Northstar Variable Trust
NORTHSTAR GROWTH PORTFOLIO
NORTHSTAR INTERNATIONAL VALUE PORTFOLIO
NORTHSTAR INCOME AND GROWTH PORTFOLIO
NORTHSTAR MULTI-SECTOR BOND PORTFOLIO
NORTHSTAR HIGH YIELD BOND PORTFOLIO
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1997
<PAGE>
Northstar Variable Trust
Annual Report,
December 31, 1997
Dear Shareholders:
We are pleased to provide you with the annual report of the Northstar Funds for
the year ended December 31, 1997. We are gratified with your decision to entrust
your assets to the Northstar Funds and are confident that we can assist you
reaching your financial objectives. Our goal is to provide you with long term
consistent and superior results through fundamental research, analysis, and
traditional investment disciplines. Following this letter is a summary of the
results of each Fund by their respective portfolio manager. We hope you will
find this informative.
During the past year the U.S. financial markets remained quite strong despite
several temporary corrections. The favorable investment returns for both stocks
and bonds were supported by continued growth in the economy, strong gains in
corporate profits, and a reduction in the inflation rate.
As the U.S. economy advanced at a 3.8% rate in real GDP growth, it generated
more jobs, reducing the unemployment rate to an historically low level of 4.7%.
This raised concerns that rising wage pressures would begin to impact and
reverse the favorable trends in both corporate profitability and the inflation
rate. However, despite growing demand, the productive capacity of the
increasingly global economy increased even more due to capital investments and
improved efficiency. There are few, if any, shortages today impacting inflation
and rising employment costs are being more than offset by productivity gains
allowing corporate profit margins to remain at historically high levels.
During the year, intermediate and long term treasury bonds appreciated as the
yields declined about 70 basis points (0.7% points). The total return for 10
year U.S. Treasury bonds was about 11.1%. Stock market returns were stronger,
with the Dow Industrials up 24.9%, benefiting from both higher earnings and
higher valuations due to lower interest rates. High yield bonds also had a very
good year benefiting from both a narrowing in interest rate differentials
compared to treasury bonds and from increases in the underlying equity values.
Going into 1998 the investment environment is more volatile and difficult to
predict, but continues to appear favorable. While the current financial crisis
in Asia has introduced a new major uncertainty which we are monitoring closely,
its dampening effect on global growth and inflation may actually prove to be
positive for U.S. bond and stock prices. Growth in the U.S. economy and
corporate profits should continue in 1998, but at a slower rate. With inflation
remaining low, some further declines in interest rates may be possible as the
expected domestic slowdown is confirmed.
We note with great conviction that attempts to "time" the market often prove
counterproductive. Investors are strongly urged to focus on the long term.
Consistent disciplined investing is the proven method of achieving attractive
returns and meeting your financial objectives. We continue to support the
philosophy and look forward to serving your investment needs in the future.
Sincerely,
Mark L. Lipson
President
January 30, 1998
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<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
THE MARKETS
o In 1997 the Russell 2000 was up 22.37%, the S&P 500 rose 33.31%, and the
NASDAQ Composite was up 28.08%.
o It was a strong year for large capitalization stocks as evidenced by a
return of 33.31% for the S&P 500. After flirting with small capitalization
stocks in the second and third quarters, the market once again became a
large capitalization dominated and value oriented market, continuing a
trend that has developed over the last 24 months. A few sobering facts from
the fourth quarter include, a flat Dow Jones, and a 2.5% gain for the S&P
500 compared to a -6.8% return for the NASDAQ and a -3.3% return for the
Russell 2000. The growth vs. value comparison is even more telling as the
Russell 2000 Growth Index lost -8.2% for the fourth quarter while the
Russell 2000 Value Index gained 1.7%. Technology stocks suffered through an
extremely volatile year, with strong second and third quarters sandwiched
between dismal first and fourth quarters. In December, a few technology
stocks disappointed Wall Street with poor quarterly earnings, so the
analyst community immediately blamed the Southeast Asian crisis as the
primary reason that they had grossly overestimated the latest quarterly
earnings. As a result, the analyst community started to slash their 1998
earnings estimates on many leading technology stocks. Then another bomb
fell in December when 3M announced that its earnings would be hindered by
the Southeast Asian crisis. All of a sudden, the Southeast Asian crisis was
encompassing more than just technology stocks, so the entire U.S. stock
market sold off because the analyst community rushed to aggressively cut
earnings estimates on many leading companies. This year the strongest
performing stocks were found in the financial sectors as they continued to
benefit from an excellent interest rate environment.
THE FUND
o In 1997 the Northstar Variable Trust Growth Portfolio was up 14.66 %
compared to the Lipper Small Company Fund Index which was up 15.05%.
o The top performing stocks in the Portfolio for this period included: Mail
Well Inc., Keane Inc., Family Dollar Stores, Herman Miller Inc., and Suiza
Food Corp. Amongst the underperformers were: Federal Mogul Corp., Hayes
Lemmerz International, Catalytica Inc., Cellstar Corp., and Wellsford
Residential.
CURRENT STRATEGY
o What the stock market needs is for leading stocks, such as IBM or Microsoft
to release great fourth quarter earnings to inspire a little confidence in
the overall stock market. Unfortunately, the year-to-year earnings
comparisons make it hard for many stocks, such as Intel, to report fourth
quarter earnings that are higher than they were one year earlier. Intel's
latest quarterly earnings are estimated to fall compared to the same
quarter one year earlier. Fortunately, most of our stocks have been largely
removed from the recent earnings estimate cuts by the analyst community.
One factor that will eventually cause the stock market to rally is that the
Federal Reserve Board will likely cut key interest rates at its next
Federal Open Market Committee (FOMC) meeting. Economists now fear that
deflation may temporarily appear on the consumer level, which is one of the
main reasons that the Federal Reserve Board will likely cut key short-term
interest rates. The strong U.S. dollar is now one of the primary reasons
that deflation is rampant. Our models continue to focus on earnings
surprise earnings momentum screens. The Variable Trust Growth Portfolio
currently has a 7% large cap allocation, 43% mid cap allocation and 48%
small cap allocation.
- --------------------------------------------------------------------------------
Fund Information Total Net Assets
(All data are as of 12/31/97) $32,156,331
- --------------------------------------------------------------------------------
Top 10 Holdings
Name %Fund
(1) Aliant Communications, Inc. 2.4%
(2) Costco Cos., Inc 2.2
(3) Dean foods Co. 2.2
(4) Systems & Computer Technology Corp. 2.1
(5) Exel Ltd. 2.0
(6) Mail-Well, Inc. 2.0
(7) Mercury General Corp. 2.0
(8) Amsouth Bancorp 1.9
(9) Dallas Semiconductor Corp. 1.9
(10) Family Dollar Stores, Inc. 1.9
====
20.6%
====
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Top 5 Industries
(by percentage of net assets)
Banks 14.0%
Food & Beverage 7.6%
Insurance 6.7%
Retail 5.9%
Telecommunications 4.1%
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
------------------------------------
Inception 1 year
-------------------------------
16.89% 7.66%
Cumulative Total Return
(do not reflect sales charge)
------------------------------------------
Inception 1 year
-------------------------------
82.06% 14.66%
2
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
Growth of $10,000 invested in Northstar Variable Trust Growth Portfolio
from inception through the Portfolio's Fiscal Year End.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Variable Trust Growth Portfolio from May 6, 1994 (inception of the
Portfolio) through December 31, 1997, assuming the reinvestment of dividends and
capital gains at net asset value, compared to the S&P 500 Index for the same
period. All performance data shown represents past performance, and should not
be considered indicative of future performance.
Northstar Variable Trust Growth Portfolio
[GRAPHIC OMITTED]
Average Annual Total Return
1-Year 14.66%
Since Inception 17.79%
3
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 97.30%
Advanced Medical Devices - 1.22%
Guidant Corp. 6,300 $ 392,175
----------
Advertising/Marketing - 1.23%
Advo, Inc. @ 20,200 393,900
----------
Air Freight/Couriers - 1.80%
Expeditors International of Washington, Inc. 15,000 577,500
----------
Airlines - 1.53%
Alaska Air Group, Inc. @ 12,700 492,125
----------
Apparel/Fabric - 1.50%
Kellwood Co. 16,100 483,000
----------
Auto Parts & Equipment - 2.50%
Federal-Mogul Corp. 10,200 413,100
Hayes Lemmerz International, Inc. @ 14,000 392,000
----------
805,100
----------
Banks - 13.97%
Amsouth Bancorp 11,500 624,594
Associated Banc-Corp 7,420 409,027
Commerce Bancshares, Inc. 5,685 385,159
Dime Bancorp, Inc. 16,000 484,000
Fifth Third Bancorp 5,700 465,975
First of America Bank Corp. 5,700 439,612
Northern Trust Corp. 6,000 418,500
ONBANCorp, Inc. 7,000 493,500
U.S. Trust Corp. 7,400 463,425
Zions Bancorp 6,800 308,550
----------
4,492,342
----------
Building Materials - 2.76%
Centex Construction Products, Inc. 16,700 503,088
Southdown, Inc. 6,500 383,500
----------
886,588
----------
Catalogue/Specialty Distribution - 1.49%
Fingerhut Cos., Inc. 22,400 478,800
----------
Computer Software/Services - 4.79%
Keane, Inc. @ 15,000 609,375
Microsoft Corp. @ 2,500 323,125
Tandy Corp. 15,800 609,287
----------
1,541,787
----------
4
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Construction/Equipment/Trucks - 1.42%
Wabash National Corp. 16,000 $ 455,000
----------
Construction Materials - 1.63%
PACCAR, Inc. 10,000 525,000
----------
Containers and Packaging - 3.09%
Ball Corp. 15,200 536,750
Owens-Illinois, Inc. @ 12,000 455,250
----------
992,000
----------
EDP Peripherals - 1.37%
Mti Technology Corp. @ 33,200 439,900
----------
EDP Services - 2.16%
Systems & Computer Technology Corp. @ 14,000 694,750
----------
Electronics - 2.10%
CellStar Corp. @ 12,600 250,425
Smart Modular Technologies, Inc. @ 18,400 423,200
----------
673,625
----------
Environmental Control - 3.46%
Catalytica, Inc. @ 35,000 415,625
Eastern Environmental Services, Inc. @ 16,300 358,600
Newpark Resources, Inc. @ 19,400 339,500
----------
1,113,725
----------
Financial Services - 1.30%
20th Century Industries 16,100 418,600
----------
Food & Beverage - 7.60%
Canandaigua Brands, Inc. @ 7,600 420,850
ConAgra, Inc. 14,200 465,937
Dean Foods Co. 12,000 714,000
Smithfield Foods, Inc. @ 7,500 247,500
Suiza Foods Corp. @ 10,000 595,625
----------
2,443,912
----------
Healthcare/Pharmaceutical - 1.58%
ICN Pharmaceuticals, Inc. 10,400 507,650
----------
Home Furnishings - 1.27%
Ethan Allen Interiors, Inc. 10,600 408,763
----------
Hospital /Nursing Management - 1.68%
Universal Health Services, Inc. @ 10,700 539,013
----------
5
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Hotels/Resorts - 1.84%
Carnival Corp. 10,700 $ 592,513
----------
Insurance - 6.70%
CMAC Investment Corp. 9,800 591,675
Exel Ltd. 10,300 652,762
Mercury General Corp. 11,800 651,950
Mutual Risk Management Ltd. 8,600 257,463
----------
2,153,850
----------
Medical/Nursing Services - 0.94%
Lincare Holdings, Inc. @ 5,300 302,100
----------
Multi-Sector Companies - 0.93%
McDermott International, Inc. 8,200 300,325
----------
Office Equipment/Supplies - 1.49%
Herman Miller, Inc. 8,800 480,150
----------
Oil & Gas - 0.43%
Forcenergy, Inc. @ 5,300 138,794
----------
Oil & Gas Exploration - 0.98%
Camco International, Inc. 4,950 315,253
----------
Paper - 1.31%
Buckeye Technologies, Inc. @ 9,100 420,875
----------
Printing - 1.96%
Mail-Well, Inc. @ 15,600 631,800
----------
Publishing - 1.19%
Houghton Mifflin Co. 10,000 383,750
----------
Real Estate Investment Trust - 1.62%
Mack California Realty Corp. 12,700 520,700
----------
Retail - 5.89%
Costco Cos., Inc. @ 16,000 714,000
Family Dollar Stores, Inc. 21,000 615,562
Funco, Inc. @ 18,000 267,750
The Gap, Inc. 8,400 297,675
----------
1,894,987
----------
6
<PAGE>
NORTHSTAR VARIABLE TRUST GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Shares/
Security Principal Amount Value
- --------------------------------------------------------------------------------
Savings & Loan - 1.44%
Great Financial Corp. 9,100 $ 464,100
-----------
Semiconductor - 1.90%
Dallas Semiconductor Corp. 15,000 611,250
-----------
Supermarkets - 1.56%
Dominick's Supermarkets, Inc. @ 13,700 500,050
-----------
Telecommunications - 4.11%
Aliant Communications, Inc. 24,100 756,137
Portugal Telecom SA ** 12,000 564,000
-----------
1,320,137
-----------
Wholesale Distributors - 1.56%
VWR Scientific Products Corp. @ 17,800 502,850
-----------
Total Common Stocks
(cost $27,534,171) 31,288,739
-----------
Total Investment Securities - 97.30%
(cost $27,534,171) 31,288,739
Repurchase Agreement - 11.46%
Agreement with State Street Bank and
Trust bearing interest at 5.75% dated
12/31/97 to be repurchased 1/02/98 in
the amount of $3,686,177 and
collateralized by $3,760,000 U.S.
Treasury Bills, 5.75% due 12/31/98
value $3,763,527
(cost $3,685,000) $ 3,685,000 3,685,000
Liabilities in excess of other assets - (8.76%) (2,817,408)
------------
Net Assets - 100.00% $ 32,156,331
============
@ Non-income producing security.
** American Depositary Receipts.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
NORTHSTAR VARIABLE TRUST INTERNATIONAL VALUE PORTFOLIO
THE MARKETS
o The environment for stocks during the period was among the most difficult
in recent memory. Widespread currency devaluations in Asia ignited a global
firestorm of volatility, leaving few markets unscathed. The MSCI Europe
Australasia Far East Index (EAFE) fell by 6.92% between August 20 and
December 31, 1997. By comparison, U.S. stocks fared reasonably well. While
volatility increased dramatically, the Standard & Poor's 500 returned a
positive 4.02% over the same time period.
o The largest declines were in Asia itself. Equity markets in Thailand,
Malaysia, South Korea, Indonesia, and Hong Kong each lost more than 32%. In
dollar terms, the MSCI Pacific Free Index (excluding Japan) fell 28.83%
over the period.
o European equity markets were the bright spot for the period. The MSCI
Europe Index gained 6.7%, with many major markets ending the period in
positive territory.
THE FUND
o The Fund returned 1.30% during the period from August 8 through December
31, 1997. The Lipper Index of International Equity Funds returned -7.45%
for the same period.
o The performance of the European holdings far exceeded that of the other
regions, particularly Asia. The strongest performers were those holdings in
Denmark, Italy, and France, which slightly offset the negative performance
of holdings in Hong Kong, Thailand, and Japan.
CURRENT STRATEGY
o The bottom-up, value philosophy used in managing the Fund will be
consistently applied to find the best opportunities available in non-US
markets. There is no focus on top-down macroeconomic evaluations or
forecasts in structuring the Fund. Country and industry exposure are
exclusively a residual of the purchase of individual businesses that meet
the strict value criteria.
o The fundamental valuations of the Fund reflect, and will continue to
reflect, significant discounts to the world market averages. This absolute
value focus has performed very favorably in declining market environments
as well as doing well over long-term market cycles.
o The Fund will endeavor to stay fully invested in non-US equities and will
not attempt to anticipate short-term market movements. We will hold the
best values available without bias to either country or industry.
- --------------------------------------------------------------------------------
Fund Information Total Net Assets
(All data are as of 12/31/97) 5,937,024
- --------------------------------------------------------------------------------
Top 10 Holdings
Name %Fund
(1) Groupe Danone 5.0%
(2) Daimler-Benz AG 4.9
(3) Nestle SA 4.6
(4) Tele Danmark A/S 4.2
(5) Istituto Mobiliare Italiano SpA 4.1
(6) Guinness PLC 4.0
(7) Telecom Italia SpA 3.9
(8) Den Danske Bank A/S 3.8
(9) Hitachi Ltd. Co. 3.7
(10) Tokio Marine & Fire Insurance 3.6
=====
41.8%
=====
[THE FOLLOWING WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Top 5 Countries
(by percentage of net assets)
France 14.6%
Italy 13.0%
United Kingdom 9.4%
Japan 8.5%
Denmark 8.1%
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
-------------------------------------------
Inception 1 year
------------------------------------
-5.70% N/A
Cumulative Total Return
(do not reflect sales charge)
--------------------------------------------
Inception 1 year
-------------------------------------
1.30% N/A
8
<PAGE>
NORTHSTAR VARIABLE TRUST INTERNATIONAL VALUE PORTFOLIO
Growth of $10,000 invested in Northstar Variable Trust
International Value Portfolio from inception
through the Fund's Fiscal Year End.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Variable Trust International Value Portfolio from August 8, 1997
(inception of the Fund) through December 31, 1997, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the Morgan Stanley
EAFE Index for the same period. All performance data shown represents past
performance, and should not be considered indicative of future performance.
[GRAPHIC OMITTED]
Average Annual Total Return
Since Inception 1.30%
9
<PAGE>
NORTHSTAR VARIABLE TRUST INTERNATIONAL VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 93.58%
Automotive - 8.06%
Daimler-Benz AG ( Germany ) 4,110 $ 288,325
PSA Peugeot Citroen SA ( France ) 1,510 190,428
----------
478,753
----------
Banking - 17.44%
Argentaria SA ( Spain ) 2,000 121,693
Banca Commerciale Italiana SpA ( Italy ) 42,300 147,058
Compagnie Financiere de Paribas ( France ) 1,290 112,099
Den Danske Bank A/S ( Denmark ) 1,700 226,521
Development Bank of Singapore Ltd. ( Singapore ) 10,600 90,561
Istituto Mobiliare Italiano SpA ( Italy ) 20,300 240,984
Societe Generale SA ( France ) 710 96,735
----------
1,035,651
----------
Beverages/Tobacco - 7.83%
B.A.T. Industries PLC ( United Kingdom ) 17,000 155,026
Companhia Cervejaria Brahma ** ( Brazil ) 5,200 73,775
Guinness PLC ( United Kingdom ) 25,800 236,037
----------
464,838
----------
Electrical & Electronics - 3.72%
Hitachi Ltd. ( Japan ) 31,000 220,801
----------
Energy - 2.90%
Nippon Oil Co. Ltd. ( Japan ) 11,000 28,391
YPF Sociedad Anonima ** ( Argentina ) 4,200 143,587
----------
171,978
----------
Food & Household Products - 9.64%
Groupe Danone ( France ) 1,660 296,503
Nestle SA ( Switzerland ) 184 275,647
----------
572,150
----------
Health/Personal Care - 0.65%
Ono Pharmaceutical Co., Ltd. ( Japan ) 2,000 38,753
----------
Insurance - 11.74%
Assurances Generales de France ( France ) 3,200 169,557
INA SpA ( Italy ) 75,900 153,817
ING Groep N.V. ( Netherlands ) 3,800 158,361
Tokio Marine & Fire Insurance Co. ( Japan ) 19,000 215,363
----------
697,098
----------
Metals - Steel - 1.20%
Pohang Iron & Steel Co. Ltd. ( South Korea ) 4,100 71,494
----------
10
<PAGE>
NORTHSTAR VARIABLE TRUST INTERNATIONAL VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Shares/ Value
Principal
Amount
- --------------------------------------------------------------------------------
Miscellaneous Materials & Commodities - 2.54%
De Beers Centenary AG ( South Africa ) 7,400 $ 150,539
----------
Multi - Industry - 6.32%
BTR PLC ( United Kingdom ) 54,200 163,803
First Pacific Co. Ltd. ( Hong Kong ) 32,000 15,383
Jardine Matheson Holdings Ltd. ( Singapore ) 38,400 195,840
----------
375,026
----------
Telecommunications - 12.82%
Royal PTT Nederland NV ( Netherlands ) 3,850 160,634
Tele Danmark A/S ( Denmark ) 4,060 251,828
Telecom Italia SpA ( Italy ) 36,000 229,961
Telecomunicacoes Brasileiras SA ** ( Brazil ) 1,020 118,766
----------
761,189
----------
Utilities - Electrical & Gas - 8.72%
Centrais Eletricas Brasileiras SA ** ( Brazil ) 8,200 200,818
EVN Energie-Versorgung Niederoesterreich AG ( Austria ) 670 88,050
Korea Electric Power Corp. ** ( South Korea ) 17,000 171,062
Union Electrica Fenosa, SA ( Spain ) 6,000 57,499
----------
517,429
----------
Total Common Stocks
(cost $5,366,018) 5,555,699
----------
Total Investment Securities - 93.58%
(cost $5,366,018) 5,555,699
Repurchase Agreement - 6.62%
Agreement with State Street Bank and
Trust bearing interest at 5.75% dated
12/31/97, to be repurchased 1/02/98
in the amount of $393,126 and
collateralized by $395,000 U.S.
Treasury Bonds, 5.875% due 1/31/99,
value $405,327
(cost $393,000) $ 393,000 393,000
Liabilities in excess of other assets - (0.20%) (11,675)
-----------
Net Assets - 100.00% $ 5,937,024
===========
** American Depositary Receipts.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
THE MARKETS
o The U.S. financial Markets experienced another year of strong gains. The
Dow industrials had a total return of 24.9%. The S&P 500 posted a 33.31%
gain as relatively few large cap growth stocks such as GE dominated the
index. Smaller cap stocks in Russell 2000 were up 22.2% The total return
for the 10 year U.S. Treasury bond was 11.1%, while the average for the
bond funds followed by Lipper was a gain of 8.7%. By year end, current
yield for 10 and 30 year Treasuries had dropped to 5.74% and 5.92%,
respectively, down from 6.41% and 6.64% at the end of 1996. Quality spreads
for corporate bonds narrowed for most of the year until the crisis is Asia
reversed the trend during the final quarter.
o These favorable returns were driven by a combination of surprisingly strong
economic growth of well over 3% and even more surprisingly, a reduced level
of inflation, down towards 2%. Despite growing global competition, strong
productivity gains allowed corporations to maintain high profit margins and
produce earnings increases of better than 10% for the S&P 500.
o After mid-October the growing crisis in Asia had a dramatic impact causing
the flight to quality within both the bond and stock markets as the U.S.
appreciated and expectations for inflation and economic growth fell.
Investor anticipated problems with demand, price, defaults, and profit
margins sold off many cyclical, technology, commodity, and global financial
stocks bidding up many domestic or consistent growth stocks.
THE FUND
o The return for the portfolio in 1997 was 15.8%. This compares favorably to
the average bond fund in Lipper at 8.7%, which was less than the average
U.S. stock fund at 24.4%, and somewhat lagged the average balanced fund at
19.0%. The holdings of equities concentrated in the yielding Dow stocks
plus investment grade bonds were not the market leaders in the first three
quarters. The stronger than expected stock market was driven by growth
stocks and quality spreads narrowed for bonds. Several of the higher
yielding Dow stocks were actually down for the year (3M, Kodak, Sears).
o Beginning in mid-November the list of stocks was broadened. Some of the
large positions in high dividend low growth Dow stocks were eliminated or
reduced in favor of a more diversified portfolio including some faster
growers. Positions in the major autos and integrated oils were cut, while
some technology, services, and real estate stocks were added. These changes
plus the general flight to quality for stocks and bonds helped performance
in the fourth quarter. Holdings of large-cap growth stocks (GE, Merck, ATT,
Bristol-Myers, Philip Morris) were leaders.
CURRENT STRATEGY
o The Fund remains invested in about 60% dividend paying stocks with an
average dividend yield of 2.6%, about 1% point higher than the S&P 500.
Increased diversification of the equities continues. High quality domestic
bonds are 40% of the portfolio (average rating AA-, coupon 6.9%, maturity
9.4yrs.) and bring the yield of the portfolio up to 4.3% before expenses.
Holdings in GNMA bonds that no longer trade below par and are increasingly
subject to redemption are being switched into corporates where yields have
widened somewhat compared to treasuries.
o More facts will become available concerning the new global environment as
companies report recent operations. Research efforts will focus on
companies with strong fundamentals in beaten down sectors where exaggerated
conceptual fears may have made the stocks true bargains.
- --------------------------------------------------------------------------------
Fund Information Total Net Assets
(All data are as of 12/31/97) $21,530,856
- --------------------------------------------------------------------------------
Top 10 Holdings
Name %Fund
(1) GNMA , 6.50%, due 2/15/26 6.8%
(2) U.S. Treasury Notes, 6.50%, due 10/15/06 6.6
(3) General Electric 3.9
(4) Philip Morris Cos., Inc 3.5
(5) E.I. du Pont De Nemours & Co. 3.4
(6) Bristol-Meyers Squibb Co. 3.0
(7) Minnesota, Mining & Manufacturing 2.7
(8) J.P. Morgan & Co., Inc. 2.7
(9) U.S. Treasury Notes, 6.50%, 2.7
due 5/31/01 2.4
(10) Deere & Co. 2.3
====
40.0%
====
[THE FOLLOWING WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Top 5 Industries
(by percentage of net assets)
Real Estate
Investment Trust 9.3%
Consumer Products 7.9%
Finance & Banking 6.4%
Financial 5.3%
Pharmaceutical 5.0%
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
--------------------------------------------
Inception 1 year
---------------------------------
13.27% 8.81%
Cumulative Total Return
(do not reflect sales charge)
--------------------------------------------
Inception 1 year
----------------------------------
62.78% 15.81%
12
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
Growth of $10,000 invested in Northstar Variable Trust
Income and Growth Portfolio from inception
through the Portfolio's Fiscal Year End.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Variable Trust Income and Growth Portfolio from May 6, 1994 (inception
of the Portfolio) through December 31, 1997, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the S&P 500 Index
and the Lehman Brothers' Government/Corporate Bond Index for the same period.
All performance data shown represents past performance, and should not be
considered indicative of future performance.
Northstar Variable Trust Income And Growth Portfolio
[GRAPHIC OMITTED]
Average Annual Total Return
1-Year 15.81%
Since Inception 14.24%
13
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 60.73%
Aerospace & Defense - 1.09%
Boeing Co. 4,800 $ 234,900
----------
Auto Parts & Equipment - 0.87%
Magna International, Inc. @@ 3,000 188,438
----------
Automotive - 1.19%
Chrysler Corp. 7,300 256,869
----------
Capital Goods Manufacturing - 3.91%
General Electric Co. 11,460 840,877
----------
Chemicals - 4.20%
E.I. du Pont De Nemours & Co. 12,045 723,453
Eastman Chemical Co. 3,050 181,665
----------
905,118
----------
Computers - 1.47%
Compaq Computer Corp. 5,600 316,050
----------
Consumer Products - 7.89%
Kimberly-Clark Corp. 7,490 369,351
Minnesota, Mining & Manufacturing Co. 7,000 574,437
Philip Morris Cos., Inc. 16,650 754,453
----------
1,698,241
----------
Electrical Equipment - 1.07%
AMP, Inc. 5,500 231,000
----------
Energy - 1.58%
Mobil Corp. 4,700 339,281
----------
Finance & Banking - 6.34%
Bankers Trust New York Corp. 2,510 282,218
J. P. Morgan & Co., Inc. 5,085 573,969
Mellon Bank Corp. 4,600 278,875
NationsBank Corp. 3,800 231,088
----------
1,366,150
----------
Forest & Paper Products - 1.39%
International Paper Co. 6,920 298,425
----------
Insurance - 2.09%
Conseco, Inc. 7,500 340,781
Nationwide Financial Services, Inc. 3,000 108,375
----------
449,156
----------
14
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Machinery - 2.27%
Deere & Co. 8,400 $ 489,825
----------
Office Equipment/Supplies - 1.58%
Xerox Corp. 4,600 339,538
----------
Oil & Gas - 2.17%
El Paso Natural Gas Co. 3,400 226,100
ENSCO International, Inc. 7,200 241,200
----------
467,300
----------
Oil & Gas Drilling - 1.22%
Baker Hughes, Inc. 6,000 261,750
----------
Petroleum Services - 1.57%
Schlumberger, Ltd. 4,200 338,100
----------
Pharmaceutical - 4.95%
Bristol-Myers Squibb Co. 6,880 651,020
Merck & Co., Inc. 3,900 414,375
----------
1,065,395
----------
Printing & Publishing - 0.28%
Meredith Corp. 1,700 60,669
----------
Real Estate Investment Trust - 9.22%
CarrAmerica Realty Corp. 11,500 364,406
Developers Diversified Realty Corp. 5,600 214,200
Felcor Suite Hotels, Inc. 6,700 237,850
Glimcher Realty Trust 8,640 194,940
Kilroy Realty Corp. 10,500 301,875
Spieker Properties, Inc. 6,500 278,688
Starwood Lodging Trust 6,800 393,550
----------
1,985,509
----------
Semiconductor - 1.01%
Intel Corp. 3,100 217,775
----------
Technology - 0.67%
Lucent Technologies, Inc. 1,798 143,615
----------
Telecommunications - 1.71%
AT&T Corp. 6,020 368,725
----------
Tobacco - 0.99%
RJR Nabisco Holdings Corp. 5,700 213,750
----------
15
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal
Security Amount Value
- --------------------------------------------------------------------------------
Total Common Stocks
(cost $11,482,982) $13,076,456
-----------
Domestic Corporate Bonds - 16.50%
Aerospace & Defense - 1.17%
Raytheon Co.
6.45%, Notes, 8/15/02 $ 250,000 252,235
-----------
Airlines - 0.74%
Continental Airlines, Inc.
7.82%, Pass-Thru Certificates, 4/15/15 147,059 158,852
-----------
Broadcasting & Media - 1.44%
A.H. Belo Corp.
7.125%, Sr. Notes, 6/01/07 300,000 310,884
-----------
Consumer Products - 1.89%
Avon Products, Inc. #
6.55%, Notes, 8/01/07 400,000 407,116
-----------
Energy Services - 1.92%
Smith International, Inc.
7.00%, Sr. Notes, 9/15/07 400,000 413,860
-----------
Financial - 5.32%
Bear Stearns Co., Inc.
6.75%, Sr. Notes, 12/15/07 400,000 402,884
Chase Manhattan Corp.
7.25%, Subordinated Notes, 6/01/07 300,000 314,784
First Union Corp.
7.50%, Subordinated Notes, 7/15/06 400,000 427,300
-----------
1,144,968
-----------
Insurance - 0.62%
Leucadia National Corp.
8.25%, Sr. Subordinated Notes, 6/15/05 125,000 133,640
-----------
Pharmaceutical - 1.52%
American Home Products
7.90%, Notes, 2/15/05 300,000 326,007
-----------
Technology - 1.88%
International Business Machines Corp.
6.45%, Notes, 8/01/07 400,000 405,132
-----------
Total Domestic Corporate Bonds
(cost $3,424,108) 3,552,694
-----------
16
<PAGE>
NORTHSTAR VARIABLE TRUST INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal
Security Amount Value
- --------------------------------------------------------------------------------
U.S. Government and Agencies - 21.73%
Fannie Mae, 7.33%, due 6/19/07 $ 400,000 $ 410,580
Fannie Mae, 7.00%, due 7/17/07 400,000 406,960
Federal Home Loan Mortgage Corp., 7.05%,
due 12/03/07 400,000 401,152
GNMA, 6.50%, due 2/15/26 1,548,103 1,533,582
U.S. Treasury Notes, 6.50%, due 5/31/01 500,000 512,175
U.S. Treasury Notes, 6.50%, due 10/15/06 1,350,000 1,414,179
-----------
Total U.S. Government and Agencies
(cost $4,589,182) 4,678,628
-----------
Total Investment Securities - 98.96%
(cost $19,496,272) 21,307,778
Repurchase Agreement - 5.57%
Agreement with State Street Bank and
Trust bearing interest at 5.75% dated
12/31/97, to be repurchased 1/02/98
in the amount of $1,198,383 and
collateralized by $1,200,000 U.S.
Treasury Notes, 5.875% due 8/31/99,
valued $1,225,996
(cost $1,198,000) 1,198,000 1,198,000
Liabilities in excess
of other assets - (4.53%) (974,922)
------------
Net Assets - 100.00% $ 21,530,856
============
@@ Foreign security.
# Sale restricted to qualified institutional investors.
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
THE MARKETS
o U.S. economic growth slowed from an annual rate of 4.3% in the fourth
quarter of 1996 to an estimated rate of 3.2% in the fourth quarter of 1997.
Despite that still unexpectedly high growth, consumer prices rose only 1.7%
in 1997, the smallest increase in 11 years. Low inflation, a very strong
U.S. dollar and foreign turmoil caused our domestic interest rates to fall.
In 1997, yields of 10-year and 30-year Treasury bonds traded in a
moderately wide 130 basis points (bps) range. By December 31, 1997, those
yields were down approximately 70 bps to 5.74% and 5.92%, respectively.
Lower interest rates and strong economic growth combined to propel both
stock and bond prices significantly higher.
o High yield bond returns in 1997 were 12.76%, compared to 9.65% for all
domestic bonds, primarily due to strong demand for high coupons, rising
underlying stock valuations and declining credit concerns. Record-high
small cap stock prices helped increase the credit quality and prices of
high yield bonds. Among high yield bonds, in general, the lower-rated bonds
outperformed the higher-rated bonds (except in the fourth quarter).
o Despite recent economic and financial weakness in some foreign countries,
total returns on bonds from smaller foreign markets still rose 13.18% in
1997. Those returns were based mainly on overall better political and
economic fundamentals in many foreign countries and a continuing worldwide
hunt for yield by investors. However, increasing economic and financial
problems in Asia in the fourth quarter of 1997 caused investors worldwide
to reassess the values of their investments, which interrupted the earlier
strong rise in prices of stocks and bonds here and abroad.
o A strong and rising U.S. dollar made it very difficult to find good values
among bonds denominated in foreign currencies.
THE FUND
o In 1997, the total return of the Fund's shares was 6.15%; the Lipper
average was 8.74%. A strong sales effort helped net assets rise 67% in
1997, from $6.3MM to $10.5MM.
o The Fund cut its cash holdings from 13% to 3% in order to increase its
total return. We raised the Fund's holdings of U.S. government bonds from
18% to 30% to take advantage of declining interest rates and to offset some
of the risk associated with the Fund's emerging market positions. Foreign
investments (both high yield and investment grade) were reduced from their
peak levels to 22% by the end of 1997.
o The requirement that the Fund have no more than 50% of its assets in high
yield continued to constrain our total return in 1997.
CURRENT STRATEGY
o Continue above-average exposure in non-cyclicals; keep duration at or below
6 years to limit volatility.
o Upgrade the credit quality of high-yield holdings. Maintain portfolio
allocations near the permitted limit of 50% high yield. Invest 15% in U.S.
government bonds and 35% in investment grade bonds. We will eliminate
virtually all emerging market exposure until a bottom has clearly occurred,
after which we will position the Fund to participate in the above-average
returns that a recovery in emerging market bond prices should generate.
- --------------------------------------------------------------------------------
Fund Information Total Net Assets
(All data are as of 12/31/97) $10,548,167
- --------------------------------------------------------------------------------
Top 10 Holdings
Name %Fund
(1) U.S.Treasury Notes, 5.875%, due 9/30/02 7.2%
(2) Fannie Mae, 6.50%, due 5/18/26 4.6
(3) Empresa Electrica Del Norte Grande SA 4.2
(4) Fannie Mae, 7.00%, due 6/18/25 4.2
(5) U.S. Treasury Notes, 6.625%, due 4/30/02 3.7
(6) Fannie Mae, 7.50%, due 12/18/27 3.4
(7) Residential Funding Corp. 3.1
(8) Paxson Communications Corp. 2.7
(9) Superior National Insurance Group, Inc. 2.4
(10) Fannie Mae, 7.50%, due 12/18/27 2.4
====
37.9%
====
[THE FOLLOWING WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Sector Allocations
(by percentage of net assets)
High Yield 43.6%
U.S. Government 33.1%
Investment
Grade 16.8%
Equities 3.3%
Cash 3.2%
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
--------------------------------------------
Inception 1 year
----------------------------------
34.27% -0.70%
Cumulative Total Return
(do not reflect sales charge)
-----------------------------------------
Inception 1 year
-----------------------------------
39.27% 6.15%
18
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
Growth of $10,000 invested in Northstar Variable Trust
Multi-Sector Bond Portfolio
from inception through the Portfolio's Fiscal Year End.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Variable Trust Multi-Sector Bond Portfolio from May 6, 1994 (inception
of the Portfolio) through December 31, 1997, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the Lehman Brothers'
Government/Corporate Bond Index for the same period. All performance data shown
represents past performance, and should not be considered indicative of future
performance.
Northstar Variable Trust Multi-sector Bond Portfolio
[GRAPHIC OMITTED]
Average Annual Total Return
1-Year 6.15%
Since Inception 9.47%
19
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal
Security Amount Value
- --------------------------------------------------------------------------------
Investment Grade Securities - 16.81%
Domestic Bonds & Notes - 5.07%
Electric Utilities - 1.06%
Boston Edison Co.
9.375%, Debentures, 8/15/21 $ 100,000 $ 111,632
------------
Oil & Gas - 1.98%
PDV America, Inc.
7.875%, Sr. Notes, 8/01/03 200,000 209,348
------------
Telecommunications - 2.03%
TCI Communications, Inc.
8.00%, Sr. Notes, 8/01/05 200,000 214,372
------------
Total Domestic Bonds & Notes 535,352
------------
Foreign Bonds & Notes - 11.74%
Diversified Financial Services - 1.75%
Guangdong Enterprises Holding Ltd. #
8.875%, Sr. Notes, 5/22/07 200,000 184,694
------------
Electric Utilities - 4.24%
Empresa Electrica Del Norte Grande SA #
7.75%, Notes, 3/15/06 450,000 446,602
------------
Foreign Government Securities - 5.75%
Poland Government $
3.25/7.00%, due 10/27/24 250,000 169,687
Republic of Columbia
7.25%, due 2/23/04 150,000 142,451
Republic of Indonesia
7.75%, due 8/01/06 150,000 120,240
Republic of Italy @@ (1)
12.00%, due 5/01/02 245,000,000 174,187
------------
606,565
------------
Total Foreign Bonds & Notes 1,237,861
------------
Total Investment Grade Securities
(cost $1,764,601) 1,773,213
------------
20
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal
Security Amount Value
- --------------------------------------------------------------------------------
High Yield Securities - 42.67%
Domestic Bonds & Notes - 32.81%
Airlines - 4.28%
Atlantic Coast Airlines, Inc. #
8.75%, Pass Thru Certificates, 1/01/07 $250,000 $251,250
Constellation Finance LLC #
9.80%, Asset Backed Notes, 1/01/01 200,000 200,000
--------
451,250
--------
Broadcasting - 2.41%
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes, 7/15/07 250,000 253,750
--------
Cable Television - 1.86%
Adelphia Communications Corp.
12.50%, Sr. Notes, 5/15/02 26,000 27,560
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Secured Discount Notes, 3/15/04 200,000 169,000
--------
196,560
--------
Diversified Financial Services - 0.97%
Central Rents, Inc.
12.875%, Sr. Notes, 12/15/03 100,000 102,000
--------
Energy - 2.38%
AES Corp. #
8.50%, Sr. Subordinated Notes, 11/01/07 250,000 251,562
--------
Entertainment/Film - 0.96%
Paramount Communications, Inc.
8.25%, Sr. Debentures, 8/01/22 100,000 101,270
--------
Food/Beverage/Tobacco - 1.45%
Richmont Marketing Specialists, Inc. #
10.125%, Sr. Subordinated Notes, 12/15/07 150,000 153,000
--------
Healthcare - 1.90%
Vencor, Inc.
8.625%, Sr. Subordinated Notes, 7/15/07 200,000 200,500
--------
Insurance - 3.42%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 100,000 102,750
Superior National Insurance Group, Inc. #
10.75%, Company Guarantee, 12/01/17 2,500 257,500
--------
360,250
--------
21
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal
Security Amount Value
- --------------------------------------------------------------------------------
Oil & Gas - 0.93%
TransAmerican Energy Corp. #
11.50%, Sr. Secured Notes, 6/15/02 $ 100,000 $ 98,500
----------
Printing & Publishing - 1.91%
Garden State Newspapers, Inc. #
8.75%, Sr. Subordinated Notes, 10/01/09 200,000 201,500
----------
Services - 0.96%
Sabreliner Corp.
12.50%, Sr. Notes, 4/15/03 96,000 101,040
----------
Telecommunications - 9.38%
Hyperion Telecommunications, Inc. $
0/13.00%, Sr. Discount Notes, 4/15/03 150,000 109,500
ICG Holdings, Inc. $
0/12.50%, Sr. Secured Discount Notes, 5/01/06 100,000 75,000
ITC Deltacom, Inc.
11.00%, Sr. Notes, 6/01/07 200,000 217,000
RCN Corp. #
10.00%, Sr. Notes, 10/15/07 200,000 208,500
Transtel Pass-Thru Trust SA #
12.50%, Pass-Thru Trust Certificates, 11/01/07 100,000 95,500
UNIFI Communications, Inc.
14.00%, Sr. Notes, 3/01/04 100,000 90,500
WinStar Communications, Inc. $
0/14.00%, Sr. Discount Notes, 10/15/05 100,000 80,500
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04 100,000 112,750
----------
989,250
----------
Total Domestic Bonds & Notes 3,460,432
----------
Foreign Bonds & Notes - 9.86%
Foreign Government Securities - 2.39%
Republic of Turkey #
10.00%, Notes, 9/19/07 250,000 252,813
----------
Paper - 1.53%
APP Finance II Mauritius Ltd. $
0/12.00%, Notes, 2/15/04 200,000 162,000
----------
Services - 1.70%
Guangzhou-Shen Superhighway Holdings Ltd. #
10.25%, Sr. Notes, 8/15/07 200,000 179,000
----------
22
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Units/
Principal Amount/
Security Shares Value
- --------------------------------------------------------------------------------
Telecommunications - 3.27%
Colt Telecom Group PLC $(2)
0/12.00%, Units, 12/15/06 200 $ 156,000
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 $ 250,000 188,750
-----------
344,750
-----------
Utilities - 0.97%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 100,000 102,000
-----------
Total Foreign Bonds & Notes 1,040,563
-----------
Total High Yield Securities
(cost $4,377,879) 4,500,995
-----------
Convertible Bonds - 0.85%
Telecommunications - 0.85%
SA Telecommunications, Inc. # *
10.00%, Notes, 8/15/06 125,000 37,500
Winstar Communications, Inc. # $
0/14.00%, Sr. Discount Notes, 10/15/05 50,000 51,750
-----------
Total Convertible Bonds
(cost $163,159) 89,250
-----------
Preferred Stocks - 3.16%
Broadcasting - 2.66%
Paxson Communications Corp., 12.50% & 2,763 280,394
-----------
Energy - 0.50%
Enron Capital Resources L.P., 9.00% 2,000 53,376
-----------
Total Preferred Stocks
(cost $322,159) 333,770
-----------
Warrants - 0.18% @
Consumer Products - 0.02%
Chattem, Inc., (expires 6/17/99) 50 2,155
-----------
Steel - 0.01%
Sheffield Steel Corp., (expires 11/01/01) 500 1,000
-----------
Supermarkets - 0.00%
Dairy Mart Convenience Stores, Inc.,
(expires 12/01/01) 666 500
-----------
23
<PAGE>
NORTHSTAR VARIABLE TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Shares/
Principal
Security Amount Value
- --------------------------------------------------------------------------------
Telecommunications - 0.15%
Clearnet Communications, Inc., (expires 9/15/05) 660 $ 6,270
Hyperion Telecommunications, Inc., (expires 4/15/01) 150 9,000
UNIFI Communications, Inc., (expires 2003)# 100 0
-----------
15,270
-----------
Total Warrants
(cost $2,000) 18,925
-----------
U.S. Government and Agencies - 33.13%
Fannie Mae, 0%, due 4/25/27 $ 242,606 224,309
Fannie Mae, 7.00%, due 6/18/25 - 4/18/27 1,159,755 1,139,633
Fannie Mae, 7.50%, due 12/18/27 623,211 614,542
Residential Funding Corp., 7.25%, due 9/25/27 337,409 330,028
Resolution Trust Corp., 8.00%, due 6/25/26 43,801 43,977
United States Treasury Notes, 5.875%, due 9/30/02 750,000 754,710
United States Treasury Notes, 6.625%, due 4/30/02 375,000 387,608
-----------
Total U.S. Government and Agencies
(cost $3,464,435) 3,494,807
-----------
Total Investment Securities - 96.80%
(cost $10,094,233) 10,210,960
Other assets less liabilities - 3.20% 337,207
-----------
Net Assets - 100.00% $10,548,167
===========
# Sale restricted to qualified institutional investors.
$ Step Bond.
@@ Foreign Security.
* Defaulted Security.
& Payment-in-kind security.
@ Non-income producing security.
(1) The principal amount shown is shown in the respective country's currency.
(2) A unit consists of $1,000 par value Sr. Discount Notes, 12.00% due 12/15/06
and 1 warrant.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
THE MARKETS
o U.S. economic growth slowed from an annual rate of 4.3% in the fourth
quarter of 1996 to an estimated rate of 3.2% in the fourth quarter of 1997.
Despite that still unexpectedly high growth, consumer prices rose only 1.7%
in 1997, the smallest increase in 11 years. Low inflation, a very strong
U.S. dollar and foreign turmoil caused our domestic interest rates to fall.
In 1997, yields of 10-year and 30-year Treasury bonds traded in a
moderately wide 130 basis points (bps) range. By December 31, 1997, those
yields were down approximately 70 bps to 5.74% and 5.92%, respectively.
Lower interest rates and strong economic growth combined to propel both
stock and bond prices significantly higher.
o High yield bond returns in 1997 were 12.76%, compared to 9.65% for all
domestic bonds, primarily due to strong demand for high coupons, rising
underlying stock valuations and declining credit concerns. Record-high
small cap stock prices helped increase the credit quality and prices of
high yield bonds. Among high yield bonds, in general, the lower-rated bonds
outperformed the higher-rated bonds (except in the fourth quarter).
o Despite recent economic and financial weakness in some foreign countries,
total returns on bonds from smaller foreign markets still rose 13.18% in
1997. Those returns were based mainly on overall better political and
economic fundamentals in many foreign countries and a continuing worldwide
hunt for yield by investors. However, increasing economic and financial
problems in Asia in the fourth quarter of 1997 caused investors worldwide
to reassess the values of their investments, which interrupted the earlier
strong rise in prices of stocks and bonds here and abroad.
THE FUND
o In 1997, the total return of the Fund's shares was 9.00%; the Lipper
average was 12.96%. A strong sales effort helped net assets rise 90% during
1997, from $6.6MM to $12.6MM.
o The Fund's performance in 1997 was affected by its significant holdings of
cash, by an increase in higher-rated high yield bonds, and by price
declines in some of the high-quality emerging market bonds it owns.
However, the NAV protection that the large cash position gave the Fund in
an increasingly volatile environment largely offset the restraining effects
of cash on the yield component of the Fund's total return. The Fund also
benefited from increases in the values of its telecommunications and
broadcasting holdings.
o Due to the decline in small stock prices in the fourth quarter, on a
full-year basis, hardly any of the stocks or equity rights attached to
bonds ("equity kickers") held by the Fund were able to boost its returns in
1997. However, many of these positions are poised to make contributions to
the Fund's total return in 1998 as their issuers keep growing.
CURRENT STRATEGY
o Continue above-average exposure in non-cyclical industries and in bonds
that have equity kickers. Focus on investments in undervalued bonds that
have high yields and above-average potential for capital appreciation.
o Given the significant increase in market volatility and a continuing flight
to quality, we will maintain high cash reserves and upgrade the average
credit quality of the Fund's other holdings as a defensive measure.
- --------------------------------------------------------------------------------
Fund Information Total Net Assets
(All data are as of 12/31/97) $12,606,164
- --------------------------------------------------------------------------------
Top 10 Holdings
Name %Fund
(1) EchoStar Communications Corp. 2.5%
(2) RNC Corp. 2.5
(3) Hyperion Telecommunications, Inc. 2.4
(4) Statia Terms International, Inc. 2.1
(5) Pindo Deli
Finance Mauritius Ltd. 2.1
(6) Ameriserve Food Dist., Inc. 2.0
(7) Localiza Rent A Car SA 2.0
(8) Transamerican Refining Corp. 2.0
(9) Intracel Corp. 1.8
(10) ITC Deltacom, Inc. 1.7
====
21.1%
====
[THE FOLLOWING WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Top 5 Industries
(by percentage of net assets)
Telecommunications 21.3%
Broadcasting 9.9%
Services 8.9%
Food/Beverages/Tobacco 6.5%
Healthcare 6.0%
SEC Average Annual Rates of Return
(at maximum applicable sales charge)
--------------------------------------------
Inception 1 year
-------------------------------
10.30% 2.00%
Cumulative Total Return
(do not reflect sales charge)
-------------------------------------------
Inception 1 year
-------------------------------
48.15% 9.00%
25
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
Growth of $10,000 invested in Northstar Variable Trust
High Yield Bond Portfolio from inception through
the Portfolio's Fiscal Year End.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Variable Trust High Yield Bond Portfolio from May 6, 1994 (inception
of the Portfolio) through December 31, 1997, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the Lehman Brothers'
Government/Corporate Bond Index for the same period. All performance data shown
represents past performance, and should not be considered indicative of future
performance.
Northstar Variable Trust High Yield Bond Portfolio
[GRAPHIC OMITTED]
Average Annual Total Return
1-Year 9.00%
Since Inception 11.34%
26
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
Domestic Bonds & Notes - 51.71%
Airlines - 1.59%
Atlantic Coast Airlines, Inc. #
8.75%, Pass Thru Certificates, 1/01/07 $200,000 $201,000
--------
Auto Parts & Equipment - 0.83%
Titan Wheel International, Inc.
8.75%, Sr. Subordinated Notes, 4/01/07 100,000 105,000
--------
Automotive - 1.63%
Walbro Corp. #
10.125%, Sr. Notes, 12/15/07 200,000 206,000
--------
Broadcasting - 3.90%
Brill Media Company LLC $ (1)
0/7.50%, Units, 12/15/07 200 187,500
Capstar Broadcasting Partners, Inc.
9.25%, Sr. Subordinated Notes, 7/01/07 100,000 103,250
Sinclair Broadcast Group, Inc.
8.75%, Sr. Subordinated Notes, 12/15/07 200,000 200,500
--------
491,250
--------
Cable Television - 1.55%
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Secured Discount Notes, 3/15/04 200,000 169,000
Heartland Wireless Communications, Inc.
13.00%, Sr. Notes, 4/15/03 75,000 25,875
--------
194,875
--------
Capital Goods Manufacturing - 1.20%
Roller Bearing Co. of America, Inc. #
9.625%, Sr. Subordinated Notes, 6/15/07 150,000 151,875
--------
Chemicals - 1.65%
Hydrochem Industrial Services, Inc.
10.375%, Sr. Subordinated Notes, 8/01/07 200,000 208,000
--------
Computers - 1.62%
Axiohm Transaction, Inc. #
9.75%, Sr. Subordinated Notes, 10/01/07 200,000 204,000
--------
Consumer Products - 2.40%
Packaged Ice Inc.
12.00%, Sr. Notes, 4/15/04 150,000 153,750
Packaged Ice, Inc. #
12.00%, Notes, 4/15/04 145,000 148,625
--------
302,375
--------
27
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
Diversified Financial Services - 0.81%
Central Rents, Inc.
12.875%, Sr. Notes, 12/15/03 $100,000 $102,000
--------
Entertainment/Film - 2.43%
Paramount Communications, Inc.
8.25%, Sr. Debentures, 8/01/22 100,000 101,270
Speedway Motorsports, Inc.
8.50%, Sr. Subordinated Notes, 8/15/07 200,000 205,000
--------
306,270
--------
Food/Beverage/Tobacco - 4.05%
Ameriserve Food Distribution, Inc. #
8.875%, Sr. Notes, 10/15/06 250,000 253,750
Aurora Foods, Inc.
9.875%, Sr. Subordinated Notes, 2/15/07 95,000 100,700
North Atlantic Trading, Inc.
11.00%, Sr. Notes, 6/15/04 100,000 105,000
Standard Commercial Corp. #
8.875%, Company Guarantee, 8/01/05 150,000 151,500
Toms Foods, Inc. #
10.50%, Sr. Notes, 11/01/04 200,000 201,000
--------
811,950
--------
Healthcare - 4.17%
Alaris Medical Systems, Inc.
9.75%, Sr. Subordinated Notes, 12/01/06 100,000 105,500
Alliance Imaging, Inc.
9.625%, Sr. Subordinated Notes, 12/15/05 200,000 204,000
Dade International, Inc.
11.125%, Sr. Subordinated Notes, 5/01/06 100,000 111,000
Fresenius Medical Care Capital Trust
9.00%, Company Guarantee, 12/01/06 1,000 105,000
--------
525,500
--------
Insurance - 0.82%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 100,000 102,750
--------
28
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
Oil & Gas - 4.17%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 $ 100,000 $ 111,000
Crown Central Petroleum Corp.
10.875%, Sr. Notes, 2/01/05 100,000 106,000
HS Resources, Inc.
9.875%, Sr. Subordinated Notes, 12/01/03 50,000 52,000
Transamerican Refining Corp. (2)
16.00%, Units, 6/30/03 250 256,250
---------
525,250
---------
Services - 1.70%
Allied Waste North America, Inc.
10.25%, Sr. Subordinated Notes, 12/01/06 100,000 110,250
La Petite Holdings Corp.
9.625%, Sr. Secured Notes, 8/01/01 100,000 104,500
---------
214,750
---------
Shipping - 1.09%
Unisite $(3)
0/13.00%, Units, 12/15/04 138 138,000
---------
Steel - 0.82%
WCI Steel, Inc.
10.00%, Sr. Notes, 12/01/04 100,000 103,000
---------
Supermarkets - 0.86%
Quality Foods
8.70%, Sr. Subordinated Notes, 3/15/07 100,000 108,750
---------
Telecommunications - 12.03%
Cellnet Data Systems, Inc. # $
0/14.00%, Sr. Discounted Notes, 10/01/07 150,000 72,750
Hyperion Telecommunications, Inc. $
0/13.00%, Sr. Discount Notes, 4/15/03 150,000 109,500
ICG Holdings, Inc. $
0/12.50%, Sr. Secured Discount Notes, 5/01/06 100,000 75,000
Intercel, Inc. $
0/12.00%, Sr. Discount Notes, 5/01/06 150,000 108,562
ITC Deltacom, Inc.
11.00%, Sr. Notes, 6/01/07 200,00 217,000
PriCellular Wireless Corp.
10.75%, Sr. Notes, 11/01/04 100,000 109,250
RCN Corp.
10.00%, Sr. Notes, 10/15/07 300,000 312,750
29
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
UNIFI Communications, Inc.
14.00%, Sr. Notes, 3/01/04 $ 100,000 $ 90,500
Verio, Inc. # (4)
13.50%, Units, 6/15/04 100 119,500
Western Wireless Corp.
10.50%, Sr. Subordinated Notes, 6/01/06 100,000 108,000
WinStar Communications, Inc. $
0/14.00%, Sr. Discount Notes, 10/15/05 100,000 80,500
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04 100,000 112,750
----------
1,516,062
----------
Total Domestic Bonds & Notes
(cost $6,267,773) 6,518,657
----------
Foreign Bonds & Notes - 20.46%
Aerospace & Defense - 0.84%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 100,000 105,500
----------
Broadcasting - 1.59%
Antenna TV SA #
9.00%, Sr. Notes, 8/01/07 200,000 200,750
----------
Cable Television - 0.60%
Pratama Datakom Asia BV #
12.75%, Company Guarantee, 7/15/05 125,000 75,625
----------
Consumer Products - 0.27%
International Semi-Tech Corp. $
0/11.50%, Sr. Secured Discount Notes, 8/15/03 100,000 34,500
----------
Paper - 3.56%
APP International Finance Co.
11.75%, Company Guarantee, 10/01/05 150,000 141,750
Indah Kiat International Finance Corp.
12.50%, Company Guarantee, 6/15/06 50,000 47,750
Pindo Deli Finance Mauritius Ltd. #
10.75%, Sr. Notes, 10/01/07 300,000 259,500
----------
449,000
----------
Printing & Publishing - 0.54%
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 60,000 67,650
----------
30
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Principal Amount/
Security Units Value
- --------------------------------------------------------------------------------
Services - 6.39%
Autopistas Del Sol SA #
10.25%, Sr. Notes, 8/01/09 $ 200,000 $ 181,500
Intertek Finance PLC
10.25%, Sr. Subordinated Notes, 11/01/06 100,000 105,500
Localiza Rent A Car SA #
10.25%, Sr. Notes, 10/01/05 300,000 256,500
Statia Terms International, Inc.
11.75%, Mortgage Notes, 11/15/03 250,000 262,500
-----------
806,000
-----------
Shipping - 1.35%
Navigator Gas Transport # (5)
12.00%, Units, 6/30/07 150 169,500
-----------
Telecommunications - 4.51%
Colt Telecom Group PLC $ (6)
0/12.00%, Units, 12/15/06 100 78,000
Ionica PLC $
0/15.00%, Sr. Discount Notes, 5/01/07 200,000 79,000
Microcell Telecommunications # $
0/11.125%, Sr. Discount Notes, 10/15/07 250,000 98,842
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 150,000 113,250
Rogers Cantel, Inc.
8.80%, Sr. Subordinated Notes, 10/01/07 200,000 199,500
-----------
568,592
-----------
Utilities - 0.81%
CE Casecnan Water & Energy Co.
11.95%, Sr. Secured Notes, 11/15/10 100,000 102,000
-----------
Total Foreign Bonds & Notes
(cost $2,741,004) 2,579,117
-----------
Convertible Bonds - 0.71%
Telecommunications - 0.71%
SA Telecommunications, Inc. # *
10.00%, Notes, 8/15/06 125,000 37,500
WinStar Communications, Inc. # $
0/14.00%, Sr. Discount Notes, 10/15/05 50,000 51,750
-----------
89,250
-----------
Total Convertible Bonds
(cost $161,723) 89,250
-----------
31
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Security Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 0.22% @
Broadcasting - 0.04%
Pegasus Communications Corp. 225 $ 4,669
---------
Cable Television - 0.06%
EchoStar Communications Corp. 450 7,537
---------
Diversified Financial Services - 0.05%
Central Rents, Inc. # 100 6,050
---------
Services - 0.07%
Coinstar, Inc. 1,050 9,581
---------
Total Common Stocks
(cost $7,334) 27,837
---------
Convertible Preferred Stocks - 1.77%
Healthcare - 1.77%
Intracel Corp., 8.00% 14,390 223,045
---------
Total Convertible Preferred Stocks
(cost $108,526) 223,045
---------
Preferred Stocks - 9.97%
Broadcasting - 2.93%
Chancellor Media Corp., 12.25%& 1,000 130,500
Paxson Communications Corp., 12.50%& 1,137 115,393
SFX Broadcasting, Inc., 12.625%& 1,063 123,057
---------
368,950
---------
Cable Television - 2.51%
EchoStar Communications Corp., 12.125%#& 3,000 316,500
---------
Services - 0.71%
La Petite Academy, Inc., 12.125% 2,000 90,000
---------
Telecommunications - 3.82%
Hyperion Telecommunications, Inc., 12.875%#& 3,000 303,750
Jordan Telecommunication Products, 13.25%#& 1,500 177,750
---------
481,500
---------
Total Preferred Stocks
(cost $1,122,816) 1,256,950
---------
32
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Shares
Security Principal Amount/ Value
- --------------------------------------------------------------------------------
Warrants - 0.98% @
Broadcasting - 0.29%
Benedek Communications Corp., (expires 7/01/07) 1,000 $ 2,250
Spanish Broadcasting Systems, Inc.,
(expires 6/30/99) 100 35,000
-----------
37,250
-----------
Cable Television - 0.00%
Heartland Wireless Communications, Inc.,
(expires 4/15/00)# 450 5
-----------
Consumer Products - 0.25%
Chattem, Inc., (expires 6/17/99) 50 2,156
Packaged Ice, Inc., (expires 4/15/04) 150 15,037
Packaged Ice, Inc., (expires 4/15/04)# 145 14,500
-----------
31,693
-----------
Paper - 0.27%
SD Warren Holdings Corp., (expires 12/15/06) 6,400 33,600
-----------
Steel - 0.01%
Sheffield Steel Corp., (expires 11/01/01) 500 1,000
-----------
Supermarkets - 0.00%
Dairy Mart Convenience Stores, Inc., (expires 12/01/01) 666 499
-----------
Telecommunications - 0.16%
Cellnet Data Systems Inc., (expires 9/15/2007)# 150 0
Clearnet Communications, Inc., (expires 9/15/05) 660 6,270
Geotek Communications, Inc., (expires 6/20/01) # 3,000 4,500
Hyperion Telecommunications, Inc., (expires 4/15/01) 150 9,000
Occidente Y Caribe Celular SA, (expires 3/15/04) # @@ 600 6
UNIFI Communications, Inc., (expires 2003) # 100 0
-----------
19,776
-----------
Total Warrants
(cost $75,833) 123,823
-----------
Total Investment Securities - 85.82%
(cost $10,485,009) 10,818,679
Repurchase Agreement - 11.76%
Agreement with State Street Bank and
Trust bearing interest at 5.75% dated
12/31/97, to be repurchased 1/02/98
in the amount of $1,482,473 and
collateralized by $1,480,000 U.S.
Treasury Notes, 5.875% due 8/31/99,
value $1,512,061
(cost $1,482,000) $ 1,482,000 1,482,000
33
<PAGE>
NORTHSTAR VARIABLE TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
Value
- --------------------------------------------------------------------------------
Other assets less liabilities - 2.42% 305,485
-----------
Net Assets - 100.00% $12,606,164
===========
# Sale restricted to qualified institutional investors.
$ Step Bond.
* Defaulted Security.
@ Non-income producing security.
& Payment-in-kind security.
@@ Foreign security.
(1) A unit consist of $1,000 par value Sr. Notes, 7.50% due 12/15/07 and $3,000
appreciated notes.
(2) A unit consist of $ 1,000 par value Sr. Notes, 16.00% due 6/30/03 and 1
warrant.
(3) A unit consist of $ 1,000 par value Notes, 13.00% due 6/15/01 and .4858
warrant and .0146 2nd Series warrant.
(4) A unit consist of $1,000 par value Sr. Notes, 13.50% due 6/15/04 and 8
warrants.
(5) A unit consist of $1,000 par value 2nd Priority Mortgage Notes,12.00% due
6/30/07 and 7.66 warrants.
(6) A unit consist of $1,000 par value Sr. Discounted Notes, 12.00% due
12/15/06 and 1 warrant.
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
Northstar Variable Trust
Statement of Assets and Liabilities
December 31, 1997
<TABLE>
<CAPTION>
Northstar Northstar Northstar Northstar
Northstar International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value
(cost $27,534,171, $5,366,018, $19,496,272,
$10,094,233, and $10,485,009, respectively) ........... $31,288,739 $5,555,699 $21,307,778 $10,210,960 $10,818,679
Repurchase agreements .................................... 3,685,000 393,000 1,198,000 0 1,482,000
Cash ..................................................... 993 96,748 859 209,367 184,608
Receivable for investments sold .......................... 811,946 0 542,525 0 120,000
Receivable for shares of beneficial interest sold ........ 99,026 10,138 4,079 26,184 60,183
Dividends and interest receivable ........................ 43,344 3,727 175,702 147,657 174,205
Prepaid expenses ......................................... 975 0 996 898 918
--------------------------------------------------------------------
Total Assets ....................................... 35,930,023 6,059,312 23,229,939 10,595,066 12,840,593
--------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased ........................ 3,725,274 96,577 1,655,136 0 184,400
Management fees payable .................................. 19,624 4,759 14,000 6,727 8,001
Audit fees payable ....................................... 13,030 15,639 12,994 13,003 13,017
Printing fees payable .................................... 8,534 599 3,517 1,917 2,338
Custodian & fund accounting fees payable ................. 3,959 3,433 3,486 3,660 3,959
Administrative services fees payable ..................... 2,617 450 1,867 897 1,067
Payable for fund shares repurchased ...................... 0 0 6,982 6,246 1,552
Income distribution payable .............................. 0 0 0 13,709 19,265
Other liabilities ........................................ 654 831 1,101 740 830
--------------------------------------------------------------------
Total Liabilities ............................. 3,773,692 122,288 1,699,083 46,899 234,429
--------------------------------------------------------------------
NET ASSETS ............................................... $32,156,331 $5,937,024 $21,530,856 $10,548,167 $12,606,164
====================================================================
NET ASSETS WERE COMPOSED OF:
Capital paid in for shares of beneficial
interest,
$.01 par value outstanding (unlimited shares
authorized) ........................................... $28,091,077 $5,916,503 $18,955,487 $10,535,305 $12,245,112
Undistributed net investment income ...................... 2,199 2,715 0 0 0
Accumulated net realized gain (loss) on
investments ........................................... 308,487 (171,873) 763,863 (103,797) 27,382
Net unrealized appreciation of investments
and foreign currency transactions ..................... 3,754,568 189,679 1,811,506 116,659 333,670
--------------------------------------------------------------------
Net assets ..................................... $32,156,331 $5,937,024 $21,530,856 $10,548,167 $12,606,164
====================================================================
Net Asset Value Per Share ($32,156,331/2,028,344 shares,
$5,937,024/587,958 shares, $21,530,856/1,655,748 shares,
$10,548,167/2,051,294 shares, and $12,606,164/2,378,751
shares, respectively) .................................. $ 15.85 $ 10.10 $ 13.00 $ 5.14 $ 5.30
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
Northstar Variable Trust
Statement of Operations
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Northstar Northstar Northstar Northstar
Northstar International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio* Portfolio Portfolio Portfolio
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $4,043,
$1,385, $0, $0, and $0, respectively) ................... $ 270,156 $ 17,102 $ 345,268 $ 35,905 $ 45,418
Interest (net of withholding tax of $0, $0, $0
$2,161, and $0, respectively) ........................... 106,203 14,812 467,333 759,618 855,644
--------------------------------------------------------------------
Total investment income .................................... 376,359 31,914 812,601 795,523 901,062
--------------------------------------------------------------------
EXPENSES:
Investment advisory and management fees .................... 187,902 18,050 134,697 65,503 73,225
Custodian and fund accounting fees ......................... 26,294 10,800 20,320 22,030 26,158
Administrative services fees ............................... 25,053 1,805 17,960 8,734 9,763
Audit fees ................................................. 16,874 15,639 16,976 16,894 16,855
Printing expense ........................................... 12,381 603 6,057 3,177 3,478
Trustee fees and expenses .................................. 1,910 303 1,571 930 975
Insurance expense .......................................... 1,506 0 1,440 235 1,191
Miscellaneous expenses ..................................... 1,139 22 742 1,560 583
--------------------------------------------------------------------
273,059 47,222 199,763 119,063 132,228
Less expenses reimbursed by investment adviser ............. 72,598 32,742 56,065 49,206 55,011
--------------------------------------------------------------------
Total expenses ...................................... 200,461 14,480 143,698 69,857 77,217
--------------------------------------------------------------------
Net investment income ...................................... 175,898 17,434 668,903 725,666 823,845
--------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN
CURRENCY:
Net realized gain(loss) on investments ..................... 614,190 (171,873) 857,103 (31,218) 121,780
Net realized gain(loss) on foreign currency ................ 0 308 0 (14,057) 0
Net change in unrealized appreciation
(depreciation) of investments ........................... 2,581,053 189,681 990,107 (87,510) 34,739
Net change in unrealized depreciation of foreign
currency ................................................ 0 (2) 0 (68) 0
--------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments .................................... 3,195,243 18,114 1,847,210 (132,853) 156,519
--------------------------------------------------------------------
Increase in net assets resulting from
operations ................................................. $3,371,141 $ 35,548 $2,516,113 $ 592,813 $ 980,364
====================================================================
</TABLE>
*Commenced operations on August 8, 1997.
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
Northstar Variable Trust
Statement of Changes in Net Assets
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Northstar Northstar Northstar Northstar
Northstar International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio* Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 175,898 $ 17,434 $ 668,903 $ 725,666 $ 823,845
668,903
Net realized gain(loss) on investments 614,190 (171,873) 857,103 (31,218) 121,780
Net realized gain(loss) on foreign currency . 0 308 0 (14,057) 0
Net change in unrealized appreciation
(depreciation) of investments 2,581,053 189,681 990,107 (87,510) 34,739
Net change in unrealized depreciation on
foreign currency 0 (2) 0 (68) 0
-----------------------------------------------------------------------------
Increase in net assets resulting
from operations 3,371,141 35,548 2,516,113 592,813 980,364
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income (182,697) (15,027) (668,201) (725,666) (823,845)
Net realized gain on investments (345,682) 0 (141,496) (58,611) (89,480)
-----------------------------------------------------------------------------
(528,379) (15,027) (809,697) (784,277) (913,325)
-----------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 22,327,151 6,277,674 10,664,273 6,950,510 11,264,988
Net asset value of shares issued to
shareholders in reinvestment of
dividends 528,379 15,027 809,697 775,014 902,994
-----------------------------------------------------------------------------
22,855,530 6,292,701 11,473,970 7,725,524 12,167,982
Cost of shares redeemed (9,105,693) (376,198) (4,228,685) (3,262,690) (6,248,155)
-----------------------------------------------------------------------------
Net increase in net assets derived from
capital share transactions 13,749,837 5,916,503 7,245,285 4,462,834 5,919,827
-----------------------------------------------------------------------------
Net increase in net assets 16,592,599 5,937,024 8,951,701 4,271,370 5,986,866
NET ASSETS:
Beginning of period 15,563,732 0 12,579,155 6,276,797 6,619,298
-----------------------------------------------------------------------------
End of period $ 32,156,331 $ 5,937,024 $ 21,530,856 $ 10,548,167 $ 12,606,164
=============================================================================
Undistributed net investment income $ 2,199 $ 2,715 $ 0 $ 0 $ 0
</TABLE>
*Commenced operations on August 8, 1997.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
Northstar Variable Trust
Statement of Changes in Net Assets
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Northstar Northstar Northstar
Northstar Income and Multi-Sector High Yield
Growth Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income $ 49,702 $ 368,977 $ 415,844 $ 450,587
Net realized gain on investments 46,193 875,927 125,074 141,662
Net change in unrealized appreciation of investments 824,112 211,159 97,621 177,347
---------------------------------------------------------------
Increase in net assets resulting from operations 920,007 1,456,063 638,539 769,596
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income (53,026) (375,181) (418,626) (454,312)
Net realized gain on investments (42,112) (827,993) (111,901) (103,694)
---------------------------------------------------------------
(95,138) (1,203,174) (530,527) (558,006)
---------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 13,457,465 5,570,265 3,341,543 2,731,211
Net asset value of shares issued to
shareholders in reinvestment of dividends 95,138 1,203,174 526,080 549,072
---------------------------------------------------------------
13,552,603 6,773,439 3,867,623 3,280,283
Cost of shares redeemed (2,627,034) (1,857,666) (1,464,570) (1,646,044)
---------------------------------------------------------------
Net increase in net assets derived from capital
share transactions 10,925,569 4,915,773 2,403,053 1,634,239
---------------------------------------------------------------
Net increase in net assets 11,750,438 5,168,662 2,511,065 1,845,829
NET ASSETS:
Beginning of year 3,813,294 7,410,493 3,765,732 4,773,469
---------------------------------------------------------------
End of year $ 15,563,732 $ 12,579,155 $ 6,276,797 $ 6,619,298
================================================================
Undistributed net investment income $ 7,314 $ 0 $ 0 $ 0
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Northstar Variable Trust
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period
<TABLE>
<CAPTION>
Net Asset Net realized Dividends Distribution
Value, Net investment & unrealized Total from declared from net declared from
beginning of income gain(loss)on investment invest- net realized Total
Period ended period investments operations ment income gains distributions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Northstar Growth Portfolio
05/06/94-
12/31/94 $10.00 $0.16 $0.19 $0.35 ($0.16) ($0.15) ($0.31)
12/31/95 10.04 0.20 2.27 2.47 (0.19) (0.76) (0.95)
12/31/96 11.56 0.08 2.57 2.65 (0.09) (0.04) (0.13)
12/31/97 14.08 0.09 1.95 2.04 (0.10) (0.17) (0.27)
Northstar International Value Portfolio
08/08/97-
12/31/97 10.00 0.03 0.10 0.13 (0.03) -- (0.03)
Northstar Income and Growth Portfolio
05/06/94-
12/31/94 10.00 0.20 (0.01) 0.19 (0.20) (0.07) (0.27)
12/31/95 9.92 0.37 1.73 2.10 (0.37) (0.26) (0.63)
12/31/96 11.39 0.40 1.15 1.55 (0.41) (0.81) (1.22)
12/31/97 11.72 0.44 1.36 1.80 (0.44) (0.08) (0.52)
Northstar Multi-Sector Bond Portfolio
05/06/94-
12/31/94 5.00 0.23 (0.15) 0.08 (0.23) -- (0.23)
12/31/95 4.85 0.42 0.29 0.71 (0.42) -- (0.42)
12/31/96 5.14 0.41 0.21 0.62 (0.41) (0.10) (0.51)
12/31/97 5.25 0.40 (0.08) 0.32 (0.40) (0.03) (0.43)
Northstar High Yield Bond Portfolio
05/06/94-
12/31/94 5.00 0.28 (0.31) (0.03) (0.28) -- (0.28)
12/31/95 4.69 0.50 0.34 0.84 (0.49) -- (0.49)
12/31/96 5.04 0.45 0.32 0.77 (0.45) (0.09) (0.54)
12/31/97 5.27 0.40 0.07 0.47 (0.40) (0.04) (0.44)
</TABLE>
* For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
(1) Annualized
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
<TABLE>
<CAPTION>
Ratio of
expense Ratio of net
Ratio of reimburse- investment
Net Asset Net Assets, end expenses to ment to income to
Value, end of of period average net average net average net Portfolio Average
period Total Return (000's) assets assets assets turnover commissions*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.04 3.47 % $ 2,701 1.00 %(1) 1.45 %(1) 2.31 %(1) 61 % N/A
11.56 24.78 3,813 0.80 1.24 1.77 123 N/A
14.08 22.99 15,564 0.80 0.90 0.65 161 $0.0414
15.85 14.66 32,156 0.80 0.29 0.70 178 0.0359
10.10 1.30 5,937 0.80 1.81 0.97 5 0.0263
9.92 2.02 3,595 1.00 (1) 1.43 (1) 3.11 (1) 45 N/A
11.39 21.39 7,410 0.80 0.94 3.63 74 N/A
11.72 13.80 12,579 0.80 0.60 3.67 129 0.0401
13.00 15.81 21,531 0.80 0.31 3.72 55 0.0598
4.85 1.41 2,716 1.00 (1) 1.41 (1) 7.03 (1) 29 N/A
5.14 14.97 3,766 0.80 1.26 8.52 83 N/A
5.25 12.53 6,277 0.80 0.88 8.38 121 --
5.14 6.15 10,548 0.80 0.56 8.31 163 --
4.69 (0.95) 2,588 1.00 (1) 1.55 (1) 8.62 (1) 62 N/A
5.04 18.55 4,773 0.80 1.31 10.61 157 N/A
5.27 15.75 6,619 0.80 0.93 8.72 159 0.0547
5.30 9.00 12,606 0.79 0.56 8.44 152 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
NORTHSTAR VARIABLE TRUST
- ------------------------
Notes to Financial Statements - December 31, 1997
Note 1. Organization and Significant Accounting Policies
Organization. The Northstar Variable Trust, is a business trust organized under
the laws of the Commonwealth of Massachusetts on December 17, 1993. The names of
the five investment series which comprise the Trust (the "Funds") and their
respective investment objectives are set forth below.
Northstar Variable Trust Growth Portfolio ("Growth Portfolio") is a
diversified portfolio with an investment objective of long-term growth of
capital through investments in common stocks and convertible securities
that the Adviser believes provide above average potential for capital
appreciation.
Northstar Variable Trust International Value Portfolio ("International
Value Portfolio") is a diversified portfolio with the investment objective
of long-term capital appreciation. The Fund invests primarily in foreign
companies with a market valuation greater than $1 billion, but may hold up
to 25% of its assets in companies with smaller market capitalization.
Portfolio managers apply the technique of "value investing".
Northstar Variable Trust Income and Growth Portfolio ("Income and Growth
Portfolio") is a diversified portfolio with the investment objective of
current income balanced with the objective of achieving capital
appreciation. The Fund will seek to achieve its objective through
investments in a diversified group of securities selected for their
prospects of current yield and capital appreciation.
Northstar Variable Trust Multi-Sector Bond Portfolio ("Multi-Sector
Portfolio") is a diversified portfolio whose investment objective is to
maximize current income. The Fund seeks to achieve its objective by
investing in U.S. Government Bonds, Foreign Government Bonds, Investment
Grade Bonds and High Yield Bonds, each as defined in the Prospectus for the
Trust.
Northstar Variable Trust High Yield Bond Portfolio ("High Yield Portfolio")
is a diversified portfolio whose investment objective is to seek high
income consistent with the preservation of capital. The Fund invests
primarily in a diversified group of high yield - high risk fixed income
securities, convertible securities, securities issued by U.S. companies in
foreign currencies, and securities issued by foreign governments and
companies.
Security Valuation. Equity securities are valued at closing sales prices
reported on recognized securities exchanges or lacking any sales, at the last
available bid price. Prices of long-term debt securities are valued on the basis
of last reported sales price, or if no sales are reported, the value is
determined based upon the mean of representative quoted bid or asked prices for
such securities, or if such prices are not available, at prices provided by
market makers, or at prices for securities of comparable maturity, quality and
type. Short-term debt instruments with remaining maturities of less than 60 days
are valued at amortized cost, unless the Trustees determine that amortized cost
does not reflect the fair value of such obligations. Securities for which market
quotations are not readily available are valued at fair value determined in good
faith by or under direction of the Trustees of the Trust. The books and records
of the Funds are maintained in U.S. dollars. Securities quoted in foreign
currencies are translated into U.S. dollars based on the prevailing exchange
rates on that day. The Adviser uses an independent pricing service to price the
Funds' securities.
Security Transactions, Investment Income, Expenses and Distribution to
Shareholders. Security transactions are recorded on the trade date. Realized
gains or losses on sales of investments are calculated on the identified cost
basis. Interest income is recorded on the accrual basis except when collection
is not expected; discounts are accrued, and premiums amortized to par at
maturity; dividend income is recorded on the ex-dividend dates. Dividends from
net investment income are declared and paid quarterly by the Funds.
Distributions of net realized capital gains, if any, are declared annually;
however, to the extent that a net realized capital gain can be reduced by a
capital loss carryover, such gain will not be distributed. Distributions to
shareholders from net investment income and net realized gain from security
transactions are reinvested at net asset value by each Fund on the ex-dividend
date. The Funds may periodically make reclassifications among certain of their
capital accounts as a result of the timing and characterization of certain
income and capital gains distributions determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles.
41
<PAGE>
As of December 31, 1997, the following amounts have been reclassified from
undistributed net investment income to accumulated net realized gain(loss) on
investments.
Undistributed Accumulated Net
Net Investment Realized Gain on Paid-In
Income Investments -Captial
-------------- ----------------- --------
Growth Portfolio $1,684 $(1,684) $0
International Value Portfolio 308 (308) 0
Income and Growth Portfolio (702) 702 0
These restatements did not affect net investment income, net realized gain on
investments, or net assets for the year ended December 31, 1997.
Repurchase Agreements. The Funds' custodian takes possession of collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to assure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default on the obligation to repurchase, the Funds have the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. If the
seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Funds may be delayed or limited.
Federal Income Taxes. The Trust intends to comply with the special provisions of
the Internal Revenue Code available to investment companies and to distribute
all of the taxable net income to respective shareholders. Therefore, no Federal
income tax provision is required.
Organization Costs. Costs incurred by the Trust in connection with its
organization of each Fund have been deferred and are being amortized over a
period of five years from the date the Funds commenced operations.
Management's Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Note 2. Investment Adviser and Administrator.
Northstar Investment Management Corporation (the "Adviser") serves as each
Fund's investment adviser. The Adviser receives an investment advisory fee
calculated at an annual rate of 0.75% of average daily net assets from the
Growth Portfolio, Income and Growth Portfolio, Multi-Sector Portfolio, and High
Yield Portfolio. The Adviser receives an investment advisory fee calculated at
an annual rate of 1.00% of average daily net assets from the International Value
Portfolio. For the period ended December 31, 1997, the Adviser earned $479,377
in investment advisory fees. Northstar Administrators Corporation (the
"Administrator"), an affiliate of the Adviser, serves as each Fund's
administrator. Each Portfolio pays the Administrator a fee calculated at an
annual rate of 0.10% of average daily net assets. For the period ended December
31, 1997, the Administrator earned $63,315 in administrative fees. The Adviser
has agreed that if a Portfolio's total operating expenses exceed 0.80% of
average net assets on an annual basis, the Adviser will reimburse the Portfolio
for amounts in excess of such limit. For the period ended December 31, 1997, the
Adviser has reimbursed the Growth Portfolio $72,598, the Income and Growth
Portfolio $56,065, the Multi-Sector Portfolio $49,206, the High Yield Portfolio
$55,011, and the International Value Portfolio $32,742. Wilson/Bennett Capital
Management, Inc., a registered investment advisor, serves as a subadvisor to the
Income and Growth Portfolio pursuant to a Subadvisory Agreement dated August 1,
1996. For its services, Willison/Bennett Capital Management, Inc. receives, from
the Advisor, an annual fee equal to 0.20% of the first $125 million of the
average daily net asset value of the Fund; 0.25% of the average daily net asset
value of the Fund exceeding $125 million up to $250 million; and 0.30% of the
average daily net asset value of the Portfolio exceeding $250 million.
Wilson/Bennett Capital Management, Inc. has waived their adviory fee until the
Portfolio reaches $50 million. Navellier Fund Management, Inc. ("Navellier"), a
registered investment adviser, serves as subadvisor to the Growth Portfolio
pursuant to a Subadvisory Agreement dated February 1, 1996, between the Adviser
and Navellier. For its services, Navellier receives, from the Advisor, an annual
fee equal to 0.48% of the average daily net assets of the Portfolio. For the
period ended December 31, 1997, Navellier received $84,784 in subadvisory fees
from the Adviser. Brandes Investment Partners. L.P. ("Brandes"), a registered
investment advisor, serves as a subadvisor to the International Value Portfolio
pursuant to a Subadvisory Agreement dated June 24, 1997. For its services,
Brandes receives, from the Advisor, an annual fee equal to 0.50% of the average
daily net asset value of the Portfolio. Brandes has waived their advisory fee
until the Portfolio reaches $50 million or until April 1, 1998.
42
<PAGE>
Note 3. Purchases and Sale of Investment Securities
The aggregate cost of purchases, and proceeds from sales of investments
(excluding short-term investments) for the period ended December 31, 1997 were
as follows:
<TABLE>
<CAPTION>
International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $54,363,767 $5,781,340 $16,990,077 $19,435,128 $17,491,350
Aggregate sales $40,919,524 $243,819 $9,107,532 $12,662,705 $12,809,779
</TABLE>
U.S. Government Securities included above were as follows:
<TABLE>
<CAPTION>
International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $0 $0 $3,445,234 $7,419,934 $0
Aggregate sales $0 $0 $415,250 $3,066,528 $0
</TABLE>
Note 4. Portfolio Securities (Tax Basis)
The cost of securities for Federal income tax purposes and the aggregate
appreciation and depreciation of securities at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cost (tax basis) $27,534,171 $5,366,018 $19,494,779 $10,097,983 $10,485,009
------------------------------------------------------------------------------------
Appreciated Securities 4,450,315 520,295 1,885,210 330,179 737,845
Depreciated Securities (695,747) (330,614) (72,211) (217,202) (404,175)
------------------------------------------------------------------------------------
Net Unrealized
Appreciation $3,754,568 $189,681 $1,812,999 $112,977 $333,670
------------------------------------------------------------------------------------
</TABLE>
Note 5. Capital Share Transactions
Transactions in capital shares of each Fund for the period ended December 31,
1997 were as follows:
<TABLE>
<CAPTION>
International Income and Multi-Sector High Yield
Growth Value Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Shares Sold 1,496,702 623,938 852,005 1,331,921 2,101,836
Reinvested Dividends 34,861 1,453 64,053 148,545 169,530
Shares Repurchased (608,428) (37,433) (333,990) (625,037) (1,148,386)
=================================================================================
Net Increase 923,135 587,958 582,068 855,429 1,122,980
=================================================================================
</TABLE>
43
<PAGE>
Transactions in capital shares of each Fund for the year ended December 31, 1996
were as follows:
<TABLE>
<CAPTION>
Income and Multi-Sector High Yield
Growth Growth Bond Bond
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares Sold 968,805 476,604 641,205 519,989
Reinvested Dividends 6,917 102,180 100,988 105,109
Shares Repurchased (200,241) (155,956) (278,987) (315,859)
--------------------------------------------------------------------
Net Increase 775,481 422,828 463,206 309,239
====================================================================
</TABLE>
Note 6. Credit risk and Defaulted Securities
Although the Funds have a diversified portfolio, the High Yield Bond Fund had
72.88% of its portfolio invested in lower rated and comparable quality unrated
high yield securities. Investments in higher yield securities are accompanied by
a greater degree of credit risk and such lower rated securities tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities, because such securities are generally unsecured and
are often subordinated to other creditors of the issuer. At December 31, 1997,
the Multi-Sector Bond Portfolio and High Yield Bond Portfolio held SA
Telecommunications, Inc., a security in default. For financial reporting
purposes, it is each Fund's accounting practice to discontinue accrual of income
and provide an estimate for probable losses due to unpaid interest income on
defaulted bonds for the current reporting period.
44
<PAGE>
NORTHSTAR VARIABLE TRUST
Report of Independent Accountants
-------------------
To the Shareholders and Trustees
of Northstar Variable Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolios of investments, of the Northstar Variable Trust (the "Trust"),
comprising Northstar Growth Portfolio, Northstar Income and Growth Portfolio,
Northstar Multi-Sector Bond Portfolio, Northstar High Yield Bond Portfolio
(formerly the Northstar Growth Fund, Northstar Income and Growth Fund, Northstar
Multi-Sector Bond Fund, and Northstar High Yield Bond Fund, respectively) and
the Northstar International Value Portfolio as of December 31, 1997, the related
statement of operations for the year then ended, except for the International
Value Fund for which the period was August 8, 1997 (commencement of operations)
through December 31, 1997, the statements of changes in net assets for each of
the two years in the period then ended, except for the International Value Fund
for which the period was August 8, 1997 (commencement of operations) through
December 31, 1997, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds constituting the Northstar Variable Trust as of December
31, 1997, the results of their operations, the changes in their net assets and
the financial highlights for each of the periods referred to above, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 12, 1998
