[NORTHSTAR LOGO APPEARS HERE]
NORTHSTAR
GALAXY TRUST
NORTHSTAR GROWTH + VALUE PORTFOLIO
NORTHSTAR INTERNATIONAL VALUE PORTFOLIO
NORTHSTAR EMERGING GROWTH PORTFOLIO
NORTHSTAR MULTI-SECTOR BOND PORTFOLIO
NORTHSTAR HIGH YIELD BOND PORTFOLIO
ANNUAL REPORT TO SHAREHOLDERS
December 31, 1998
<PAGE>
[NORTHSTAR LOGO APPEARS HERE]
NORTHSTAR GALAXY TRUST
ANNUAL REPORT
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF MARK L. LIPSON APPEARS HERE]
MARK L. LIPSON
Dear Shareholders:
We are pleased to provide you with the annual report of the Northstar Galaxy
Trust for the year ended December 31, 1998. We are gratified with your decision
to entrust your assets to the Northstar Galaxy Trust and are confident that we
can assist you in 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 Portfolio by their respective
portfolio managers. We hope you will find this informative.
The past year saw significant turmoil in the financial markets. While the U.S.
equity market started off the year strongly, it experienced its most
significant correction since 1990 in the late summer/early fall as the default
of Russia, worries about the passage of a Japanese banking reform bill, and
concern over the possible impeachment of the U.S. President weighed heavily on
investor psychology. The bond market also experienced significant dislocations,
as the global uncertainty caused a flight to quality and Treasury bonds rallied
strongly while high yield debt dropped sharply. A continued drop in commodity
prices combined with continued decline in the Asian economies and excess
productive capacity there gave rise to fears of the worst of economic scenarios
- -- a global economic slowdown combined with a downward deflationary spiral. The
overleverage at Long Term Capital and other hedge funds led to a severe
liquidity crunch and shook confidence in the stability of our banks. The
aggressive Fed easing in the wake of the Long Term Capital bailout reversed
investor psychology early in the fourth quarter and stocks staged a strong
rally. The S&P 500 returned 28.6% for the year, its fourth year of over 21%
gains -- a phenomenon last experienced in the 1950s -- while the NASDAQ
returned 39.7% for the year.
Fears of the worst of all economic scenarios proved to be unfounded in 1998.
The turmoil in Asia had minimal impact on our exports and was of great benefit
to the consumer, as we are a big importer of Asian goods. As a result, U.S. GDP
continued to grow strongly in 1998, advancing at about a 3% rate, while
inflation continues at a low level -- about 1.5% -- and employment continues to
be strong. However, the impact of the continuing slowdown in Asia began to be
seen on global economic growth and corporate profits in the second half of the
year. While the S&P 500 experienced a double digit correction, many other asset
classes, such as smaller and mid-capitalization equity issues and high yield
issues, experienced corrections much more severe in size and scope as investors
sought safe havens. While we saw a rebound in the equity classes in the fourth
quarter, many smaller and mid-capitalization issues still stand at significant
valuation discounts to the larger S&P 500 equities, and the same holds true for
corporate and high-yield bond spreads relative to Treasury bonds.
We believe the investment environment may continue to be volatile in 1999.
While concerns remain that the U.S. economy may slow as we move through 1999,
since the default of Russia at the end of August we have seen 68 interest rate
cuts globally as central banks' policies have shifted from containing inflation
to fostering economic growth. It appears that while Asian economies are
stabilizing, South America appears to be at some risk of economic turmoil as
Brazil devalues. Since South America is one of our biggest trading partners,
accounting for approximately 21% of our trade, a sharp slowdown in that part of
the world might have a negative impact on our economic growth in 1999. The
advent of the Euro and the accelerating deregulation in Europe, while it
creates great opportunity, also creates some uncertainty as it is the first
time that Europe has attempted a unified currency. Domestically, we began the
first impeachment trial of a sitting President in over 130 years. While
concerns over profit growth remain, the global slowdown we have experienced
over the past year has led to declining operating profits from the S&P 500
companies and a new round of layoffs and cost-cutting -- indeed, in 1998
layoffs were at record levels. This implies that we will see a bottom in profit
growth for the S&P 500 sometime in the next several quarters. Certain sectors
of the economy, such as technology, appear to have already seen the trough in
profits.
Although volatility may continue to be higher than average, we believe the
worst of the liquidity crisis may be behind us. The longer-term investment
environment continues to be favorable. Although valuations remain at high
levels, they are supported by very strong fundamentals. All throughout this
decade, U.S. corporations have improved their efficiency and profitability by
strategic investments in productivity-improving technology, and that trend has
continued as we look to 1999. The replacement of human labor with technology
appears to be mildly deflationary, which implies we can have strong economic
growth coexist with low inflation, low unemployment and low interest rates.
These trends appear to be secular, not cyclical, and imply a positive
investment environment for financial markets. We expect to see broader
participation among the higher-risk asset classes as we move through 1999;
historically, those asset classes have responded well to Fed easing and to a
reacceleration in corporate profits.
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 this
philosophy and look forward to serving your investment needs in the future.
Sincerely,
/s/ Mark L. Lipson
Mark L. Lipson
President
January 30, 1999
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NORTHSTAR GALAXY TRUST
GROWTH + VALUE PORTFOLIO
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[NORTHSTAR LOGO APPEARS HERE]
THE MARKETS
o 1998 was the most volatile year for the stock market since 1987. In spite
of the early predictions that the stock market would cool off, the broad
markets finished strongly. Large cap stocks led the market as evidenced by
the S&P 500 return of over 28.6%, whereas small caps continued to lag, as
shown by the Russell 2000, down 2.5%. After a robust first quarter, the
stock market faltered a bit in the second quarter. Despite concern that
the third quarter sell off would accelerate in the fourth quarter,
doomsayers were proved wrong when the stock market caught fire in the
fourth quarter of 1998. The stunning fourth quarter surge in the market
was broad based. As strong as the rally in large cap stocks was, it was
the small and mid cap issues that stole the show in the last quarter.
These small and mid cap stocks had been greatly neglected for many months
as investors continued to focus on large cap issues. When investors
decided to reallocate some of their profits from their large cap
investments into these neglected smaller issues they generated strong buy
side volume.
THE PORTFOLIO
o For the year ended December 31, 1998, the Portfolio was up 19.3% compared
to the Russell 2000 Index which was down 2.5%. Over the year, the
Portfolio rotated into more mid cap and large cap stocks; so that the
Portfolio would be positioned to take advantage of greater stability in
these larger cap stocks after the turbulence of the third quarter.
Overall, retailers and tech stocks led the way for the Portfolio. A
variety of forces converged to help support corporate profits. First,
consumer spending was very strong. Second, the U.S. economy continued to
benefit from tremendous productivity gains. Finally, the U.S. dollar had
weakened considerably since August, due primarily to President Clinton's
personal woes. The softer U.S. dollar helped resurrect the earnings
attributable to the overseas operations of many of the large
multi-national companies that dominate the S&P 500. The top performing
stocks for the year included: Dell Computer Corp., Best Buy Co., Inc.,
Legato Systems, Inc., Century Telephone Enterprises, Inc., and Lexmark
International Group. Amongst the under-performing stocks were: Computer
Learning Centers, Healthcare Financial, Rexall Sundown, Theragenics and
IMR.
CURRENT STRATEGY
o As the stock market climbs higher, it is becoming increasingly
over-bought and will likely become more volatile on a day-to-day basis.
The stock market can remain overbought and continue to drift higher for
several months, but experienced investors know that this is no time to be
over-confident. The U.S. economy is currently in a state of economic
nirvana with strong growth and low inflation. Interest rates are so low
that many investors are left with no other investment alternative other
than stocks. Institutional investors are now focusing their attention on
small to mid-capitalization stocks due to their superior fundamental
characteristics. The institutional parade in the small to
mid-capitalization arena will likely continue for several additional
months. The flow of funds into the stock market has been erratic lately,
so the stock market will likely remain somewhat volatile. As always, an
investor's best defense is a strong offense of fundamentally superior
stocks, such as those in the Growth + Value Portfolio. Our focus will
remain on those stocks that demonstrate strong sales growth, positive
analysts' earnings forecasts and continue profit margin expansion. These
stocks will likely continue to benefit from rapid institutional
accumulation in the months ahead. The shift into small to
mid-capitalization stocks has just begun, so the Portfolio will remain
positioned in a manner that is cautiously optimistic about the economic
outlook for the next several months.
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO INFORMATION (ALL DATA ARE AS OF 12/31/98) TOTAL NET ASSETS $41,593,085
- ------------------------------------------------------------------------------------------------------------------------------------
TOP 10 HOLDINGS TOP 5 INDUSTRIES SEC AVERAGE ANNUAL RATES OF RETURN
NAME %FUND (by percentage of net assets) (at maximum applicable sales charge)
-----------------------------------
1 Best Buy Co., Inc. 4.4% Inception 1 year
-----------------------------------
Consumer Cyclicals 11.5% 17.65% 12.32%
-----------------------------------
2 The Gap, Inc. 3.7%
CUMULATIVE TOTAL RETURN
3 Legato Systems, Inc. 3.6% EDP Peripherals 7.9% (do not reflect sales charge)
-----------------------------------
Inception 1 year
4 Nokia Corp. 3.6% -----------------------------------
Computer/Video Chains 5.2% 117.25% 19.32%
-----------------------------------
5 Century Telephone Enterprises, Inc. 3.4%
Biotechnology 5.1%
6 Dell Computer Corp. 3.3%
7 Symbol Technologies, Inc. 3.3% Internet Services 3.7%
8 Maytag Corp. 3.2%
9 Capital One Financial Corp. 3.1%
10 Amgen, Inc. 3.0%
-----
34.6%
=====
</TABLE>
3
<PAGE>
NORTHSTAR GALAXY TRUST
GROWTH + VALUE PORTFOLIO
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN NORTHSTAR GALAXY TRUST GROWTH + VALUE PORTFOLIO
FROM INCEPTION THROUGH THE PORTFOLIO'S FISCAL YEAR END.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Galaxy Trust Growth + Value Portfolio from May 6, 1994 (inception of
the Portfolio) through December 31, 1998, 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.
[PERFORMANCE CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
NORTHSTAR GALAXY TRUST GROWTH+VALUE PORTFOLIO
(IN THOUSANDS)
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 19.32%
SINCE INCEPTION 18.12%
<TABLE>
<CAPTION>
S&P 500 Growth and Value
<S> <C> <C>
5/06/94 10,000.00 10,000.00
12/31/94 10,412.00 10,347.00
6/30/95 12,509.00 12,117.00
12/31/95 14,310.00 12,911.00
6/30/96 15,753.00 15,761.00
12/31/96 17,587.00 15,879.00
6/30/97 21,208.00 16,917.00
12/31/97 23,447.00 18,206.00
6/30/98 27,590.00 20,165.00
12/31/98 30,134.00 21,725.00
</TABLE>
4
<PAGE>
NORTHSTAR GALAXY TRUST GROWTH+VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
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[NORTHSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Security Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 92.24%
APPAREL -- 2.41%
Tarrant Apparel Group @ 25,200 $1,001,700
----------
BIOTECHNOLOGY -- 5.10%
ALZA Corp. @ 16,800 877,800
Amgen, Inc. @ 11,900 1,244,294
----------
2,122,094
----------
BUILDING MATERIALS -- 1.96%
Vulcan Materials Co. 6,200 815,688
----------
CELLULAR TELEPHONE -- 2.29%
Vodafone Group PLC ** 5,900 950,638
----------
CLOTHING/SHOE/ACCESSORY STORES -- 3.66%
The Gap, Inc. 27,100 1,524,375
----------
COMPUTERS -- 3.34%
Dell Computer Corp. @ 19,000 1,390,562
----------
COMPUTER COMMUNICATIONS -- 2.24%
Xircom, Inc. @ 27,400 931,600
----------
COMPUTER SOFTWARE -- 3.58%
Legato Systems, Inc. @ 22,600 1,490,187
----------
COMPUTER/VIDEO CHAINS -- 5.21%
Best Buy Co., Inc. @ 30,100 1,847,387
Trans World Entertainment Corp. @ 16,800 320,250
----------
2,167,637
----------
CONSUMER CYCLICALS -- 11.50%
Abercrombie & Fitch Co. @ 10,700 757,025
American Eagle Outfitters, Inc. @ 14,400 959,400
AnnTaylor Stores Corp. @ 22,600 891,287
CMGI, Inc. @ 11,500 1,224,750
Gemstar International Group Ltd. @ @@ 16,600 950,350
----------
4,782,812
----------
CONSUMER ELECTRONICS/APPLIANCES -- 3.23%
Maytag Corp. 21,600 1,344,600
----------
DIVERSIFIED COMMERICAL SERVICES -- 1.94%
Dendrite International, Inc. @ 16,800 419,475
Labor Ready, Inc. @ 19,700 387,844
----------
807,319
----------
DRUG STORE CHAINS -- 1.72%
CVS Corp. 13,000 715,000
----------
EDP PERIPHERALS -- 7.93%
EMC Corp. 10,000 850,000
QLogic Corp. @ 8,300 1,086,262
Symbol Technologies, Inc. 21,300 1,361,869
----------
3,298,131
----------
ENTERTAINMENT/FILM -- 1.78%
Viacom, Inc. @ 10,000 740,000
----------
FINANCIAL -- 3.10%
Capital One Financial Corp. 11,200 1,288,000
----------
</TABLE>
5
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NORTHSTAR GALAXY TRUST GROWTH+VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Shares/
Security Principal Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTERNET SERVICES -- 3.71%
BroadVision, Inc. @ 21,500 $ 688,000
Mindspring Enterprises, Inc. @ 14,000 854,875
-----------
1,542,875
-----------
MEDICAL/DENTAL DISTRIBUTORS -- 1.38%
Bindley Western Industries, Inc. 11,666 574,551
-----------
MEDICAL ELECTRONICS -- 1.53%
VISX, Inc. @ 7,300 638,294
-----------
MEDICAL SPECIALTIES -- 2.97%
MiniMed, Inc. @ 6,800 712,300
ResMed, Inc. @ 11,500 521,813
-----------
1,234,113
-----------
OFFICE EQUIPMENT/SUPPLIES -- 2.10%
Lexmark International Group, Inc. @ 8,700 874,350
-----------
OFFICE/PLANT AUTOMATION -- 1.59%
InterVoice, Inc. @ 19,200 662,400
-----------
PACKAGE GOODS/COSMETICS -- 2.70%
The Clorox Co. 9,600 1,121,400
-----------
RECREATIONAL PRODUCTS/TOYS -- 0.88%
THQ, Inc. @ 13,000 364,000
-----------
SAVINGS & LOAN -- 0.12%
PDS Financial Corp. @ 16,400 51,250
-----------
SERVICES TO HEALTH INDUSTRY -- 2.14%
MedQuist, Inc. @ 22,500 888,750
-----------
SUPERMARKETS -- 2.10%
Safeway, Inc. @ 14,300 871,406
-----------
TECHNOLOGY -- 2.99%
Lucent Technologies, Inc. 11,300 1,243,000
-----------
TELECOMMUNICATIONS EQUIPMENT -- 3.62%
Nokia Corp. ** 12,500 1,505,469
-----------
TELEPHONE/COMMUNICATIONS -- 3.42%
Century Telephone Enterprises, Inc. 21,050 1,420,875
-----------
TOTAL COMMON STOCKS
(cost $28,111,603) 38,363,076
-----------
TOTAL INVESTMENT SECURITIES -- 92.24%
(cost $28,111,603) 38,363,076
REPURCHASE AGREEMENT -- 6.32%
Agreement with State Street Bank and Trust bearing interest at 4.70% dated 12/31/98
to be repurchased 1/04/99 in the amount of $2,630,373 and collateralized by
$2,295,000 U.S. Treasury Notes, 7.875% due 11/15/04 value $2,684,921
(cost $2,629,000) $2,629,000 2,629,000
OTHER ASSETS LESS LIABILITIES -- 1.44% 601,009
-----------
NET ASSETS -- 100.00% $41,593,085
===========
</TABLE>
@ Non-income producing security.
** American Depositary Receipt.
@@ Foreign security.
See accompanying notes to financial statements.
6
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NORTHSTAR GALAXY TRUST
INTERNATIONAL VALUE PORTFOLIO
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[NORTHSTAR LOGO APPEARS HERE]
THE MARKETS
o Over the past year, world markets experienced some of the most dramatic
movements in recent history. From the widespread currency devaluation in
the fall of 1997, aftershocks struck developed markets in Europe and the
United States by the summer of 1998. Several factors were responsible for
this with the most notable ones being the deteriorating economic
fundamentals in Japan, political unrest in Indonesia, the imposition of
currency restrictions in Malaysia, and the devaluation of the Russian
ruble. Concern about exposure of European banks to defaulted loans in
Russia was primarily responsible for the mid-year correction in European
stocks which had been previously doing well.
o Towards the end of 1998 sustained injection of liquidity into financial
markets by central banks world-wide helped restore confidence in the
global economy and unleashed a rally in equities from the United States to
Asia to Latin America.
o In 1998, the Morgan Stanley Capital International Europe, Australasia,
and Far East (EAFE) Index returned 20.0% in U.S. dollar terms.
THE PORTFOLIO
o The Portfolio returned 16.9% for 1998. The Lipper Index of International
Equity Funds returned 12.7% for the same period.
o The performance of the European holdings far exceeded that of the other
regions. Asian holdings had positive returns by the end of 1998, however
the Latin American holdings, particularly Brazil, Argentina, and Venezuela
ended the year in negative territory.
CURRENT STRATEGY
o Though the daily ups and downs of stock prices make headlines, we remind
clients that keeping our collective eyes on the big picture is what makes
for a sound financial future. Our goal is to filter out short-term factors
in an effort to search for the kind of solid businesses that will build
wealth over time. The bottom-up, value philosophy used in managing the
Portfolio will be consistently applied to find the best opportunities
available in non-U.S. markets. There is no focus on top-down macroeconomic
evaluations or forecasts in structuring the Portfolio. 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 Portfolio 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.
- --------------------------------------------------------------------------------
PORTFOLIO INFORMATION (ALL DATA ARE AS OF 12/31/98) TOTAL NET ASSETS
$13,764,464
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<TABLE>
<CAPTION>
TOP 10 HOLDINGS TOP 5 COUNTRIES SEC AVERAGE ANNUAL RATES OF RETURN
(by percentage of net assets) (at maximum applicable sales charge)
NAME %FUND
<S> <C> <C>
1 Hitachi Ltd. 4.1% Inception 1 year
--------------------
2 Deutsche Telekom AG 3.8% Japan 16.6% 8.05% 9.93%
--------------------
3 Hutchinson Whampoa Ltd. 3.8% CUMULATIVE TOTAL RETURN
United Kingdom 16.6% (do not reflect sales charge)
4 HSBC Holdings PLC 3.4%
Inception 1 year
5 Telecom Italia SpA 3.1% --------------------
France 7.7% 18.44% 16.93%
6 ING Groep N.V. 3.0% --------------------
7 Diageo PLC 2.9% Hong Kong 7.0%
8 Nestle SA 2.9%
Brazil 4.9%
9 Tokio Marine & Fire Insurance Co. 2.9%
10 Development Bank of Singapore Ltd. 2.8%
---
32.7%
====
</TABLE>
7
<PAGE>
NORTHSTAR GALAXY TRUST
INTERNATIONAL VALUE PORTFOLIO
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GROWTH OF $10,000 INVESTED IN NORTHSTAR GALAXY 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 Galaxy Trust International Value Portfolio from August 8, 1997
(inception of the Fund) through December 31, 1998, 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.
[PERFORMANCE GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
NORTHSTAR GALAXY TRUST INTERNATIONAL VALUE PORTFOLIO
(IN THOUSANDS)
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 16.93%
SINCE INCEPTION 12.85%
<TABLE>
<CAPTION>
EAFE International
Index Value
<S> <C> <C>
8/08/97 10,000.00 10,000.00
12/31/97 10,130.00 9,246.00
6/30/98 11,597.00 10,642.10
12/31/98 11,844.00 10,931.40
</TABLE>
8
<PAGE>
NORTHSTAR GALAXY TRUST INTERNATIONAL VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
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[NORTSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------- ------------- ------------
<S> <C> <C>
COMMON STOCKS -- 85.24%
AUTOMOBILES -- 2.60%
Compagnie Generale des Etablissements Michelin (France) 3,100 $ 123,922
PSA Peugeot Citroen SA (France) 1,510 233,617
----------
357,539
----------
BANKING -- 11.73%
Argentaria SA (Spain) 9,800 253,413
Compagnie Financiere de Paribas (France) 1,290 112,064
Den Danske Bank A/S (Denmark) 2,080 279,434
Development Bank of Singapore Ltd. (Singapore) 43,260 390,414
HSBC Holdings PLC @ (United Kingdom) 18,400 464,299
Societe Generale SA (France) 710 114,926
----------
1,614,550
----------
BEVERAGES/TOBACCO -- 4.39%
British America Tobacco PLC (United Kingdom) 17,000 149,692
Diageo PLC (United Kingdom) 36,491 404,681
Japan Tobacco, Inc. (Japan) 5 49,978
----------
604,351
----------
CHEMICALS -- 2.38%
BASF AG (Germany) 3,100 118,301
BOC Group PLC ( United Kingdom ) 5,100 73,124
Imperial Chemical Industries PLC (United Kingdom) 15,700 136,028
----------
327,453
----------
ELECTRICAL & ELECTRONICS -- 7.39%
Alcatel Alsthom SA (France) 1,400 171,275
Hitachi Ltd. (Japan) 91,000 563,468
Matsushita Electric Industrial Co. Ltd. (Japan) 16,000 282,919
----------
1,017,662
----------
ENERGY -- 5.92%
Elf Aquitaine SA (France) 2,600 300,411
ENI SpA (Italy) 20,500 133,902
Nippon Oil Co. Ltd. (Japan) 18,000 62,733
YPF Sociedad Anonima ** (Argentina) 11,380 317,929
----------
814,975
----------
FOOD & HOUSEHOLD PRODUCTS -- 2.91%
Nestle SA (Switzerland) 184 400,495
----------
HEALTH/PERSONAL CARE -- 0.68%
Ono Pharmaceutical Co. Ltd. (Japan) 3,000 93,675
----------
INDUSTRIAL COMPONENTS -- 2.53%
Kyocera Corp. (Japan) 6,600 348,536
----------
INSURANCE -- 8.28%
Allied Zurich (United Kingdom) 15,300 229,919
ING Groep N.V. (Netherlands) 6,800 414,435
Royal & Sun Alliance PLC (United Kingdom) 12,300 100,133
Tokio Marine & Fire Insurance Co. (Japan) 33,100 395,268
----------
1,139,755
----------
</TABLE>
9
<PAGE>
NORTHSTAR GALAXY TRUST INTERNATIONAL VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- ----------------------------------------------------------------- ------------- -------------
<S> <C> <C>
MACHINERY & ENGINEERING -- 3.50%
Komatsu (Japan) 28,000 $ 146,873
Mitsubishi Heavy Industries Ltd. (Japan) 86,000 334,719
-----------
481,592
-----------
MATERIALS & COMMODITIES -- 1.46%
De Beers Centenary AG (South Africa) 15,800 201,178
-----------
MEDIA -- 0.90%
Reuters Group PLC (United Kingdom) 11,800 124,489
-----------
MERCHANDISING -- 0.87%
Marks & Spencer PLC (United Kingdom) 17,300 118,993
-----------
METALS -- STEEL -- 1.43%
British Steel PLC (United Kingdom) 84,300 127,802
Pohang Iron & Steel Co. Ltd. ** (South Korea) 4,100 69,187
-----------
196,989
-----------
MULTI-INDUSTRY -- 9.82%
BTR PLC @ (United Kingdom) 141,993 291,347
Citic Pacific Ltd. (Hong Kong) 51,000 110,589
First Pacific Co. Ltd. @ (Hong Kong) 32,347 15,970
Hutchison Whampoa Ltd. (Hong Kong) 73,500 517,031
Jardine Matheson Holdings Ltd. (Singapore) 39,336 101,487
Swire Pacific Ltd. (Hong Kong) 69,500 315,762
-----------
1,352,186
-----------
NON-FERROUS METALS -- 0.43%
Rio Tinto PLC @ (United Kingdom) 5,100 59,312
-----------
TELECOMMUNICATIONS -- 12.99%
Compania Anonima Nacional Telefonos de Venezuela ** (Venezuela) 9,870 175,809
Deutsche Telekom AG (Germany) 15,700 516,237
Royal KPN NV (Netherlands) 3,850 192,633
Swisscom AG @ (Switzerland) 320 133,945
Telecom Italia SpA (Italy) 50,800 433,203
Telefonos de Mexico SA ** (Mexico) 6,900 335,944
-----------
1,787,771
-----------
UTILITIES -- ELECTRICAL & GAS -- 5.03%
Centrais Eletricas Brasileiras SA ** (Brazil) 26,200 219,425
Centrais Geradoras do Sul do Brasil SA @ ** (Brazil) 1,090 7,127
EVN Energie-Versorgung Niederoesterreich AG (Austria) 670 94,861
Korea Electric Power Corp. ** (South Korea) 17,000 266,688
Union Electrica Fenosa SA (Spain) 6,000 103,645
-----------
691,746
-----------
TOTAL COMMON STOCKS
(cost $11,004,725) 11,733,247
-----------
PREFERRED STOCKS -- 3.30%
BANKING -- 0.71%
Banco Bradesco SA ** (Brazil), $0.1356 17,600 97,599
-----------
BEVERAGES/TOBACCO -- 0.82%
Companhia Cervejaria Brahma ** (Brazil), $0.1308 12,000 113,250
-----------
ENERGY -- 1.22%
Petroleo Brasileiro SA ** (Brazil), $0.5391 14,800 167,820
-----------
</TABLE>
10
<PAGE>
NORTHSTAR GALAXY TRUST INTERNATIONAL VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- --------------------------------------------------------------- ------------------------------ --------------
<S> <C> <C>
TELECOMMUNICATIONS -- 0.55%
Embratel Participacoes SA ** (Brazil), $0.623 1,020 $ 14,216
Tele Celular Sul Participacoes SA ** (Brazil), $3.15 102 1,779
Tele Centro Oeste Celular Participacoes SA ** (Brazil), $.807 339 996
Tele Centro Sul Participacoes SA ** (Brazil), $4.833 204 8,530
Tele Leste Celular Participacoes SA ** (Brazil), $6.698 20 568
Tele Nordeste Celular Participacoes SA ** (Brazil), $5.99 51 944
Tele Norte Celular Participacoes SA ** (Brazil), $5.917 20 451
Tele Norte Leste Participacoes SA ** (Brazil), $1.58 1,020 12,686
Tele Sudeste Celular Participacoes SA ** (Brazil), $2.38 204 4,220
Telemig Celular Participacoes SA ** (Brazil), $3.437 51 1,084
Telesp Celular Participacoes ** (Brazil), $2.047 408 7,140
Telesp Participacpoes SA ** (Brazil), $1.643 1,020 22,567
-----------
75,181
-----------
TOTAL PREFERRED STOCKS
(cost $645,899) 453,850
-----------
TOTAL INVESTMENT SECURITIES -- 88.54%
(cost $11,650,624) 12,187,097
REPURCHASE AGREEMENT -- 9.15%
Agreement with State Street Bank and Trust bearing interest
at 4.70% dated 12/31/98, to be repurchased 1/04/99 in the
amount of $1,260,658 and collateralized by $1,315,000 U.S.
Treasury Notes, 0.00% due 7/01/99, value $1,285,413
(cost $1,260,000) $1,260,000 1,260,000
OTHER ASSETS LESS LIABILITIES -- 2.31% 317,367
-----------
NET ASSETS -- 100.00% $13,764,464
===========
</TABLE>
@ Non-income producing security.
** American Depositary Receipt.
See accompanying notes to financial statements.
11
<PAGE>
NORTHSTAR GALAXY TRUST INTERNATIONAL VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Country Value % of Net Assets
- ------------------------------- -------------- ----------------
<S> <C> <C>
Argentina $ 317,929 2.31%
Austria 94,861 0.69
Brazil 680,402 4.94
Denmark 279,434 2.03
France 1,056,216 7.67
Germany 634,537 4.61
Hong Kong 959,352 6.97
Italy 567,105 4.12
Japan 2,278,169 16.55
Korea 335,875 2.44
Mexico 335,944 2.44
Netherlands 607,069 4.41
Singapore 491,901 3.57
South Africa 201,178 1.46
Spain 357,057 2.60
Switzerland 534,440 3.88
United Kingdom 2,279,819 16.56
United States 1,260,000 9.16
Venezuela 175,809 1.28
Other assets less liabilities 317,367 2.31
----------- ------
NET ASSETS $13,764,464 100.00%
=========== ======
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
NORTHSTAR GALAXY TRUST
EMERGING GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
THE MARKETS
o U.S. equity markets turned in a strong recovery after a very difficult
third quarter of 1998. The fourth quarter return for the Dow Jones
Industrial Average was an increase of 17.1%, the S&P 500 rose 21.3%, the
NASDAQ Composite advanced 29.5%, the S&P Mid Cap added 28.1%, and the
Russell 2000 gained 16.3%. This was the best return for the S&P 500 in the
past 10 years.
o In the October to December period, the markets shrugged off the problems
that plagued sentiment in the third quarter, as interest rate spreads
contracted and fears of a credit crunch dissipated. The indices for larger
stocks made up all of their third quarter losses and reached all-time
highs during the fourth quarter. Equity investors were encouraged by
looser monetary policy at the Federal Reserve, which cut 75 basis points
off short-term rates in three separate actions. Fears of disastrous third
quarter earnings reports proved to be unfounded and the U.S. economy
marched forward. This environment reopened the IPO market, while some
blockbuster mergers were announced.
o We believe that smaller companies represent better values relative to
larger U.S. equities. While small stocks participated in the fourth
quarter rally, they still underperformed the S&P 500 and finished in
negative territory for the year. However, growth prospects remain higher
for smaller companies, which tend to have lower exposure to international
markets, and they typically benefit to a greater degree in the 12 months
following Fed rate cuts.
THE PORTFOLIO
o The Northstar Emerging Growth Portfolio returned 17.3% for the year ended
December 31, 1998.
o The Portfolio's best performing sectors were Telecommunications, Internet,
and Semiconductors. However, the gains were very broadly based, while more
than half of the Russell 2000's gains came from Technology and Consumer
Cyclical shares.
o The Northstar Emerging Growth Portfolio is maintaining an overweight
position in Technology, Healthcare, and Consumer Cyclical companies, while
being relatively underweight in sectors such as Energy and Financials. The
Portfolio was restructured in November 1998 to put a greater emphasis on
small and mid capitalization stocks.
CURRENT STRATEGY
o The Northstar Emerging Growth Portfolio benefited from the timing of its
restructuring in the fourth quarter and the results showed with dramatic
improvement in the final three months of 1998. We opportunistically bought
companies at discount prices resulting from the summer crisis, which saw
Russia default and the near collapse of Long Term Capital Management. We
continued to find relatively inexpensive mid-sized companies to invest in
throughout the fourth quarter. In general, mid-cap stocks stand to reap
greater benefits from Fed rate cuts and reduced exposures to overseas
markets, and our outlook is for continued positive performance. As Asia
continues to struggle and Brazil provides a tremendous amount of
uncertainty, we think that large cap earnings will remain under pressure
and that the mid cap equity sector will be the vehicle of choice for
investors in 1999, after a few years of underperformance. Initial evidence
of this trend is found in the fact that the Portfolio and the S&P Mid Caps
outpaced the larger stock indices in the quarter.
o Since the Russian default in late August, there have been 68 interest
rate cuts worldwide, which implies that we have shifted from a policy of
containing inflation to fostering economic growth. However, much of the
emerging world continues to see growth dampened by debt indigestion. In
this environment, mid-sized and smaller companies usually perform better
than the larger capitalization issues, and the growth style of investing
usually outperforms the value style.
o We believe the Portfolio is well positioned for the current economic
environment. While the fourth quarter rally reduced the number of absolute
bargains in the market, we continue to find many mid-sized companies that
are well-positioned in growing markets with high visibility in earnings
that sell at discounts to their growth rates.
- --------------------------------------------------------------------------------
PORTFOLIO INFORMATION (ALL DATA ARE AS OF 12/31/98) TOTAL NET ASSETS $24,052,754
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
NAME % FUND
<S> <C> <C>
o 1 Compaq Computer Corp. 2.0%
o 2 Ceridian Corp. 1.7%
o 3 VISX, Inc. 1.6%
o 4 MiniMed, Inc. 1.4%
o 5 Abercrombie & Fitch Co. 1.3%
o 6 Agouron Pharmaceuticals, Inc. 1.3%
o 7 MedImmune, Inc. 1.3%
o 8 Micrel, Inc. 1.3%
o 9 Travel Services International, Inc. 1.3%
o 10 Veeco Instruments, Inc. 1.3%
----
14.5%
====
</TABLE>
<TABLE>
<CAPTION>
TOP 5 INDUSTRIES
(by percentage of net assets)
<S> <C>
Consumer Cyclicals ------------
15.1%
Semiconductor --------
9.2%
Computer Software --------
7.6%
Biotechnology ------
7.2%
Electronic/Production ----
Equipment
5.9%
</TABLE>
<TABLE>
<CAPTION>
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
<S> <C> <C>
Inception 1 year
14.37% 10.30%
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
Inception 1 year
90.94% 17.30%
</TABLE>
13
<PAGE>
NORTHSTAR GALAXY TRUST
EMERGING GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN NORTHSTAR GALAXY TRUST EMERGING GROWTH
PORTFOLIO FROM INCEPTION THROUGH THE PORTFOLIO'S FISCAL YEAR END.
The graph below illustrates the hypothetical investment of $10,000 in the
Northstar Galaxy Trust Emerging Growth Portfolio from May 6, 1994 (inception of
the Portfolio) through December 31, 1998, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the S&P 500 Index,
the Lehman Brothers' Government/Corporate Bond Index, and the Russell 3000
Index for the same period. All performance data shown represents past
performance, and should not be considered indicative of future performance.
[PERFORMANCE GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
NORTHSTAR GALAXY TRUST EMERGING GROWTH PORTFOLIO
(IN THOUSANDS)
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 17.30%
SINCE INCEPTION 14.89%
<TABLE>
<CAPTION>
Emerging Lehman
Growth S&P 500 Russell 3000 Gov't/Corp
<S> <C> <C> <C> <C>
5/6/94 10,000.00 10,000.00 10,000.00 10,000.00
12/31/94 10,202.00 10,412.00 10,169.00 10,046.00
6/30/95 11,595.00 12,509.00 11,974.00 11,230.00
12/31/95 12,371.00 14,310.00 13,585.00 11,978.00
6/30/96 12,834.00 15,753.00 14,764.00 11,953.00
12/31/96 14,055.00 17,587.00 16,191.00 12,538.00
6/30/97 15,333.00 21,208.00 18,900.00 12,881.00
12/31/97 16,276.00 23,447.00 20,963.00 13,760.00
6/30/98 16,949.00 27,590.00 23,957.00 14,235.00
12/31/98 19,094.00 30,134.00 25,644.00 14,940.00
</TABLE>
14
<PAGE>
NORTHSTAR GALAXY TRUST EMERGING GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------- -------------- ------------
<S> <C> <C>
COMMON STOCKS -- 97.64%
BIOTECHNOLOGY -- 7.18%
Agouron Pharmaceuticals, Inc. @ 5,500 $323,125
Alkermes, Inc. @ 11,000 244,063
Biogen, Inc. @ 2,800 232,400
COR Therapeutics, Inc. @ 8,700 115,275
Coulter Pharmaceutical, Inc. @ 7,500 225,000
MedImmune, Inc. @ 3,100 308,256
PathoGenesis Corp. @ 4,800 278,400
---------
1,726,519
---------
CAPITAL GOODS -- 4.35%
Advanced Energy Industries, Inc. @ 5,700 142,500
Casella Waste Systems, Inc. @ 7,200 267,300
Comfort Systems USA, Inc. @ 12,000 214,500
Electro Scientific Industries, Inc. @ 5,300 240,156
Mettler-Toledo International, Inc. @ 6,500 182,406
---------
1,046,862
---------
COMMUNICATION SERVICE -- 1.15%
RSL Communications, Ltd. @ @@ 9,400 277,300
---------
COMPUTER COMMUNICATIONS -- 2.14%
Applied Micro Circuits Corp. @ 7,400 251,369
Ascend Communications, Inc. @ 4,000 263,000
---------
514,369
---------
COMPUTER SOFTWARE -- 7.63%
Aspect Development, Inc. @ 5,800 257,012
Digital River, Inc. @ 4,300 152,650
New Era of Networks, Inc. @ 6,700 294,800
Novell, Inc. @ 12,300 222,938
Rational Software Corp. @ 6,200 164,300
Sapient Corp. @ 4,800 268,800
Saville Systems PLC @** 10,800 205,200
Segue Software, Inc. @ 13,300 269,325
---------
1,835,025
---------
CONSUMER CYCLICALS -- 15.10%
Abercrombie & Fitch Co. @ 4,300 304,225
American Eagle Outfitters, Inc. @ 4,300 286,487
AnnTaylor Stores Corp. @ 6,000 236,625
Concur Technologies, Inc. @ 6,700 204,350
DM Management Co. @ 7,200 136,800
Dollar Tree Stores, Inc. @ 3,800 166,013
Exchange Applications, Inc. @ 9,000 176,625
Linens 'n Things, Inc. @ 6,400 253,600
Office Depot, Inc. @ 7,000 258,562
Party City Corp. @ 12,500 180,469
ProBusiness Services, Inc. @ 4,900 222,950
Restoration Hardware, Inc. @ 8,100 217,687
Select Comfort Corp. @ 2,500 66,094
Staples, Inc. @ 5,200 227,175
</TABLE>
15
<PAGE>
NORTHSTAR GALAXY TRUST EMERGING GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- ----------------------------------------- -------------- ------------
<S> <C> <C>
CONSUMER CYCLICALS -- CONTINUED
Sunrise Assisted Living, Inc. @ 5,800 $300,875
The Men's Wearhouse, Inc. @ 8,100 257,175
The Metzler Group, Inc. @ 2,800 136,325
---------
3,632,037
---------
CONSUMER SERVICES -- 0.63%
Advantage Learning Systems, Inc. @ 2,300 151,225
---------
CONSUMER STAPLES -- 4.26%
Comcast Corp. 2,700 158,456
Hollywood Entertainment Corp. @ 10,800 294,300
Infinity Broadcasting Corp. @ 4,400 120,450
P.F. Changs China Bistro, Inc. @ 6,900 156,975
PSS World Medical, Inc. @ 7,900 181,700
Ticketmaster Online-CitySearch, Inc. @ 2,000 112,000
---------
1,023,881
---------
DIVERSIFIED COMMERICAL SERVICES -- 1.20%
Abacus Direct Corp. @ 2,100 95,550
Dendrite International, Inc. @ 7,700 192,259
---------
287,809
---------
DIVERSIFIED ELECTRONIC PRODUCTS -- 1.21%
Uniphase Corp. @ 4,200 291,375
---------
DRUG STORE CHAINS -- 1.17%
Express Scripts, Inc. @ 4,200 281,925
---------
EDP PERIPHERALS -- 2.08%
EMC Corp. 2,600 221,000
Network Appliance, Inc. 6,200 279,000
---------
500,000
---------
EDP SERVICES -- 2.77%
BindView Development Corp. @ 4,600 126,500
Ceridian Corp. 6,000 418,875
National Data Corp. 2,500 121,719
---------
667,094
---------
ELECTRONIC COMPONENTS -- 0.52%
E-Tek Dynamics, Inc. @ 4,700 125,725
---------
ELECTRONIC DATA PROCESSING -- 1.95%
Compaq Computer Corp. 11,200 469,700
---------
ELECTRONIC PRODUCTION/EQUIPMENT -- 5.86%
Applied Materials, Inc. @ 5,400 230,513
KLA-Tencor Corp. @ 6,300 273,262
Lam Research Corp. @ 8,800 156,750
Novellus Systems, Inc. @ 4,200 207,900
Teradyne, Inc. @ 5,500 233,062
Veeco Instruments, Inc. @ 5,800 308,125
---------
1,409,612
---------
</TABLE>
16
<PAGE>
NORTHSTAR GALAXY TRUST EMERGING GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Security Shares Value
- ------------------------------------- -------------- ------------
<S> <C> <C>
FINANCIAL -- 4.36%
AFLAC, Inc. 5,800 $255,200
First Union Corp. 3,600 218,925
Merrill Lynch & Co., Inc. 2,900 193,575
Morgan Stanley Dean Witter & Co. 3,100 220,100
The Charles Schwab Corp. 2,850 160,134
---------
1,047,934
---------
GENERIC DRUGS -- 0.50%
Schein Pharmaceutical, Inc. @ 8,200 119,413
---------
HEALTH INDUSTRY SERVICES -- 1.03%
Medical Manager Corp. @ 7,900 247,863
---------
INTERNET SERVICES -- 3.98%
America Online, Inc. @ 1,900 304,000
Excite, Inc. @ 4,600 193,487
InfoSpace.com, Inc. @ 2,800 106,750
Lycos, Inc. @ 3,500 194,469
Network Solutions, Inc. @ 900 117,788
Xoom.com, Inc. @ 1,200 39,600
---------
956,094
---------
MANAGED HEALTH CARE -- 1.47%
Coventry Health Care, Inc. @ 13,800 121,613
Oxford Health Plans, Inc. @ 15,500 230,562
---------
352,175
---------
MEDICAL ELECTRONICS -- 2.10%
Endosonics Corp. @ 13,000 129,188
VISX, Inc. @ 4,300 375,981
---------
505,169
---------
MEDICAL SPECIALTIES -- 4.99%
Anesta Corp. @ 3,400 90,525
Hanger Orthopedic Group, Inc. @ 10,200 229,500
MiniMed, Inc. @ 3,200 335,200
Osteotech, Inc. @ 1,500 69,750
ResMed, Inc. @ 5,300 240,487
Xomed Surgical Products, Inc. @ 7,350 235,200
---------
1,200,662
---------
MEDICAL/NURSING SERVICES -- 1.02%
Pediatrix Medical Group, Inc. @ 4,100 245,744
---------
OFFICE EQUIPMENT/SUPPLIES -- 1.21%
Lexmark International Group, Inc. @ 2,900 291,450
---------
OFFICE/PLANT AUTOMATION -- 0.96%
Newbridge Networks Corp. @ @@ 7,600 230,850
---------
PHARMACEUTICALS -- 1.64%
King Pharmaceuticals, Inc. @ 6,300 166,163
Sepracor, Inc. @ 2,600 229,125
---------
395,288
---------
RECREATIONAL PRODUCTS/TOYS -- 0.86%
THQ, Inc. @ 7,400 207,200
---------
</TABLE>
17
<PAGE>
NORTHSTAR GALAXY TRUST EMERGING GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/
Security Principal Amount Value
- --------------------------------------------------------------------------- ------------------ ---------------
<S> <C> <C>
SEMICONDUCTOR -- 9.15%
Altera Corp. @ 3,900 $ 237,412
Analog Devices, Inc. @ 3,900 122,363
Level One Communications, Inc. @ 3,600 127,800
Maxim Integrated Products, Inc. @ 5,500 240,281
Micrel, Inc. @ 5,600 308,000
PMC-Sierra, Inc. @ 4,300 271,437
SDL, Inc. @ 5,300 210,013
Semtech Corp. @ 5,200 186,550
Texas Instruments, Inc. 1,300 111,313
Vitesse Semiconductor Corp. @ 2,300 104,938
Xilinx, Inc. @ 4,300 280,037
-------------
2,200,144
-------------
TELECOMMUNICATIONS EQUIPMENT -- 3.89%
Carrier Access Corp. @ 7,100 244,506
General Instrument Corp. @ 7,100 240,956
Terayon Communication Systems, Inc. @ 5,700 210,900
Visual Networks, Inc. @ 6,400 240,000
-------------
936,362
-------------
TRANSPORTATION -- 1.28%
Travel Services International, Inc. @ 10,100 308,050
-------------
TOTAL COMMON STOCKS
(cost $20,190,460) 23,484,856
-------------
TOTAL INVESTMENT SECURITIES -- 97.64%
(cost $20,190,460) 23,484,856
REPURCHASE AGREEMENT -- 3.78%
Agreement with State Street Bank and Trust bearing interest at 4.70% dated
12/31/98, to be repurchased 1/04/99 in the amount $910,475 and
collaterized by $890,000 U.S. Treasury Notes, 6.375% due 1/15/00,
value $931,353
(cost $910,000) $910,000 910,000
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.42%) (342,102)
-------------
NET ASSETS -- 100.00% $24,052,754
=============
</TABLE>
@ Non-income producing security.
@@ Foreign Security.
** American Depositary Receipt.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
PROXY RESULTS (UNAUDITED)
During the year ended December 31, 1998, Northstar Galaxy Trust Emerging
Growth Portfolio (formerly "Northstar Galaxy Trust Income and Growth
Portfolio") shareholders voted on the following proposal. The proposal was
approved at a Special Meeting of Shareholders on November 5, 1998.
<TABLE>
<CAPTION>
Shares Shares
Voted Voted
For Against Abstentions
----------- --------- ------------
<S> <C> <C> <C>
To approve a modification of the investment objective and name of the Portfolio. 1,472,805 101,389 121,863
</TABLE>
18
<PAGE>
NORTHSTAR GALAXY TRUST
MULTI-SECTOR BOND PORTFOLIO
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
THE MARKETS
o The fourth quarter ended with equity markets back at historical highs as
well as GDP growth rates near the 4% level. Despite strong growth,
consumer prices rose only 1.6% in 1998, the smallest increase in roughly
12 years. Consumer confidence, economic growth, low inflation and interest
rate relief from the Federal Reserve helped to keep the U.S. economy in
check. Commodity deflation and cheap imports as well as the financial
crisis around the world, pushed U.S. Treasury bond yields down to levels
not seen since the 1960's. During the 1998 calendar year, yields of 10-
and 30-year Treasury bonds dropped steadily. Their yields ended the fourth
quarter at 4.66% and 5.10%, down 109 bps and 83 bps, respectively, from
the beginning of the year.
o Falling economies around the world, especially those throughout Russia,
Asia and Latin America, created liquidity concerns in the corporate bond
market. This liquidity crunch was at its worst point during August, which
proved to be the single-worst month for corporate spread widening this
decade. The high yield market was impacted by the increased volume of
which emerging markets funds sold domestic high yield bonds, hedge funds
experienced margin calls, market timers left the market, and market makers
were unwilling to purchase bonds. Consequently, the corporate bond market
went into a liquidity crisis where investors flocked to the highest
quality bonds. The liquidity crisis was mitigated by the Federal Reserve's
series of rate cuts levied in September and October.
o High yield bonds returns for the year ended December 31, 1998 were 1.87%
compared to 8.69% for all domestic bonds. As economic and financial
concerns abated in the fourth quarter, high yield bonds began rebounding
from their lows in October. However, high yield spreads only tightened
roughly 100 basis points to Treasuries. At the end of the year, high yield
spreads still remained historically wide to Treasuries at 650 basis
points. In general, bonds with lower credit ratings continued to
underperform the upper tier of the high yield market.
o Emerging market bonds fell 11.6% for the calendar year ended December 31,
1998. However, in the fourth quarter there was a bounce back in emerging
markets as investors searched for opportunities from the third quarter
collapse.
THE PORTFOLIO
o For the year ended December 31, 1998, the total return of the Portfolio's
shares was 1.02%; the Lipper average for multi-sector bond funds was 1.3%.
Net assets rose 37% from $10.5MM to $14.4MM during the calendar year 1998
due to capital appreciation and increased sales.
o Due to a significant amount of Treasury securities and cash during the
year, the Portfolio underperformed its peers. The Portfolio's conservative
approach in the fourth quarter 1998 led to its underperformance as the
market rallied.
CURRENT STRATEGY
o Continue above-average exposure in non-cyclicals; keep duration at or
below six years to limit volatility.
o The Fund will continue to take a conservative approach. We will continue
to increase the credit quality of high yield holdings.
- --------------------------------------------------------------------------------
PORTFOLIO INFORMATION (ALL DATA ARE AS OF 12/31/98) TOTAL NET ASSETS
$14,436,636
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
NAME % FUND
<S> <C> <C>
o 1 U.S. Treasury Bills, 0%, due
27.9%
2/18/99
o 2 U.S. Treasury Notes, 5.875%,
5.4%
due 9/30/02
o 3 U.S. Treasury Notes, 6.625%,
2.8%
due 4/30/02
o 4 U.S. Treasury Strips, 0%, due
2.8%
2/15/23
o 5 Mego Mortgage Home Loan
2.0%
Trust, 8.01%, due 8/25/23
o 6 Paxson Communications 2.0%
o 7 AES Corp. 1.8%
o 8 Sinclair Broadcast Group, Inc. 1.8%
o 9 Engle Homes, Inc. 1.7%
o 10 Superior National Insurance
1.7%
----
Group, Inc.
49.9%
====
</TABLE>
<TABLE>
<CAPTION>
SECTOR ALLOCATIONS
(by percentage of net assets)
<S> <C>
U.S. Government ------------
39.2%
High Yield ----------
34.5%
Investment Grade -----
11.5%
Cash ----
10.8%
Equities ---
4.0%
</TABLE>
<TABLE>
<CAPTION>
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
<S> <C> <C>
Inception 1 year
6.96% (5.56)%
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
Inception 1 year
40.69% 1.02%
</TABLE>
19
<PAGE>
NORTHSTAR GALAXY TRUST
MULTI-SECTOR BOND PORTFOLIO
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN NORTHSTAR GALAXY 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 Galaxy Trust Multi-Sector Bond Portfolio from May 6, 1994 (inception
of the Portfolio) through December 31, 1998, 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.
[PERFORMANCE GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
NORTHSTAR GALAXY TRUST MULTI-SECTOR BOND PORTFOLIO
(IN THOUSANDS)
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 1.02%
SINCE INCEPTION 7.60%
<TABLE>
<CAPTION>
Lehman Multi-Sector
<S> <C> <C>
5/6/94 10,000.00 10,000.00
12/31/94 10,046.00 10,141.00
6/30/95 11,230.00 11,157.00
12/31/95 11,978.00 11,659.00
6/30/96 11,953.00 12,247.00
12/31/96 12,464.00 13,120.00
6/30/97 12,881.00 13,557.00
12/31/97 13,760.00 13,927.00
6/30/98 14,235.00 14,384.00
12/31/98 14,940.00 14,069.00
</TABLE>
20
<PAGE>
NORTHSTAR GALAXY TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------- -------------------- ------------
<S> <C> <C>
INVESTMENT GRADE SECURITIES -- 7.68%
DOMESTIC BONDS & NOTES -- 3.60%
ELECTRIC UTILITIES -- 0.78%
Boston Edison Co.
9.375%, Debentures, 8/15/21 $ 100,000 $ 112,116
----------
OIL & GAS -- 1.26%
PDV America, Inc.
7.875%, Sr. Notes, 8/01/03 200,000 182,374
----------
TELECOMMUNICATIONS -- 1.56%
TCI Communications, Inc.
8.00%, Sr. Notes, 8/01/05 200,000 225,514
----------
TOTAL DOMESTIC BONDS & NOTES 520,004
----------
FOREIGN BONDS & NOTES -- 4.08%
FOREIGN GOVERNMENT SECURITIES -- 4.08%
Poland Government $
0/3.25%, due 10/27/24 250,000 175,625
Republic of Columbia
7.25%, due 2/23/04 150,000 126,750
Republic of Indonesia
7.75%, due 8/01/06 150,000 99,409
Republic of Italy (1)
12.00%, due 5/01/02 245,000,000 186,701
----------
TOTAL FOREIGN BONDS & NOTES 588,485
----------
TOTAL INVESTMENT GRADE SECURITIES
(cost $1,115,364) 1,108,489
----------
HIGH YIELD SECURITIES -- 34.46%
DOMESTIC BONDS & NOTES -- 26.64%
AIRLINES -- 1.57%
Atlantic Coast Airlines, Inc. #
8.75%, Pass Thru Certificates, 1/01/07 230,938 227,334
----------
BROADCASTING -- 1.77%
Sinclair Broadcast Group, Inc.
9.00%, Sr. Subordinated Notes, 7/15/07 250,000 255,625
----------
CABLE TELEVISION -- 1.39%
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Discount Notes, 3/15/04 200,000 200,500
----------
CONSUMER PRODUCTS -- 0.71%
Packaged Ice, Inc.
9.75%, Sr. Notes, 2/01/05 100,000 102,500
----------
ENERGY -- 1.76%
AES Corp.
8.50%, Sr. Subordinated Notes, 11/01/07 250,000 253,750
----------
ENTERTAINMENT/FILM -- 0.78%
Paramount Communications, Inc.
8.25%, Sr. Debentures, 8/01/22 100,000 113,070
----------
FOOD/BEVERAGE/TOBACCO -- 1.31%
Richmont Marketing Specialists, Inc. #
10.125%, Sr. Subordinated Notes, 12/15/07 250,000 188,750
----------
</TABLE>
21
<PAGE>
NORTHSTAR GALAXY TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------- -------------------- ------------
<S> <C> <C>
HEALTHCARE -- 0.69%
Fisher Scientific International, Inc.
9.00%, Sr. Subordinated Notes, 2/01/08 $100,000 $ 100,000
----------
HOMEBUILDERS/HOME CONSTRUCTION -- 1.74%
Engle Homes, Inc.
9.25%, Company Guarantee, 2/01/08 250,000 251,250
----------
HOTEL & GAMING -- 1.69%
HMH Properties, Inc.
7.875%, Sr. Secured Notes, 8/01/08 250,000 243,750
----------
INSURANCE -- 2.44%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 100,000 103,000
Superior National Insurance Group, Inc.
10.75%, Company Guarantee, 12/01/17 2,500 250,000
----------
353,000
----------
OIL & GAS -- 1.28%
Lomak Petroleum, Inc.
8.75%, Sr. Subordinated Notes, 1/15/07 200,000 185,000
----------
TELECOMMUNICATIONS -- 6.50%
Hyperion Telecommunications, Inc. $
0/13.00%, Sr. Discount Notes, 4/15/03 150,000 108,000
ICG Holdings, Inc. $
0/12.50%, Sr. Secured Discount Notes, 5/01/06 100,000 74,188
ITC Deltacom, Inc.
11.00%, Sr. Notes, 6/01/07 130,000 139,750
RCN Corp.
10.00%, Sr. Notes, 10/15/07 200,000 187,500
RCN Corp. $
0/9.80%, Sr. Discount Notes, 2/15/08 100,000 53,000
Viatel, Inc.
11.25%, Sr. Notes, 4/15/08 200,000 201,000
WinStar Communications, Inc. $
0/14.00%, Sr. Discount Notes, 10/15/05 100,000 72,750
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04 100,000 102,500
----------
938,688
----------
TEXTILE/APPAREL -- 1.65%
Fruit of the Loom, Inc.
6.50%, Notes, 11/15/03 250,000 237,540
----------
TRANSPORTATION -- 1.36%
Sea Containers Ltd.
7.875%, Sr. Notes, 2/15/08 200,000 196,000
----------
TOTAL DOMESTIC BONDS & NOTES 3,846,757
----------
FOREIGN BONDS & NOTES -- 7.82%
FOOD/BEVERAGE/TOBACCO -- 1.52%
Fage Dairy Industries SA
9.00%, Sr. Notes, 2/01/07 250,000 218,750
----------
OIL & GAS -- 1.71%
Husky Oil Ltd. # (2)
8.90%, Notes, 8/15/28 250,000 247,500
----------
</TABLE>
22
<PAGE>
NORTHSTAR GALAXY TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Principal Amount/
Security Shares Value
- -------------------------------------------------------- ------------------ -----------
<S> <C> <C>
SERVICES -- 0.66%
Guangzhou Shenzhen Superhighway Holdings
10.25%, Sr. Notes, 8/15/07 $200,000 $96,000
---------
SHIPPING -- 1.38%
Equimar Shipholdings Ltd.
9.875%, Company Guarantee, 7/01/07 250,000 198,750
---------
TELECOMMUNICATIONS -- 2.55%
Colt Telecom Group PLC $
0/12.00%, Sr. Discount Notes, 12/15/06 200,000 167,000
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 250,000 200,625
---------
367,625
---------
TOTAL FOREIGN BONDS & NOTES 1,128,625
---------
TOTAL HIGH YIELD SECURITIES
(cost $5,120,337) 4,975,382
---------
CONVERTIBLE BONDS -- 0.50%
TELECOMMUNICATIONS -- 0.50%
SA Telecommunications, Inc. # *
10.00%, Notes, 8/15/06 125,000 0
Winstar Communications, Inc. $ #
0/14.00%, Sr. Discount Notes, 10/15/05 50,000 72,750
---------
TOTAL CONVERTIBLE BONDS
(cost $166,897) 72,750
---------
PREFERRED STOCKS -- 3.16%
BROADCASTING -- 1.96%
Paxson Communications Corp., 12.50% & 3,113 283,283
---------
ENERGY -- 0.36%
Enron Capital Resources L.P., 9.00% 2,000 51,750
---------
SUPERMARKETS -- 0.76%
Nebco Evans Holding Co., 11.25% & 2,170 109,572
---------
TELECOMMUNICATIONS -- 0.08%
Viatel, Inc., 10.00% & 101 11,160
---------
TOTAL PREFERRED STOCKS
(cost $565,290) 455,765
---------
WARRANTS -- 0.79% @
CONSUMER PRODUCTS -- 0.08%
Chattem, Inc., (expires 6/17/99) 50 11,295
---------
STEEL -- 0.01%
Sheffield Steel Corp., (expires 11/01/01) 500 500
---------
SUPERMARKETS -- 0.00%
Dairy Mart Convenience Stores, Inc., (expires 1/01/01) 666 352
---------
TELECOMMUNICATIONS -- 0.70%
Clearnet Communications, Inc. @@, (expires 9/15/05) 660 4,620
Colt Telecom Group PLC # @@, (expires 12/31/06) 200 85,480
Hyperion Telecommunications, Inc., (expires 4/15/01) 150 11,246
UNIFI Communications, Inc. #, (expires 3/01/07) 100 1
---------
101,347
---------
TOTAL WARRANTS
(cost $2,000) 113,494
---------
</TABLE>
23
<PAGE>
NORTHSTAR GALAXY TRUST MULTI-SECTOR BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------------------------------------- -------------------- --------------
<S> <C> <C>
ASSET BACKED SECURITIES -- 3.40%
Cityscape Home Loan Owner Trust, 8.17%, due 7/25/18 $200,000 $ 202,068
Mego Mortgage Home Loan Trust, 8.01%, due 8/25/23 300,000 288,903
-----------
TOTAL ASSET BACKED SECURITIES
(cost $482,594) 490,971
-----------
U.S. GOVERNMENT AND AGENCIES -- 11.23%
Resolution Trust Corp., 8.00%, due 6/25/26 42,609 43,750
U.S. Treasury Notes, 5.875%, due 9/30/02 750,000 780,540
U.S. Treasury Notes, 6.625%, due 4/30/02 375,000 397,421
U.S. Treasury Strips, 0%, due 2/15/23 1,500,000 399,135
-----------
TOTAL U.S. GOVERNMENT AND AGENCIES
(cost $1,512,250) 1,620,846
-----------
TOTAL INVESTMENT SECURITIES -- 61.22%
(cost $8,964,732) 8,837,697
-----------
SHORT-TERM SECURITY -- 27.94%
U.S. Treasury Bills, 0%, due 2/18/99 4,055,000 4,034,279
-----------
TOTAL SHORT-TERM SECURITY
(cost $4,031,722) 4,034,279
REPURCHASE AGREEMENT -- 9.38%
Agreement with State Street Bank and Trust bearing interest at 4.70% dated
12/31/98, to be repurchased 1/04/99 in the amount of $1,354,707 and
collateralized by $1,185,000 U.S. Treasury Notes, 7.875% due 11/15/04, value
$1,386,332
(cost $1,354,000) 1,354,000 1,354,000
OTHER ASSETS LESS LIABILITIES -- 1.46% 210,660
-----------
NET ASSETS -- 100.00% $14,436,636
===========
</TABLE>
$ Step bond.
# Sales restricted to qualified institutional investors.
* Defaulted security.
& Payment-in-kind security.
@ Non-income producing security.
@@ Foreign security.
(1) The principal amount shown is shown in the respective country's currency.
(2) Variable rate security. Rate as of December 31, 1998.
See accompanying notes to financial statements.
24
<PAGE>
NORTHSTAR GALAXY TRUST
HIGH YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------
[GRAPHIC]
THE MARKETS
o The fourth quarter ended with equity markets back at historical highs as
well as GDP growth rates near the 4% level. Despite strong growth,
consumer prices rose only 1.6% in 1998, the smallest increase in roughly
12 years. Consumer confidence, economic growth, low inflation and interest
rate relief from the Federal Reserve helped to keep the U.S. economy in
check. Commodity deflation and cheap imports as well as the financial
crisis around the world, pushed U.S. Treasury bond yields down to levels
not seen since the 1960's. During the 1998 calendar year, yields of 10-
and 30-year Treasury bonds dropped steadily. Their yields ended the fourth
quarter at 4.66% and 5.10%, down 109 bps and 83 bps, respectively, from
the beginning of the year.
o Falling economies around the world, especially those throughout Russia,
Asia and Latin America, created liquidity concerns in the corporate bond
market. This liquidity crunch was at its worst point during August, which
proved to be the single-worst month for corporate spread widening this
decade. The high yield market was impacted by the increased volume of
which emerging markets funds sold domestic high yield bonds, hedge funds
experienced margin calls, market timers left the market, and market makers
were unwilling to purchase bonds. Consequently, the corporate bond market
went into a liquidity crisis where investors flocked to the highest
quality bonds. The liquidity crisis was mitigated by the Federal Reserve's
series of rate cuts levied in September and October.
o High yield bonds returns for the year ended December 31, 1998, were 1.87%
compared to 8.69% for all domestic bonds. As economic and financial
concerns abated in the fourth quarter, high yield bonds began rebounding
from their lows in October. However, high yield spreads only tightened
roughly 100 basis points to Treasuries. At the end of the year, high yield
spreads still remained historically wide to Treasuries at 650 basis
points. In general, bonds with lower credit ratings continued to
underperform the upper tier of the high yield market.
o Emerging market bonds fell 11.6% for the calendar year ended December 31,
1998. However, in the fourth quarter there was a bounce back in emerging
markets as investors searched for opportunities from the third quarter
collapse.
THE PORTFOLIO
o For the year ended December 31, 1998, the total return of the Portfolio's
shares were (0.12)%; the Lipper average for high yield funds was (0.44)%.
Capital appreciation and strong marketing efforts caused net assets to
rise 70% during the year from, $12.5MM to $21.3MM.
o The Portfolio outperformed the Lipper average as a result of a higher
cash position held in the third quarter which was invested in the fourth
quarter as the market began to rally. Additionally, the blend of upper
tier credits and a number of telecommunication bonds in the Portfolio
contributed to the strong performance.
o Many of the stocks and equity rights attached to bonds ("equity kickers")
held by the Portfolio hurt its returns in the fourth quarter, but they are
poised to make contributions to the NAV when stock prices inevitably
recover.
CURRENT STRATEGY
o Continue above-average exposure in non-cyclical industries. Hold 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 resumption of significant market volatility and the renewed
flight to quality, we will be even more selective about credit risk than
we were in the fourth quarter. Additionally, the Portfolio will continue
to follow the barbell approach, mitigating the downside of volatility
swings associated with big market moves.
- --------------------------------------------------------------------------------
PORTFOLIO INFORMATION (ALL DATA ARE AS OF 12/31/98) TOTAL NET ASSETS
$21,320,163
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
NAME % FUND
<S> <C> <C>
o 1 Allied Waste Industries, Inc. 2.4%
o 2 Circus Circus Enterprises, Inc. 2.4%
o 3 Dobson/Sygnet Communications 2.4%
o 4 Hard Rock Hotel, Inc. 2.4%
o 5 Mail-Well Corp. 2.4%
o 6 Nextlink Communications, Inc. 2.4%
o 7 North Atlantic Trading, Inc. 2.4%
o 8 Pierce Leahy Command Co. 2.4%
o 9 Tenet Healthcare Corp. 2.4%
o 10 Viatel, Inc. 2.4%
----
24.0%
====
</TABLE>
<TABLE>
<CAPTION>
TOP 5 INDUSTRIES
(by percentage of net assets)
<S> <C>
Telecommunications ------------
22.0%
Hotel/Gaming --------
9.4%
Services --------
8.7%
Oil & Gas --------
8.2%
Food, Beverage, Tobacco --------
7.4%
</TABLE>
<TABLE>
<CAPTION>
SEC AVERAGE ANNUAL RATES OF RETURN
(at maximum applicable sales charge)
<S> <C> <C>
Inception 1 year
8.15% (6.55)%
CUMULATIVE TOTAL RETURN
(do not reflect sales charge)
Inception 1 year
47.97% (0.12)%
</TABLE>
25
<PAGE>
NORTHSTAR GALAXY TRUST
HIGH YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN NORTHSTAR GALAXY 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 Galaxy Trust High Yield Bond Portfolio from May 6, 1994 (inception of
the Portfolio) through December 31, 1998, 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.
[PERFORMANCE GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
NORTHSTAR GALAXY TRUST HIGH YIELD BOND PORTFOLIO
(IN THOUSANDS)
AVERAGE ANNUAL TOTAL RETURN
1-YEAR (0.12%
SINCE INCEPTION 8.77%
<TABLE>
<CAPTION>
Lehman High Yield
Gov't/Corp Bond
<S> <C> <C>
5/6/94 10,000.00 10,000.00
12/31/94 10,046.00 9,905.00
6/30/95 11,230.00 10,870.00
12/31/95 11,978.40 11,743.00
6/30/96 11,953.50 12,731.00
12/31/96 12,464.20 13,592.00
6/30/97 12,881.00 14,150.00
12/31/97 13,760.40 14,815.00
6/30/98 14,235.30 15,439.00
12/31/98 14,940.00 14,797.00
</TABLE>
26
<PAGE>
NORTHSTAR GALAXY TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Security Principal Amount Value
- ------------------------------------------ ------------------ -----------
<S> <C> <C>
DOMESTIC BONDS & NOTES -- 69.75%
AIRLINES -- 0.85%
Atlantic Coast Airlines, Inc. #
8.75%, Pass-Thru Certificates, 1/01/07 $184,751 $181,867
--------
AUTOMOTIVE MANUFACTURING -- 2.18%
Safelite Glass Corp. #
9.875%, Sr. Subordinated Notes, 12/15/06 500,000 463,750
--------
AUTO PARTS & EQUIPMENT -- 0.46%
Titan Wheel International, Inc.
8.75%, Sr. Subordinated Notes, 4/01/07 100,000 97,500
--------
BROADCASTING -- 3.07%
Brill Media Co. LLC $
7.50/12.00%, Company Guarantee, 12/15/07 5,714 200
Brill Media Co. LLC $ (1)
7.50/12.00%, Company Guarantee, 12/15/07 200,000 179,000
Capstar Broadcasting Partners, Inc.
9.25%, Sr. Subordinated Notes, 7/01/07 100,000 104,500
Sinclair Broadcast Group, Inc.
8.75%, Sr. Subordinated Notes, 12/15/07 200,000 203,500
Unisite, Inc. ++
13.00%, Sr. Notes, 12/15/04 146,920 167,416
--------
654,616
--------
CABLE TELEVISION -- 2.43%
Diva Systems Corp. # $
0/12.625%, Sr. Discount Notes, 3/01/08 800,000 302,000
EchoStar Satellite Broadcasting Corp. $
0/13.125%, Sr. Discount Notes, 3/15/04 200,000 200,500
Heartland Wireless Communications, Inc. *
13.00%, Sr. Notes, 4/15/03 75,000 15,375
--------
517,875
--------
CAPITAL GOODS MANUFACTURING -- 2.19%
Indesco International, Inc.
9.75%, Sr. Subordinated Notes, 4/15/08 500,000 467,500
--------
CHEMICALS -- 0.91%
Hydrochem Industrial Services, Inc.
10.375%, Sr. Secured Notes, 8/01/07 200,000 193,000
--------
CONSUMER PRODUCTS -- 1.44%
Packaged Ice, Inc.
9.75%, Sr. Notes, 2/01/05 300,000 307,500
--------
ENTERTAINMENT/FILM -- 0.53%
Paramount Communications, Inc.
8.25%, Sr. Debentures, 8/01/22 100,000 113,070
--------
</TABLE>
27
<PAGE>
NORTHSTAR GALAXY TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------- ------------------ ------------
<S> <C> <C>
FOOD/BEVERAGE/TOBACCO -- 5.54%
Aurora Foods, Inc.
9.875%, Sr. Subordinated Notes, 2/15/07 $ 95,000 $ 104,025
Eagle Family Foods, Inc.
8.75%, Company Gurantee, 1/15/08 250,000 236,875
North Atlantic Trading, Inc.
11.00%, Sr. Notes, 6/15/04 500,000 505,000
Standard Commercial Corp.
8.875%, Company Guarantee, 8/01/05 150,000 147,750
Tom's Foods, Inc.
10.50%, Sr. Notes, 11/01/04 200,000 187,000
----------
1,180,650
----------
HEALTHCARE -- 2.43%
Tenet Healthcare Corp. #
8.125%, Sr. Subordinated Notes, 12/01/08 500,000 518,750
----------
HOMEBUILDERS/HOME CONSTRUCTION -- 1.18%
Engle Homes, Inc.
9.25%, Sr. Notes, 2/01/08 250,000 251,250
----------
HOTEL & GAMING -- 9.43%
Circus Circus Enterprises, Inc.
9.25%, Sr. Subordinated Notes, 12/01/05 500,000 518,625
Hard Rock Hotel, Inc.
9.25%, Sr. Subordinated Notes, 4/01/05 500,000 502,500
Harrahs Operating, Inc.
7.875%, Sr. Subordinated Notes, 12/15/05 500,000 501,250
HMH Properties, Inc.
7.875%, Sr. Secured Notes, 8/01/08 500,000 487,500
----------
2,009,875
----------
INSURANCE -- 0.48%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes, 6/01/05 100,000 103,000
----------
OIL & GAS -- 3.59%
Benton Oil & Gas Co.
11.625%, Sr. Notes, 5/01/03 100,000 65,500
Crown Central Petroleum Corp.
10.875%, Sr. Notes, 2/01/05 100,000 92,500
TransAmerican Energy Corp. $
0/13.00%, Sr. Secured Discount Notes, 6/15/02 500,000 122,500
TransAmerican Refining Corp. # &
15.00%, Sr. Notes, 12/01/03 500,000 485,275
----------
765,775
----------
PUBLISHING/PRINTING -- 2.36%
Mail-Well Corp. #
8.75%, Sr. Subordinated Notes, 12/15/08 500,000 502,500
----------
RESTAURANTS -- 2.33%
Romacorp, Inc. #
12.00%, Sr. Notes, 7/01/06 500,000 496,250
----------
</TABLE>
28
<PAGE>
NORTHSTAR GALAXY TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Security Principal Amount Value
- ----------------------------------------------- ------------------ ------------
<S> <C> <C>
SERVICES -- 7.09%
Allied Waste Industries, Inc. #
7.875%, Sr. Notes, 1/01/09 $500,000 $ 507,500
Pierce Leahy Command Co.
8.125%, Sr. Notes, 5/15/08 500,000 502,500
Protection One Alarm, Inc. #
8.125%, Sr. Subordinated Notes, 1/15/09 500,000 501,165
----------
1,511,165
----------
SHIPPING -- 1.89%
Simcala, Inc.
9.625%, Sr. Notes, 4/15/06 250,000 177,500
Ultrapetrol Bahamas Ltd.
10.50%, 1st Mortgage Notes, 4/01/08 300,000 226,500
----------
404,000
----------
STEEL -- 0.47%
WCI Steel, Inc.
10.00%, Sr. Notes, 12/01/04 100,000 100,500
----------
TELECOMMUNICATIONS -- 16.78%
Dobson/Sygnet Communications #
12.25%, Sr. Notes, 12/15/08 500,000 502,500
Hyperion Telecommunications, Inc. $
0/13.00%, Sr. Discount Notes, 4/15/03 150,000 108,000
ICG Holdings, Inc. $
0/12.50%, Sr. Secured Discount Notes, 5/01/06 100,000 74,188
Intercel, Inc. $
0/12.00%, Sr. Discount Notes, 5/01/06 150,000 108,196
Intermedia Communications, Inc.
8.60%, Sr. Notes, 6/01/08 500,000 477,500
Iridium Capital Corp.
14.00%, Company Guarantee, 7/15/05 500,000 477,500
ITC Deltacom, Inc.
11.00%, Sr. Notes, 6/01/07 130,000 139,750
Nextlink Communications, Inc. #
10.75%, Sr. Notes, 11/15/08 500,000 512,500
RCN Corp.
10.00%, Sr. Notes, 10/15/07 300,000 281,250
Verio Inc.
13.50%, Sr. Notes, 6/15/04 100,000 110,500
Viatel, Inc.
11.25%, Sr. Notes, 4/15/08 500,000 502,500
Western Wireless Corp.
10.50%, Sr. Subordinated Notes, 6/01/06 100,000 107,250
WinStar Communications, Inc. $
0/14.00%, Sr. Discount Notes, 10/15/05 100,000 72,750
WinStar Equipment Corp.
12.50%, Company Guarantee, 3/15/04 100,000 102,500
----------
3,576,884
----------
TRANSPORTATION -- 0.92%
Sea Containers Ltd.
7.875%, Sr. Notes, 2/15/08 200,000 196,000
----------
</TABLE>
29
<PAGE>
NORTHSTAR GALAXY TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount/
Security Units Value
- ----------------------------------------------- ------------------ -------------
<S> <C> <C>
UTILITIES -- 1.20%
York Power Funding #
12.00%, Company Guarantee, 10/30/07 $250,000 $ 256,250
-----------
TOTAL DOMESTIC BONDS & NOTES
(cost $15,322,302) 14,869,527
-----------
FOREIGN BONDS & NOTES -- 14.37%
AEROSPACE & DEFENSE -- 0.38%
Derlan Manufacturing, Inc.
10.00%, Sr. Notes, 1/15/07 100,000 80,500
-----------
BROADCASTING -- 0.86%
Antenna TV SA
9.00%, Sr. Notes, 8/01/07 200,000 183,000
-----------
CABLE TELEVISION -- 0.15%
Pratama Datakom Asia BV #
12.75%, Company Guarantee, 7/15/05 125,000 31,250
-----------
CONSUMER PRODUCTS -- 0.05%
International Semi-Tech Corp. $
0/11.50%, Sr. Secured Discount Notes, 8/15/03 100,000 11,500
-----------
FOOD/BEVERAGE/TOBACCO -- 1.85%
Fage Dairy Industries SA
9.00%, Sr. Notes, 2/01/07 450,000 393,750
-----------
OIL & GAS -- 4.51%
Conproca SA #
12.00%, Secured Notes, 6/16/10 500,000 467,500
Husky Oil Ltd. # (2)
8.90%, Notes, 8/15/28 500,000 495,000
-----------
962,500
-----------
PRINTING & PUBLISHING -- 0.31%
Newsquest Capital PLC
11.00%, Sr. Subordinated Notes, 5/01/06 60,000 66,300
-----------
SERVICES -- 1.53%
Autopistas Del Sol SA #
10.25%, Sr. Notes, 8/01/09 200,000 150,500
Localiza Rent A Car SA
10.25%, Notes, 10/01/05 300,000 175,500
-----------
326,000
-----------
SHIPPING -- 2.40%
Alpha Shipping PLC
9.50%, Sr. Notes, 2/15/08 200,000 59,000
Equimar Shipholdings Ltd.
9.875%, Subordinated Notes, 7/01/07 400,000 318,000
Navigator Gas Transport PLC # (3)
12.00%, Units, 6/30/07 150 135,750
-----------
512,750
-----------
</TABLE>
30
<PAGE>
NORTHSTAR GALAXY TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Principal Amount/
Security Shares Value
- ------------------------------------------ ------------------ ------------
<S> <C> <C>
TELECOMMUNICATIONS -- 2.33%
Colt Telecom Group PLC $
0/12.00%, Sr. Discount Notes, 12/15/06 $100,000 $ 83,500
Microcell Telecommunications, Inc. $
0/11.125%, Sr. Discount Notes, 10/15/07 250,000 89,957
Occidente Y Caribe Celular SA $
0/14.00%, Sr. Discount Notes, 3/15/04 150,000 120,375
Rogers Cantel, Inc.
8.80%, Sr. Subordinated Notes, 10/01/07 200,000 202,750
----------
496,582
----------
TOTAL FOREIGN BONDS & NOTES
(cost $3,652,025) 3,064,132
----------
CONVERTIBLE BONDS -- 0.34%
TELECOMMUNICATIONS -- 0.34%
SA Telecommunications, Inc. # *
10.00%, Notes, 8/15/06 125,000 0
WinStar Communications, Inc. # $
0/14.00%, Sr. Discount Notes, 10/15/05 50,000 72,750
----------
TOTAL CONVERTIBLE BONDS
(cost $165,505) 72,750
----------
COMMON STOCKS -- 0.20% @
BROADCASTING -- 0.03%
Pegasus Communications Corp. 225 5,639
----------
CABLE TELEVISION -- 0.10%
EchoStar Communications Corp. 450 21,769
----------
SERVICES -- 0.05%
Coinstar, Inc. 1,050 11,287
----------
TELECOMMUNICATIONS -- 0.02%
Jordan Telecommunications Products, Inc. 150 3,075
----------
TOTAL COMMON STOCKS
(cost $7,333) 41,770
----------
CONVERTIBLE PREFERRED STOCKS -- 1.13%
HEALTHCARE -- 1.13%
Intracel Corp. ++, 8.00% 15,576 241,428
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $126,909) 241,428
----------
PREFERRED STOCKS -- 3.80%
BROADCASTING -- 0.54%
Paxson Communications Corp., 12.50% & 1,275 116,025
----------
CABLE TELEVISION -- 1.00%
EchoStar Communications Corp., 12.125% & 1,826 212,712
----------
OIL & GAS -- 0.10%
TCR Holding Corp., $0.053 ++ Class D 14,500 769
TCR Holding Corp., $0.056 ++ Class C 5,500 308
TCR Holding Corp., $0.060 ++ Class B 10,000 600
TCR Holding Corp., $0.063 ++ Class E 30,000 1,890
TCR Holding Corp., $0.683 ++ 20,000 18,660
----------
22,227
----------
</TABLE>
31
<PAGE>
NORTHSTAR GALAXY TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- ---------------------------------------------------------------- -------- -----------
<S> <C> <C>
TELECOMMUNICATIONS -- 2.16%
Hyperion Telecommunications, Inc., 12.875% & 3,508 $280,645
Jordan Telecommunication Products, Inc., 13.25% & 1,500 150,750
Viatel, Inc., 10.00% & 254 28,067
--------
459,462
--------
TOTAL PREFERRED STOCKS
(cost $806,488) 810,426
--------
WARRANTS -- 1.11% @
BROADCASTING -- 0.23%
Spanish Broadcasting Systems, Inc., (expires 6/30/99) 100 49,000
Unisite, Inc. ++, (expires 12/15/04) (second series warrants) 1 0
Unisite, Inc. ++, (expires 12/15/04) 67 1
--------
49,001
--------
CABLE TELEVISION -- 0.18%
Diva Systems Corp., (expires 3/01/08) 2,400 38,400
Heartland Wireless Communications, Inc. # *, (expires 4/15/00) 450 5
--------
38,405
--------
CONSUMER PRODUCTS -- 0.19%
Chattem, Inc., (expires 6/17/99) 50 11,295
Packaged Ice, Inc., (expires 4/15/04) 150 15,000
Packaged Ice, Inc. #, (expires 4/15/04) 145 14,500
--------
40,795
--------
PAPER -- 0.14%
SD Warren Holdings Corp., (expires 12/15/06) 6,400 30,400
--------
STEEL -- 0.00%
Sheffield Steel Corp., (expires 11/01/01) 500 500
--------
SUPERMARKETS -- 0.00%
Dairy Mart Convenience Stores, Inc., (expires 1/01/01) 666 352
--------
TELECOMMUNICATIONS -- 0.37%
Clearnet Communications, Inc. @@, (expires 9/15/05) 660 4,620
Colt Telecom Group PLC # @@, (expires 12/31/06) 100 42,740
Geotek Communications, Inc., (expires 6/20/01) 3,000 0
Hyperion Telecommunications, Inc., (expires 4/15/01) 150 11,245
Occidente Y Caribe Celular SA # @@, (expires 3/15/04) 600 0
UNIFI Communications, Inc. #, (expires 3/01/07) 100 1
Verio Inc., (expires 6/15/04) 800 19,400
--------
78,006
--------
TOTAL WARRANTS
(cost $91,013) 237,459
--------
</TABLE>
32
<PAGE>
NORTHSTAR GALAXY TRUST HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Principal Amount/
Security Shares Value
- ---------------------------------------------------------------------------- ------------------ --------------
<S> <C> <C>
TOTAL INVESTMENT SECURITIES -- 90.70%
(cost $20,171,575) 19,337,492
-----------
REPURCHASE AGREEMENT -- 7.20%
Agreement with State Street Bank and Trust bearing interest at 4.70% dated
12/31/98, to be repurchased 1/04/99 in the amount of $1,535,802 and
collateralized by $1,500,000 U.S. Treasury Notes, 6.625% due 1/31/00, value
$1,570,290
(cost $1,535,000) $1,535,000 1,535,000
OTHER ASSETS LESS LIABILITIES -- 2.10% 447,671
-----------
NET ASSETS -- 100.00% $21,320,163
===========
</TABLE>
# Sales restricted to qualified institutional investors.
$ Step bond.
++ Private Placement
* Defaulted security.
& Payment-in-kind security.
@ Non-income producing security.
@@ Foreign Security.
(1) Series B second series.
(2) Variable rate security. Rate as of December 31, 1998.
(3) A unit consists of $1,000 par value 2nd Priority Mortgage notes, 12.00%
due 6/30/07 and 7.66 warrants.
See accompanying notes to financial statements.
33
<PAGE>
NORTHSTAR GALAXY TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Northstar Northstar
Growth + International
Value Value
Portfolio Portfolio
---------------- ---------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $28,111,603, $11,650,624,
$20,190,460, $8,964,732 and $20,171,575, respectively) $ 38,363,076 $ 12,187,097
Short-term securities, at value (cost $0,$0,$0,
$4,031,722, and $0, respectively) 0 0
Repurchase agreements 2,629,000 1,260,000
Cash 24,985 20,357
Foreign cash, at value (cost $0, $6,838, $0, $0, and $0, respectively) 0 7,052
Receivable for investments sold 599,174 0
Receivable for shares of beneficial interest sold 34,329 285,566
Dividends and interest receivable 5,059 43,026
Prepaid expenses 420 27
------------ ------------
Total Assets 41,656,043 13,803,125
------------ ------------
LIABILITIES:
Payable for investments purchased 0 0
Management fees payable 24,258 10,798
Printing fees payable 12,637 3,862
Audit fee payable 11,829 13,221
Custodian & fund accounting fees payable 5,495 7,735
Payable for fund shares repurchased 4,121 29
Administrative services fees payable 3,235 1,080
Tax withholding payable 573 1,717
Other liabilities 810 219
------------ ------------
Total Liabilities 62,958 38,661
------------ ------------
NET ASSETS $ 41,593,085 $ 13,764,464
============ ============
NET ASSETS ARE COMPOSED OF:
Capital paid in for shares of beneficial interest, $.01 par value
outstanding (unlimited shares authorized) $ 31,278,826 $ 13,086,060
Undistributed net investment income (loss) 0 49,003
Accumulated net realized gain (loss) on investments and foreign
currency 62,786 91,584
Net unrealized appreciation (depreciation) of investments and foreign
currency 10,251,473 537,817
------------ ------------
NET ASSETS $ 41,593,085 $ 13,764,464
============ ============
Net Asset Value Per Share
($41,593,085/2,216,682 shares, $13,764,464/1,242,145 shares,
$24,052,754/1,703,256 shares $14,436,636/2,991,459 shares, and
$21,320,163/4,374,093 shares, respectively) $ 18.76 $ 11.08
<CAPTION>
Northstar Northstar Northstar
Emerging Multi-Sector High Yield
Growth Bond Bond
Portfolio Portfolio Portfolio
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value (cost $28,111,603, $11,650,624,
$20,190,460, $8,964,732 and $20,171,575, respectively) $23,484,856 $ 8,837,697 $19,337,492
Short-term securities, at value (cost $0,$0,$0,
$4,031,722, and $0, respectively) 0 4,034,279 0
Repurchase agreements 910,000 1,354,000 1,535,000
Cash 25,965 20,755 24,750
Foreign cash, at value (cost $0, $6,838, $0, $0, and $0, respectively) 0 0 0
Receivable for investments sold 0 0 0
Receivable for shares of beneficial interest sold 25,149 59,405 85,519
Dividends and interest receivable 2,237 164,380 379,696
Prepaid expenses 419 327 354
----------- ----------- -----------
Total Assets 24,448,626 14,470,843 21,362,811
----------- ----------- -----------
LIABILITIES:
Payable for investments purchased 341,806 0 0
Management fees payable 14,009 8,870 12,999
Printing fees payable 7,780 4,638 6,855
Audit fee payable 13,177 13,176 13,417
Custodian & fund accounting fees payable 5,943 5,591 6,635
Payable for fund shares repurchased 10,052 0 225
Administrative services fees payable 1,868 1,183 1,733
Tax withholding payable 0 370 0
Other liabilities 1,237 379 784
----------- ----------- -----------
Total Liabilities 395,872 34,207 42,648
----------- ----------- -----------
NET ASSETS $24,052,754 $14,436,636 $21,320,163
=========== =========== ===========
NET ASSETS ARE COMPOSED OF:
Capital paid in for shares of beneficial interest, $.01 par value
outstanding (unlimited shares authorized) $19,658,702 $15,243,128 $22,160,662
Undistributed net investment income (loss) (16) 0 0
Accumulated net realized gain (loss) on investments and foreign
currency 1,099,672 (682,024) (6,416)
Net unrealized appreciation (depreciation) of investments and foreign
currency 3,294,396 (124,468) (834,083)
----------- ----------- -----------
NET ASSETS $24,052,754 $14,436,636 $21,320,163
=========== =========== ===========
Net Asset Value Per Share
($41,593,085/2,216,682 shares, $13,764,464/1,242,145 shares,
$24,052,754/1,703,256 shares $14,436,636/2,991,459 shares, and
$21,320,163/4,374,093 shares, respectively) $ 14.12 $ 4.83 $ 4.87
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
NORTHSTAR GALAXY TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Northstar Northstar
Growth + International
Value Value
Portfolio Portfolio
------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $971, $20,857, $519, $0,
and $0, respectively) $ 147,405 $ 228,114
Interest (net of withholding tax of $0, $0, $0 ,$2,119,
and $0, respectively) 73,046 25,195
---------- ----------
Total investment income 220,451 253,309
---------- ----------
EXPENSES:
Investment advisory fees 263,659 92,299
Administrative services fees 35,154 9,230
Custodian and fund accounting fees 25,229 28,746
Printing 13,295 6,867
Audit fees 13,136 14,864
Insurance 3,713 0
Trustee fees 2,944 2,195
Miscellaneous 1,878 1,395
---------- ----------
359,008 155,596
Less expenses reimbursed by investment adviser 77,366 77,795
---------- ----------
Total expenses 281,642 77,801
---------- ----------
Net investment income (loss) (61,191) 175,508
---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) on investments 71,906 816,735
Net realized gain (loss) on foreign currency 0 63,776
Net change in unrealized appreciation (depreciation) of investments 6,496,905 347,006
Net change in unrealized appreciation of foreign currency 0 1,132
---------- ----------
Net realized and unrealized gain (loss) on investments 6,568,811 1,228,649
---------- ----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,507,620 $1,404,157
========== ==========
<CAPTION>
Northstar Northstar Northstar
Emerging Multi-Sector High Yield
Growth Bond Bond
Portfolio Portfolio Portfolio
------------- -------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $971, $20,857, $519, $0,
and $0, respectively) $ 242,812 $ 74,934 $ 110,202
Interest (net of withholding tax of $0, $0, $0 ,$2,119,
and $0, respectively) 606,117 968,984 1,452,689
---------- ----------- -------------
Total investment income 848,929 1,043,918 1,562,891
---------- ----------- -------------
EXPENSES:
Investment advisory fees 166,694 94,002 120,634
Administrative services fees 22,226 12,534 16,085
Custodian and fund accounting fees 23,437 22,906 26,880
Printing 18,227 7,082 9,282
Audit fees 14,497 14,464 14,695
Insurance 3,587 243 3,326
Trustee fees 2,270 2,139 2,191
Miscellaneous 1,660 8,470 5,441
---------- ----------- -------------
252,598 161,840 198,534
Less expenses reimbursed by investment adviser 71,511 61,380 69,669
---------- ----------- -------------
Total expenses 181,087 100,460 128,865
---------- ----------- -------------
Net investment income (loss) 667,842 943,458 1,434,026
---------- ----------- -------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) on investments 1,369,176 (574,364) (6,416)
Net realized gain (loss) on foreign currency (16) 453 0
Net change in unrealized appreciation (depreciation) of investments 1,482,890 (241,127) (1,167,753)
Net change in unrealized appreciation of foreign currency 0 0 0
---------- ----------- -------------
Net realized and unrealized gain (loss) on investments 2,852,050 (815,038) (1,174,169)
---------- ----------- -------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,519,892 $ 128,420 $ 259,857
========== =========== =============
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
NORTHSTAR GALAXY TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Northstar Northstar
Growth + International
Value Value
Portfolio Portfolio
--------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ (61,191) $ 175,508
Net realized gain(loss) on investments 71,906 816,735
Net realized gain(loss) on foreign currency 0 63,776
Net change in unrealized appreciation (depreciation)
of investments 6,496,905 347,006
Net change in unrealized appreciation
of foreign currency 0 1,132
------------ ------------
Increase in net assets resulting from operations 6,507,620 1,404,157
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income (10,927) (192,996)
Net realized gain from investments (308,911) (553,278)
------------ ------------
(319,838) (746,274)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 8,994,594 14,594,371
Net asset value of shares issued to shareholders
in reinvestment of dividends 319,838 746,274
------------ ------------
9,314,432 15,340,645
Cost of shares redeemed (6,065,460) (8,171,088)
------------ ------------
Net increase in net assets derived from capital
share transactions 3,248,972 7,169,557
------------ ------------
Net increase in net assets 9,436,754 7,827,440
NET ASSETS:
Beginning of year 32,156,331 5,937,024
------------ ------------
End of year $ 41,593,085 $ 13,764,464
============ ============
Undistributed net investment income (loss) $ 0 $ 49,003
============ ============
<CAPTION>
Northstar Northstar Northstar
Emerging Multi-Sector High Yield
Growth Bond Bond
Portfolio Portfolio Portfolio
--------------- -------------- ----------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 667,842 $ 943,458 $ 1,434,026
Net realized gain(loss) on investments 1,369,176 (574,364) (6,416)
Net realized gain(loss) on foreign currency (16) 453 0
Net change in unrealized appreciation (depreciation)
of investments 1,482,890 (241,127) (1,167,753)
Net change in unrealized appreciation
of foreign currency 0 0 0
------------ ------------ --------------
Increase in net assets resulting from operations 3,519,892 128,420 259,857
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income (668,173) (945,370) (1,435,446)
Net realized gain from investments (1,033,036) (3,863) (27,382)
------------ ------------ --------------
(1,701,209) (949,233) (1,462,828)
------------ ------------ --------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 5,528,830 8,995,259 20,427,074
Net asset value of shares issued to shareholders
in reinvestment of dividends 1,701,209 962,942 1,482,093
------------ ------------ --------------
7,230,039 9,958,201 21,909,167
Cost of shares redeemed (6,526,824) (5,248,919) (11,992,197)
------------ ------------ --------------
Net increase in net assets derived from capital
share transactions 703,215 4,709,282 9,916,970
------------ ------------ --------------
Net increase in net assets 2,521,898 3,888,469 8,713,999
NET ASSETS:
Beginning of year 21,530,856 10,548,167 12,606,164
------------ ------------ --------------
End of year $ 24,052,754 $ 14,436,636 $ 21,320,163
============ ============ ==============
Undistributed net investment income (loss) $ (16) $ 0 $ 0
============ ============ ==============
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
NORTHSTAR GALAXY TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
<TABLE>
<CAPTION>
Northstar Northstar
Growth + International
Value Value
Portfolio Portfolio*
--------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 175,898 $ 17,434
Net realized gain(loss) on investments 614,190 (171,873)
Net realized gain(loss) on foreign currency 0 308
Net change in unrealized appreciation (depreciation)
of investments 2,581,053 189,681
Net change in unrealized appreciation (depreciation)
of foreign currency 0 (2)
------------ ------------
Increase in net assets resulting from
operations 3,371,141 35,548
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income (182,697) (15,027)
Net realized gain on investments (345,682) 0
------------ -----------
(528,379) (15,027)
------------ -----------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 22,327,151 6,277,674
Net asset value of shares issued to shareholders in
reinvestment of dividends 528,379 15,027
------------ -----------
22,855,530 6,292,701
Cost of shares redeemed (9,105,693) (376,198)
------------ -----------
Net increase in net assets derived from
capital share transactions 13,749,837 5,916,503
------------ -----------
Net increase in net assets 16,592,599 5,937,024
NET ASSETS:
Beginning of period 15,563,732 0
------------ -----------
End of period $ 32,156,331 $5,937,024
============ ===========
Undistributed net investment income $ 2,199 $ 2,715
============ ===========
<CAPTION>
Northstar Northstar Northstar
Emerging Multi-Sector High Yield
Growth Bond Bond
Portfolio Portfolio Portfolio
--------------- -------------- ---------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 668,903 $ 725,666 $ 823,845
Net realized gain(loss) on investments 857,103 (31,218) 121,780
Net realized gain(loss) on foreign currency 0 (14,057) 0
Net change in unrealized appreciation (depreciation)
of investments 990,107 (87,510) 34,739
Net change in unrealized appreciation (depreciation)
of foreign currency 0 (68) 0
------------ ------------ ------------
Increase in net assets resulting from
operations 2,516,113 592,813 980,364
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income (668,201) (725,666) (823,845)
Net realized gain on investments (141,496) (58,611) (89,480)
------------ ------------ ------------
(809,697) (784,277) (913,325)
------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 10,664,273 6,950,510 11,264,988
Net asset value of shares issued to shareholders in
reinvestment of dividends 809,697 775,014 902,994
------------ ------------ ------------
11,473,970 7,725,524 12,167,982
Cost of shares redeemed (4,228,685) (3,262,690) (6,248,155)
------------ ------------ ------------
Net increase in net assets derived from
capital share transactions 7,245,285 4,462,834 5,919,827
------------ ------------ ------------
Net increase in net assets 8,951,701 4,271,370 5,986,866
NET ASSETS:
Beginning of period 12,579,155 6,276,797 6,619,298
------------ ------------ ------------
End of period $ 21,530,856 $ 10,548,167 $ 12,606,164
============ ============ ============
Undistributed net investment income $ 0 $ 0 $ 0
============ ============ ============
</TABLE>
* Commenced operations on August 8, 1997.
See accompanying notes to financial statements.
37
<PAGE>
NORTHSTAR GALAXY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT
EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net realized Dividends Distributions
Net Asset & unrealized Total declared declared
Value, Net gain (loss) from from net from net
Period beginning investment on investment investment realized
ended of period income investments operations income gains
- ---------- ----------- ------------ -------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Northstar Growth + Value Portfolio
5/06/94 -
12/31/94 $ 10.00 $ 0.16 $ 0.19 $ 0.35 $ 0.16) $ 0.15)
12/31/95 10.04 0.20 2.27 2.47 ( 0.19) ( 0.76)
12/31/96 11.56 0.08 2.57 2.65 ( 0.09) ( 0.04)
12/31/97 14.08 0.09 1.95 2.04 ( 0.10) ( 0.17)
12/31/98 15.85 (0.03) 3.09 3.06 ( 0.01) ( 0.14)
Northstar International Value Portfolio
8/08/97 -
12/31/97 10.00 0.03 0.10 0.13 ( 0.03) --
12/31/98 10.10 0.21 1.49 1.70 ( 0.22) ( 0.50)
Northstar Emerging Growth Portfolio
5/06/94 -
12/31/94 10.00 0.20 (0.01) 0.19 ( 0.20) ( 0.07)
12/31/95 9.92 0.37 1.73 2.10 ( 0.37) ( 0.26)
12/31/96 11.39 0.40 1.15 1.55 ( 0.41) ( 0.81)
12/31/97 11.72 0.44 1.36 1.80 ( 0.44) ( 0.08)
12/31/98 13.00 0.39 1.76 2.15 ( 0.39) ( 0.64)
Northstar Multi-Sector Bond Portfolio
5/06/94 -
12/31/94 5.00 0.23 (0.15) 0.08 ( 0.23) --
12/31/95 4.85 0.42 0.29 0.71 ( 0.42) --
12/31/96 5.14 0.41 0.21 0.62 ( 0.41) ( 0.10)
12/31/97 5.25 0.40 (0.08) 0.32 ( 0.40) ( 0.03)
12/31/98 5.14 0.36 (0.31) 0.05 ( 0.36) --
Northstar High Yield Bond Portfolio
5/06/94 -
12/31/94 5.00 0.28 (0.31) (0.03) ( 0.28) --
12/31/95 4.69 0.50 0.34 0.84 ( 0.49) --
12/31/96 5.04 0.45 0.32 0.77 ( 0.45) ( 0.09)
12/31/97 5.27 0.40 0.07 0.47 ( 0.40) ( 0.04)
12/31/98 5.30 0.42 (0.42) 0.00 ( 0.42) ( 0.01)
<CAPTION>
Ratio of
Net Net expense Ratio of net
Asset Assets, Ratio of reimbursement investment
Value, end of expenses to average income
Period Total end of Total period to average net to average Portfolio
ended distributions period return (000's) net assets assets net assets turnover
- ---------- --------------- ----------- ---------- --------- --------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/06/94 -
12/31/94 $ 0.31) $ 10.04 3.47% $ 2,701 1.00%(1) 1.45%(1) 2.31%(1) 61%
12/31/95 ( 0.95) 11.56 24.78 3,813 0.80 1.24 1.77 123
12/31/96 ( 0.13) 14.08 22.99 15,564 0.80 0.90 0.65 161
12/31/97 ( 0.27) 15.85 14.66 32,156 0.80 0.29 0.70 178
12/31/98 ( 0.15) 18.76 19.32 41,593 0.80 0.22 (0.17) 216
8/08/97 -
12/31/97 ( 0.03) 10.10 1.30 5,937 0.80(1) 1.81(1) 0.97(1) 5
12/31/98 ( 0.72) 11.08 16.93 13,764 0.84 0.84 1.90 30
5/06/94 -
12/31/94 ( 0.27) 9.92 2.02 3,595 1.00(1) 1.43(1) 3.11(1) 45
12/31/95 ( 0.63) 11.39 21.39 7,410 0.80 0.94 3.63 74
12/31/96 ( 1.22) 11.72 13.80 12,579 0.80 0.60 3.67 129
12/31/97 ( 0.52) 13.00 15.81 21,531 0.80 0.31 3.72 55
12/31/98 ( 1.03) 14.12 17.30 24,053 0.82 0.32 3.00 161
5/06/94 -
12/31/94 ( 0.23) 4.85 1.41 2,716 1.00(1) 1.41(1) 7.03(1) 29
12/31/95 ( 0.42) 5.14 14.97 3,766 0.80 1.26 8.52 83
12/31/96 ( 0.51) 5.25 12.53 6,277 0.80 0.88 8.38 121
12/31/97 ( 0.43) 5.14 6.15 10,548 0.80 0.56 8.31 162
12/31/98 ( 0.36) 4.83 1.02 14,437 0.80 0.49 7.53 93
5/06/94 -
12/31/94 ( 0.28) 4.69 (0.95) 2,588 1.00(1) 1.55(1) 8.62(1) 62
12/31/95 ( 0.49) 5.04 18.55 4,773 0.80 1.31 10.61 157
12/31/96 ( 0.54) 5.27 15.75 6,619 0.80 0.93 8.72 159
12/31/97 ( 0.44) 5.30 9.00 12,606 0.79 0.56 8.44 152
12/31/98 ( 0.43) 4.87 (0.12) 21,320 0.80 0.43 8.92 135
</TABLE>
(1) Annualized The accompanying notes are an integral part of the financial
statements.
38
<PAGE>
NORTHSTAR GALAXY TRUST
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- The Northstar Galaxy Trust (Formerly Northstar Variable
Trust), is a business trust organized under the laws of the Commonwealth of
Massachusetts on December 17, 1993 and registered under the Investment Company
Act of 1940 as a diversified open-end management investment company. The names
of the five investment series which comprise the Trust (the "Funds") and their
respective investment objectives are set forth below.
NORTHSTAR GALAXY TRUST GROWTH + VALUE PORTFOLIO ("Growth + Value
Portfolio") (formerly 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 GALAXY 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 GALAXY TRUST EMERGING GROWTH PORTFOLIO ("Emerging Growth
Portfolio") (formerly Income and Growth Portfolio) is a diversified portfolio
with the investment objective of long-term capital appreciation. The Fund
invests primarily in small to mid-sized companies that the Adviser feels have
above average prospects for growth.
NORTHSTAR GALAXY 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 GALAXY TRUST HIGH YIELD BOND PORTFOLIO ("High Yield Bond
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 daily 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 and 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.
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.
Security Transactions, Investment Income, Expenses -- Security
transactions are recorded on the trade date. Realized gains or losses on sales
of investments are calculated on the identified cost basis. Interest income is
recorded on the accrual basis except when collection is not expected; discounts
are accreted, and premiums amortized to par at maturity; dividend income is
recorded on the ex-dividend dates.
Distribution to Shareholders -- Dividends from net investment income are
declared and paid quarterly by the Growth + Value Portfolio, International
Value Portfolio, and the Emerging Growth Porfolio; declared daily and paid
quarterly by the Multi-Sector Portfolio and the High Yield Bond Portfolio.
Distributions of net realized capital gains, if any, are declared annually;
however, to the extent that a net realized capital gain can be reduced by a
capital loss carryover, such gain will not be distributed.
The Funds may periodically make reclassifications among certain of their
capital accounts as a result of the timing and characterization of certain
income and capital gains distributions determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of net
operating losses and foreign currency transactions. As of December 31, 1998,
the following amounts have been reclassified between undistributed net
investment income, accumulated net realized gain on investments and
paid-in-capital:
39
<PAGE>
NORTHSTAR GALAXY TRUST
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED NET REALIZED
NET INVESTMENT GAIN ON PAID-IN-
INCOME INVESTMENTS CAPITAL
---------------- ------------- -------------
<S> <C> <C> <C>
Growth+Value Portfolio $69,919 $(8,696) $(61,223)
International Value
Portfolio 63,776 (63,776) --
Emerging Growth
Portfolio 315 (315) --
Multi-Sector Portfolio 1,912 (453) (1,459)
High Yield Bond Portfolio 1,420 -- (1,420)
</TABLE>
These restatements did not affect net investment income, net realized
gain on investments, or net assets for the year ended December 31, 1998.
Foreign Currency -- The Funds isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held.
Net realized gain(loss) on foreign currency transactions represents the
foreign exchange: (1) gains and losses from the sale of holdings of foreign
currencies, (2) gains and losses between trade date and settlement date on
investment securities transactions and forward exchange contracts, and (3)
gains and losses from the difference between amounts of interest and dividends
recorded and the amounts actually received. Net change in unrealized
appreciation(depreciation) of foreign currency arise from changes in the value
of assets and liabilities including investments in securities at fiscal year
end, resulting from changes in the exchange rate.
Foreign Currency Forward Contracts -- The Portfolios may enter into
foreign currency forward contracts primarily to hedge against foreign currency
exchange rate risks on their non-U.S. dollar denominated investment securities.
When entering into a currency forward contract, the Portfolios agree to receive
or deliver a fixed quantity of foreign currency for an agreed-upon price on an
agreed future date. These contracts are valued daily and the Portfolios' net
equity therein, representing unrealized gain or loss on the contracts as
measured by the difference between the forward foreign exchange rates at the
dates of entry into the contracts and the forward rates at the reporting date,
is included in the statement of assets and liabilities. Realized and unrealized
gains and losses are included in the statement of operations. These instruments
involve market and/or credit risk in excess of the amount recognized in the
statement of assets and liabilities. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movement in
currency and securities values and interest rates.
Options -- The Portfolios may write (sell) and purchase put and call
options. The premium collected or paid by a Portfolio for the sale or purchase
of a call or put option is recorded as an investment and subsequently "marked
to market" to reflect the current market value of the option. If an option
which a Portfolio has sold or purchased expires on the stipulated expiration
date, the Portfolio realizes a gain or loss in the amount of the premium
received or paid for the option.
For written options, the Portfolio's obligation may be discharged in
three ways: (1) the option expires on the stipulated expiration date; (2) the
option holder exercises the right to call (buy) or put (sell) the security, or
(3) the Portfolio enters into a closing transaction. If the option is held
until expiration, the Portfolio recognizes a gain equal to the amount of
premium received. If the written call option is exercised by the counterparty,
the premium is added to the proceeds from the sale of the underlying security
or currency in determining whether the Portfolio has realized a gain or loss.
If the written put option is exercised by the counterparty, the premium reduces
the cost basis of the securities purchased by the Portfolio. If the Portfolio
enters into a closing transaction, a gain or loss is recognized equal to the
difference between the premium received by the Portfolio from the counterparty
and the amount paid by the Portfolio on effecting a closing purchase
transaction, including brokerage commissions. As the writer of options, the
Portfolio bears the market risk of an unfavorable change in the price of the
security underlying the written option.
Futures contracts -- The Portfolios may invest in futures contracts
solely for the purpose of hedging its existing portfolio securities, or
securities that the Portfolios intend to purchase, against fluctuations in fair
value caused by changes in prevailing market or interest rates.
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Portfolios' agent in acquiring
the futures position). During the period the futures contract is open, changes
in the value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the daily market value of the
contract.
Variation margin payments are received or made by the Portfolios each
day, depending upon the daily fluctuations in the fair value of the underlying
instrument. The Portfolios recognize a gain or loss equal to the daily
variation margin. When the contract is closed, the Portfolios record a realized
gain or loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Portfolios' basis in the contract.
Should market conditions move unexpectedly, the Portfolios may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates, and
the underlying hedged assets.
40
<PAGE>
NORTHSTAR GALAXY TRUST
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
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 or excise tax provision is required.
Organization Costs -- Costs incurred by the Trust in connection with its
organization of each Fund have been deferred and are being amortized over a
period of five years from the date the Funds commenced operations.
NOTE 2. INVESTMENT ADVISER AND ADMINISTRATOR
Northstar Investment Management Corp. (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+Value Portfolio, Emerging Growth Portfolio, Multi-Sector Portfolio, and
High Yield Bond 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 year ended December 31, 1998, the
Adviser earned $737,288 in investment advisory fees. Northstar Administrators
Corp. (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 year ended December
31, 1998, the Administrator earned $95,229 in administrative fees. The Adviser
has voluntarily undertaken to limit the expenses of the Growth+Value Portfolio,
Multi-Sector Portfolio, and High Yield Bond Portfolio to 0.80% of the average
daily net assets. As of November 9, 1998, the expense limits for the Emerging
Growth Portfolio and International Value Portfolio have both been increased
from 0.80% to 0.90% and 1.00%, respectively. For the year ended December 31,
1998, the Adviser has reimbursed the Growth+Value Portfolio $77,366, the
International Value Portfolio $77,795, Emerging Growth Portfolio $71,511, the
Multi-Sector Portfolio $61,380, and the High Yield Bond Portfolio $69,669.
Navellier Fund Management, Inc. ("Navellier"), a registered investment adviser,
serves as subadviser to the Growth+Value Portfolio pursuant to a Subadvisory
Agreement dated February 1, 1996, between the Adviser and Navellier. For its
services, Navellier receives, from the Adviser, an annual fee equal to 0.35% of
the average daily net assets. Prior to November 1, 1998, Navellier received
0.48% of the average daily net assets of the Portfolio. For the year ended
December 31, 1998, Navellier received $160,837 in subadvisory fees from the
Adviser. Brandes Investment Partners, L.P. ("Brandes"), a registered investment
adviser, 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 Adviser, 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 in assets.
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 year ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MULTI-SECTOR HIGH YIELD
GROWTH+VALUE VALUE GROWTH BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $73,895,214 $7,988,564 $32,707,287 $11,598,694 $28,794,296
Aggregate sales $73,389,688 $2,584,764 $33,373,955 $ 9,834,492 $19,284,737
</TABLE>
U.S. Government Securities included above were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MULTI-SECTOR HIGH YIELD
GROWTH+VALUE VALUE GROWTH BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $0 $0 $ 0 $3,907,536 $0
Aggregate sales $0 $0 $4,770,347 $3,124,355 $0
</TABLE>
41
<PAGE>
NORTHSTAR GALAXY TRUST
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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, 1998 were as
follows:
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MULTI-SECTOR HIGH YIELD
GROWTH+VALUE VALUE GROWTH BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Cost (tax basis) $28,111,603 $11,650,624 $20,190,460 $13,000,365 $20,171,575
----------- ----------- ----------- ----------- -----------
Appreciated securities 10,451,515 1,657,999 3,571,505 504,510 859,931
Depreciated securities (200,042) (1,121,526) (277,109) (632,899) (1,694,014)
----------- ----------- ----------- ----------- -----------
Net unrealized appreciation/depreciation $10,251,473 $ 536,473 $3,294,396 $ (128,389) $ (834,083)
----------- ----------- ----------- ----------- -----------
</TABLE>
NOTE 5. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of each Fund for the year ended December
31, 1998 were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MULTI-SECTOR HIGH YIELD
GROWTH+VALUE VALUE GROWTH BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Shares sold 544,723 1,332,537 420,651 1,784,308 4,034,688
Reinvested dividends 17,787 67,462 129,106 192,789 294,576
Shares repurchased (374,172) (745,812) (502,249) (1,036,932) (2,333,922)
-------- --------- -------- ---------- ----------
Net increase 188,338 654,187 47,508 940,165 1,995,342
-------- --------- -------- ---------- ----------
</TABLE>
Transactions in capital shares of each Fund for the year ended December
31, 1997 were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MULTI-SECTOR HIGH YIELD
GROWTH+VALUE 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>
NOTE 6. CREDIT RISK AND DEFAULTED SECURITIES
Although the Funds have a diversified portfolio, the High Yield Bond
Portfolio had 84.45% of its portfolio invested in lower rated and comparable
quality unrated high yield securities. Investments in higher yielding
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, 1998, the Multi-Sector Portfolio held
SA Telecommunications, Inc.; the High Yield Bond Portfolio held SA
Telecommunications, Inc., and Heartland Wireless, Inc., securities 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 securities for the current reporting
period.
NOTE 7. FEDERAL INCOME TAX -- CAPITAL LOSS CARRYFORWARD
At December 31, 1998 the Multi-Sector Bond Portfolio and the High Yield
Bond Portfolio had capital loss carryforwards expiring December 31, 2006 of
$331,464 and $6,416, respectively.
NOTE 8. SECURITY LOANS
The Fund may lend its securities to brokers, dealers and other financial
institutions in amounts up to one third of the value of its total assets. The
loans are fully collateralized at all times by cash or liquid high grade
securities. As with other extensions of credit, the Fund may bear risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or all or a portion of the income from
investments of the collateral. The Fund also continues to earn income on the
securities loaned. At December 31, 1998, the Fund did not have any securities
on loan.
42
<PAGE>
NORTHSTAR GALAXY TRUST
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[NORTHSTAR LOGO APPEARS HERE]
NOTE 9. LETTER OF CREDIT
The Northstar Funds, Northstar Equity Trust, Northstar Galaxy Trust and
Northstar Trust (collectively the "Funds") have entered into an unsecured
committed revolving line of credit agreement (the "Credit Agreement") with
State Street Bank and Trust Company for an aggregate amount of $50,000,000. The
proceeds may be used
only to (1) temporarily finance the purchase and sale of securities; (2)
finance the redemption of shares of an investor in the Funds; and (3) enable
the Funds to meet other emergency expenses as defined in the Credit Agreement.
The Funds pays a commitment fee equal to 0.08% per annum on the daily unused
portion of the committed line amount payable quarterly in arrears. During the
year ended
December 31, 1998, the Funds did not have any loans outstanding.
43
<PAGE>
NORTHSTAR GALAXY TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees
of the Northstar Galaxy Trust:
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations, and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Northstar
Galaxy Trust (formerly Northstar Variable Trust) comprising Northstar Growth +
Value Portfolio, Northstar International Value Portfolio, Northstar Emerging
Growth Portfolio , Northstar Multi-Sector Bond Portfolio, and Northstar High
Yield Bond Portfolio (collectively the "Trust") at December 31, 1998, and the
results of each of their operations for the year then ended, the changes in
each of their net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods presented, in conformity
withgenerally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 5, 1999
44
