completed as of the date of this prospectus. Copies of the reports of
independent accountants and a complete list and description of Brandes'
composites are available on request. Brandes has prepared the performance data
in compliance with the Performance Presentation Standards of the Association
for Investment Management and Research (AIMR-PPSTM). 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
presentations.
The charts below show the past performance of Brandes Investment Partners, L.P.
in managing all accounts with investment objectives, policies, techniques,
strategies and restrictions substantially similar, though not identical to
those of the Northstar International Value Portfolio. The charts show average
annual returns and the cumulative total return since July 1990 for a composite
of the actual performance of all international equity accounts managed by
Brandes Investment Partners from July 1990 until the present.
The accounts were not subject to the same types of expenses as the Portfolio,
separate account or variable contract fees or charges, 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.
(graph appears here with plot points to be provided by customer)
Included for comparison purposes are performance figures of the Morgan Stanley
Capital International European Australasian Far Eastern ("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
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>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
BRANDES
INTERNATIONAL MSCI EAFE
[ICON]
If you have any questions, please call 1-800-595-7827.
29
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
<TABLE>
<S> <C> <C>
Equity Index
1990 0.98 0.79
0.99 0.87
1991 1.10 0.94
1.13 0.88
1.26 0.96
1.38 0.98
1992 1.43 0.86
1.52 0.88
1.47 0.89
1.47 0.86
1993 1.58 0.96
1.65 1.06
1.82 1.13
2.07 1.14
1994 2.01 1.18
1.96 1.24
2.11 1.24
2.01 1.23
1995 2.01 1.25
2.13 1.26
2.20 1.31
2.29 1.36
1996 2.31 1.40
2.41 1.42
2.44 1.42
2.66 1.45
1997 2.82 1.42
3.16 1.61
3.34 1.60
3.19 1.47
</TABLE>
15
<PAGE>
PERFORMANCE
PROFILE:
Northstar Variable Trust Growth Portfolio
The charts on this page show the average annual return and the cumulative total
return since inception for the Northstar Variable Trust Growth Portfolio. The
Portfolio returns shown do not reflect the impact of any separate account or
variable contract fees or charges.
Included for comparison purposes are performance figures of the Standard and
Poor's ("S&P") 500 Index, an unmanaged index of 500 widely held common stocks.
It has been adjusted to reflect reinvestment of dividends.
<TABLE>
<CAPTION>
Northstar Variable Trust S&P 500
Growth Portfolio (%) Index (%)
<S> <C> <C>
One year, ended
December 31, 1997 14.66 33.31
Cumulative total return
since May 6, 1994 103.83 168.95
</TABLE>
Northstar Variable Trust S&P 500
Growth Portfolio Index
May 6, 1994 1.00 1.00
June 30, 1994 0.999 1.00
September 30, 1994 1.059 1.049
December 31, 1994 1.035 1.048
March 31, 1995 1.069 1.150
June 30, 1995 1.212 1.260
September 30, 1995 1.287 1.359
December 31, 1995 1.291 1.441
March 31, 1996 1.383 1.518
June 30, 1996 1.576 1.586
September 30, 1996 1.614 1.635
December 31, 1996 1.588 1.771
March 31, 1997 1.541 1.819
June 30, 1997 1.692 2.135
September 30, 1997 1.889 2.295
December 31, 1997 1.821 2.361
Navellier & Associates
In addition to owning Navellier Fund Management, Inc., Louis Navellier is the
sole owner of Navellier & Associates, Inc., a registered investment adviser
that has been managing large pools of private assets since 1985.
Mr. Navellier and his staff use a computer-based system he developed to analyze
over 9,000 stocks as a basis for making buying and selling decisions.
The charts on page 17 show his past performance in managing accounts with
investment objectives, policies, techniques and strategies substantially
similar to the Northstar Variable Trust Growth Portfolio.
The charts show average annual returns and the cumulative total return since
January 1985 for a composite of the actual performance of all equity accounts
managed by Navellier & Associates from 1985 to present, calculated according to
AIMR standards. This total return method differs from the SEC method of
calculating total return. Navellier has prepared the performance data in
compliance with the Performance Presentation Standards of the Association for
Investment Management and Research (AIMR-PPSTM). 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 presentations.
The accounts were not subject to the same types of expenses as the Portfolio,
separate account or variable contract fees or charges, or the requirements of
the Investment Company Act of 1940 or the Internal Revenue Code, the
limitations of which might have adversely affected performance results.
Included for comparison purposes are performance figures of the S&P 500 Index.
16
<PAGE>
PERFORMANCE
PROFILE:
Navellier & Associates
These figures demonstrate the historical track record of Navellier &
Associates. The figures have been provided by Navellier & Associates and have
not been verified or audited by Northstar. They do not indicate how the
Northstar Variable Trust Growth Portfolio or Navellier & Associates will
perform in the future.
(a) Results are after deduction of all fees and expenses. Prior to January 1,
1993, any account expenses not deducted from the accounts, such as management
fees paid outside the accounts, are not reflected in the performance results.
If these fees had been deducted from the accounts, they would have reduced
performance. Fees were not materially different from the Growth Portfolio's
expense ratio, but were generally higher than the Portfolio's expense ratio
after reimbursement.
<TABLE>
<CAPTION>
Navellier and
Associates S&P 500
Composite (%)(a) 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 (%)(a) 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>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NAVELLIER AND ASSOCIATES
COMPOSITE S&P 500 INDEX
<S> <C> <C>
1985 1.00 1.00
1985 1.50 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 3.78
1994 6.63 3.83
1995 9.53 5.27
1996 10.55 6.44
1997 11.92 8.59
Unit value
</TABLE>
17
<PAGE>
CUSTODIAN AND ACCOUNTING SERVICES AGENT. The Portfolios' custodian and
accounting services agent is State Street Bank and Trust Company which is
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 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 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 SEC, making disposal of
portfolio securities or valuation of net assets not reasonably practicable, and
whenever the SEC 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 SEC. 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 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
18
<PAGE>
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).
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
19
<PAGE>
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 SEC. The Registration Statement,
including the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C.
ADDITIONAL INQUIRIES. Inquiries and requests for the current SAI, 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>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which made the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, I.E., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P")
CORPORATE DEBT RATINGS
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
A-1
<PAGE>
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date 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
<PAGE>
[GRAPHIC OMITTED]
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
[GRAPHIC OMITTED]NORTHSTAR VARIABLE TRUST
300 First Stamford Place
Stamford, Connecticut 06902
(203) 602-7950
(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.
---------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
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
</TABLE>
<PAGE>
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,
2
<PAGE>
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
3
<PAGE>
(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.
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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.
8
<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
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<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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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.
During the fiscal years ended December 31, 1997 and 1996, the
Portfolios(1) paid the Sub-Advisers the following sub-advisory fees
respectively:
Sub-Advisory Fees
1997 1996
Growth Portfolio................. $ 84,784 $ 3,513
International Value Portfolio.... -- --
Income and Growth Portfolio...... -- --
- -------------------
(1) The International Value Portfolio commenced operations on August 8, 1997.
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, Martin Luther King, Jr.'s Birthday,
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 March 31, 1998, 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 certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Stamford
and the State of Connecticut on the 28th day of April, 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 April 28, 1998
John G. Turner* Trustee
MARK L. LIPSON President and April 28, 1998
Mark L. Lipson* Trustee
JOHN R. SMITH Trustee April 28, 1998
John R. Smith*
PAUL S. DOHERTY Trustee April 28, 1998
Paul S. Doherty*
DAVID W. WALLACE Trustee April 28, 1998
David W. Wallace*
ROBERT B. GOODE, JR. Trustee April 28, 1998
Robert B. Goode, Jr.*
WALTER MAY Trustee April 28, 1998
Walter May*
<PAGE>
ALAN L. GOSULE Trustee April 28, 1998
Alan L. Gosule*
DAVID W.C. PUTNAM Trustee April 28, 1998
David W.C. Putnam*
AGNES MULLADY Principal Financial April 28, 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 (4)
9 Form of Administrative Services
Agreement (1)
(a) Form of Amendment to Administrative Services
Agreement (3)
10 Opinion of Counsel (4)
11 Consent of Independent Accountants (4)
12 Annual Report to Shareholders (4)
16 Performance Information (4)
17 Powers of Attorney (1)
27 Financial Data Schedule (EX-27) (4)
(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.
(4) Filed as part of PEA No. 11 and incorporated herein by reference.
