As filed with the Securities and Exchange Commission on
____,
1995
Securities Act File No._____________
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
Pre-Effective Amendment No. /_____/
Post-Effective Amendment No. /_____/
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN
CHARTER)
(203) 863-6215
(REGISTRANT'S AREA CODE AND TELEPHONE NUMBER)
TWO PICKWICK PLAZA, GREENWICH, CONNECTICUT
06830
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP
CODE)
LISA HURLEY, ESQ.
TWO PICKWICK PLAZA, GREENWICH, CONNECTICUT
06830
(NAME AND ADDRESS OF AGENT FOR SERVICE)
with copies to:
Joseph R. Fleming, Esq.
Dechert Price & Rhoads
Ten Post Office Square - South #1230
Boston, Massachusetts 02109-4603
Approximate Date of Proposed Public Offering:
As soon as practicable after
this Registration Statement becomes effective
_________________________________________________________________
_
It is proposed that this filing will become effective
on
September 16, 1995 pursuant to Rule 488(a) under the
Securities
Act of 1933.
_________________________________________________________________
_
No filing fee is required because the Registrant has
previously
registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. The notice
required
by such Rule for the Registrant's fiscal year ended
December 31,
1994 was filed on February 25, 1995.
CROSS-REFERENCE SHEET FOR
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND
Item of Part A Caption in
of Form N-14 Proxy Statement/Prospectus
1 ................................ Cover Page; Cross-
Reference Sheet
2 ................................ Table of Contents
3 ................................ Summary; Special
Considerations and Risk
Factors
4 ................................ Summary; The
Reorganization; Pro Forma
Capitalization
5 ................................ Cover Page; Summary;
Special Considerations
and Risk Factors;
Comparison of Investment
Objectives and Policies;
Comparison of Advisory
Fees and Expense Ratios;
Information Filed with
the Securities and
Exchange Commission
6 ................................ Cover Page; Summary;
Special Considerations
and Risk Factors;
Comparison of Investment
Objectives and Policies;
Information Filed with
the Securities and
Exchange Commission
7 ................................ Information Concerning
the Meeting; Security
Ownership of Certain
Shareholders and
Management
8 ................................ Inapplicable
9 ................................ Inapplicable
Item of Part B Caption in Statement
of Form N-14 of Additional Information
10 ................................ Cover Page
11 ................................ Cover Page
12 ................................ Statement of Additional
Information of Northstar
Advantage Strategic
Income Fund dated June 5,
1995.
13 ................................ Inapplicable
14 ................................ Statement of Additional
Information of Northstar
Advantage Strategic
Income Fund dated June 5,
1995; Annual Report of
Northstar Advantage
Strategic Income Fund for
the fiscal year ended
December 31, 1994; Semi-
Annual Report for
Northstar Advantage
Strategic Income Fund for
the six-month period
ended June 30, 1995;
Annual Report of
Northstar Advantage
Multi-Sector Bond Fund
for the fiscal year ended
October 31, 1994; Semi-
Annual Report for
Northstar Advantage
Multi-Sector Bond Fund
for the six-month period
ended April 30, 1995; Pro
Forma Financial
Statements
NORTHSTAR ADVANTAGE TRUST
NORTHSTAR ADVANTAGE MULTI-SECTOR BOND FUND
Two Pickwick Plaza, Greenwich, Connecticut 06830
________, 1995
Dear Northstar Advantage Multi-Sector Bond Fund Shareholder:
A special meeting of shareholders of Northstar Advantage
Multi-Sector Bond Fund (the "Fund"), a series of Northstar
Advantage Trust (the "Trust"), has been called for October 27,
1995, at which the shareholders of the Fund will be asked to
consider a proposal for combing the assets of the Fund with the
assets of Northstar Advantage Strategic Income Fund
("Strategic"), which has investment objectives and policies
similar to those of the Fund. The proposal was reviewed and
unanimously endorsed by the Trustees of the Trust, on behalf of
the Fund, as being in the best interests of the Fund and its
shareholders.
As a result of the proposed transaction, your Fund would be
combined with Strategic, and you would become a shareholder of
Strategic, receiving the same class of shares, Class A, Class B
or Class C, as you currently own in the Fund. The value of your
Fund shares will be used to purchase shares of Strategic without
a sales charge. No taxes will be due on this transaction. WE
STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS
SOON AS POSSIBLE.
Detailed information about the proposed transaction and the
reasons for it are contained in the enclosed materials. Please
exercise your right to vote by completing, dating and signing the
enclosed proxy card. A self-addressed, postage-paid envelope has
been enclosed for your convenience. IT IS VERY IMPORTANT THAT
YOU VOTE AND THAT YOUR VOTING INSTRUCTIONS BE RECEIVED BY NO
LATER THAN _____, 1995.
NOTE: You may receive more than one proxy package if you
hold shares of the Fund in more than one account. You must
return separate proxy cards for separate holdings. We have
provided postage-paid return envelopes for each.
Sincerely,
Mark L. Lipson
Chairman of the Board of
Trustees of Northstar
Advantage Trust
NORTHSTAR ADVANTAGE TRUST
NORTHSTAR ADVANTAGE MULTI-SECTOR BOND FUND
TWO PICKWICK PLAZA, GREENWICH, CONNECTICUT 06830
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 27, 1995
To the Shareholders of
Northstar Advantage Multi-Sector Bond Fund
of Northstar Advantage Trust:
Notice is hereby given that a Special Meeting of
Shareholders (the "Meeting") of Northstar Advantage Multi-Sector
Bond Fund (the "Fund"), a series of Northstar Advantage Trust
(the "Trust"), a Massachusetts business trust, will be held at
the offices of Northstar Investment Management Corporation, Two
Pickwick Plaza, Greenwich, Connecticut on October 27, 1995, at
10:30 a.m., for the following purposes:
1. To consider an Agreement and Plan of
Reorganization providing for the transfer of all of the
properties and assets of the Fund to Northstar Advantage
Strategic Income Fund ("Strategic"), in exchange for Class
A, Class B and Class C shares of Strategic, and the
assumption by Strategic of certain identified liabilities of
the Fund, and for the distribution of such Class A, Class B
and Class C shares, as applicable, of Strategic to the
shareholders of the Fund and the subsequent liquidation of
the Fund; and
2. To transact such other business as may properly
come before the Meeting or any adjournment thereof.
The Trustees of the Trust have fixed the close of business
on August 31, 1995 as the record date for determining
shareholders entitled to notice of and to vote at the Meeting or
any adjournment thereof.
A complete list of the shareholders of the Fund entitled to
vote at the Meeting will be available and open to the examination
of any shareholder of the Fund for any purpose germane to the
Meeting during ordinary business hours at the offices of the
Fund, Two Pickwick Plaza, Greenwich, Connecticut 06830.
By Order of the Trustees,
Lisa Hurley, Secretary
Dated: August , 1995
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN
PERSON ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM
OF PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT
PURPOSE. INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXIES ARE
SET FORTH ON THE INSIDE COVER.
YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL
HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
PROXY STATEMENT/PROSPECTUS
_____, 1995
Relating to the Acquisition of the Assets of
NORTHSTAR ADVANTAGE MULTI-SECTOR BOND FUND
a series of
NORTHSTAR ADVANTAGE TRUST
Two Pickwick Plaza, Greenwich, Connecticut 06830
(800) 595-7827
by and in exchange for shares of
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND
Two Pickwick Plaza, Greenwich, Connecticut 06830
(800) 595-7827
--------------
This Proxy Statement/Prospectus is being furnished to
shareholders of Northstar Advantage Multi-Sector Bond Fund (the
"Fund"), a portfolio of Northstar Advantage Trust (the "Trust"),
a Massachusetts business trust, in connection with a proposed
reorganization (the "Reorganization") in which the assets of the
Fund will be transferred to, and certain identified liabilities
of the Fund will be assumed by, Northstar Advantage Strategic
Income Fund ("Strategic"), a Massachusetts business trust, in
exchange for Class A, Class B and Class C voting shares of
Strategic. Upon receipt, the Fund will distribute the Class A,
Class B and Class C Strategic shares to its shareholders in
complete liquidation of the Fund, subsequent to which the Fund
will be dissolved.
This Proxy Statement/Prospectus, which should be retained
for future reference, sets forth concisely the information about
Strategic that a prospective investor should know before
investing. For a more detailed discussion of the investment
objectives and policies of Strategic, and the risks of investing
in it, see Strategic's Prospectus dated June 5, 1995, which is
included herewith and incorporated by reference into this Proxy
Statement/Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Statement of Additional Information for Strategic, dated
June 5, 1995, is incorporated herein by reference and may be
obtained upon request and without charge by calling the above
telephone numbers or by writing to the above address. A
Statement of Additional Information ("SAI"), dated _____, 1995,
containing additional information about the Reorganization and
the parties thereto has been filed with the Securities and
Exchange Commission (the "Commission") and is incorporated by
reference into this Proxy Statement/Prospectus. A copy can be
obtained without charge by calling or writing to Strategic at its
principal executive offices as set forth above.
The Fund is a diversified investment portfolio, which is a
series of the Trust, an open-end management investment company.
Strategic is a diversified open-end, management investment
company. The Fund's primary investment objective is to maximize
current income. Strategic's investment objective is to seek high
current income.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Proposed Reorganization . . . . . . . . . . . . . . 4
Summary Comparison of the Fund and Strategic . . . . . . 4
Investment Objectives and Policies . . . . . . . . 4
Advisory Fees and Expense Ratios . . . . . . . . . 5
Distribution Arrangements . . . . . . . . . . . . . 5
Exchange and Other Privileges . . . . . . . . . . . 6
Redemption Procedures . . . . . . . . . . . . . . . 7
Tax Considerations . . . . . . . . . . . . . . . . . . . 7
SPECIAL CONSIDERATIONS AND RISK FACTORS . . . . . . . . . . . 7
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES . . . . . . 9
COMPARISON OF ADVISORY FEES & EXPENSE RATIOS . . . . . . . . 10
THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . 11
Terms of the Agreement . . . . . . . . . . . . . . . . . 11
Description of Securities to Be Issued . . . . . . . . . 12
Reasons for and Purposes of the Reorganization . . . . . 12
Certain Effects of the Reorganization on Shareholders of the
Fund . . . . . . . . . . . . . . . . . . . . . . . 14
Expenses of the Reorganization . . . . . . . . . . . . . 14
Certain Legal Effects . . . . . . . . . . . . . . . . . 14
Tax Consequences . . . . . . . . . . . . . . . . . . . . 15
Recommendation of the Trustees . . . . . . . . . . . . . 16
PRO-FORMA CAPITALIZATION . . . . . . . . . . . . . . . . . . 16
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . 17
Average Annual Total Return -- Class A Shares . . . . . 17
Average Annual Total Return -- Class B Shares . . . . . 17
Average Annual Total Return -- Class C Shares . . . . . 18
Yield . . . . . . . . . . . . . . . . . . . . . . . . . 18
INFORMATION CONCERNING THE MEETING . . . . . . . . . . . . . 18
Date, Time and Place of Meeting . . . . . . . . . . . . 19
Solicitation, Revocation and Use of Proxies . . . . . . 19
Record Date and Outstanding Shares . . . . . . . . . . . 19
Voting Rights and Required Vote . . . . . . . . . . . . 19
SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS AND MANAGEMENT . . 20
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 20
INFORMATION FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION . . . . . . . . . . . . 20
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 20
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement/Prospectus (including the
documents incorporated herein by reference) relating to the
proposed Reorganization and the parties thereto.
1. The Proposed Reorganization
At a meeting held on April 26, 1995, all Trustees of the Trust,
on behalf of the Fund, reviewed and approved a proposal that the
Fund transfer to Strategic all of its properties and assets,
subject to certain identified liabilities, in exchange for Class
A, Class B and Class C voting shares of Strategic to be
distributed to the Fund's shareholders in liquidation of the
Fund. The acquisition of the assets and assumption certain
identified liabilities of the Fund by Strategic and the
subsequent distribution of Class A, Class B and Class C shares of
Strategic to the shareholders of the Fund are herein referred to
as the "Reorganization."
2. Summary Comparison of the Fund and Strategic
The following comparison is a summary of information contained in
this Proxy Statement/Prospectus (including documents incorporated
by reference or included herewith). In particular, see
"Comparison of Investment Objectives and Policies" and
"Comparison of Advisory Fees and Expense Ratios."
a. Investment Objectives and Policies
The Fund is a series of an open-end management investment company
and Strategic is an open-end management investment company. The
Fund and Strategic have as their respective primary objectives
maximizing current income and seeking high current income. The
Fund seeks to achieve its objective by investing in the following
sectors of the fixed income securities markets: (a) U.S.
Government Securities (b) Investment Grade (or comparable
quality) Corporate Debt Securities (c) Investment Grade (or
comparable quality) Securities issued by foreign corporate
issuers and foreign governments and their political subdivisions
and (d) High-Yield High-Risk Corporate Fixed Income Securities of
U.S. and Foreign Issuers. Strategic seeks to achieve its
objective by allocating investments among the following three
fixed income sectors: The U.S. Government Sector, The High Yield
Sector and The International Sector. The Fund's investments in
Foreign Securities are limited to 35% of assets determined at the
time of investment; investments in High-Yield High-Risk
Securities are limited to 50% of assets, determined at the time
of investment. Under normal market conditions, Strategic invests
at least 20% of its assets, and may invest no more than 60% of
its assets, in each sector. At least 20% and up to 60% of
Strategic's assets may be invested in junk bonds.
In addition to allocating its assets among investment sectors,
each Fund has adopted certain policies and utilizes certain
investment techniques in seeking to obtain its objective. Each
fund also may invest in short-term fixed income securities or
hold its assets in cash for defensive purposes under abnormal
market conditions. Each fund is permitted to utilize hedging
techniques, such as writing and purchasing options and purchasing
and selling financial futures contracts and related options to
hedge against market, interest rate and currency risks. The use
of these techniques would subject the funds to certain risks that
would otherwise not be present. The Fund has not utilized any
such hedging techniques since inception and Strategic does not
employ these techniques in a manner such that more than 5% of its
assets are placed at risk. In addition, each fund may seek to
increase the current return of its portfolio by writing covered
call or secured put options. Neither fund has utilized these
techniques. See "Special Considerations and Risk Factors".
b. Dividend Policy
Strategic declares and pays income distributions from net
investment income monthly. In order to maintain a more stable
monthly distribution, Strategic may at times pay out more or less
than the entire amount of its net investment income and short-
term capital gains earned in any particular period. Strategic
intends to distribute any remaining net investment income, as
well as any undistributed long- and short-term capital gains, at
least annually. Income distributions from net investment income
of the Fund are declared and paid monthly. Capital gains
distributions, if any, of the Fund for the twelve month period
ending October 31 of each year are paid in December of that year.
c. Advisory Fees and Expense Ratios
Pursuant to investment advisory agreements with the funds,
Northstar Investment Management Corporation ("Northstar" or the
"Adviser") serves as investment adviser to Strategic and the
Fund. In this capacity, Northstar, subject to the authority of
the Trustees, is responsible for furnishing continuous investment
supervision to each fund and is responsible for the management of
the funds' portfolios. See "Summary," "The Reorganization --
Reasons for the Reorganization," "Comparison of Investment
Objectives and Policies" and "Comparison of Advisory Fees and
Expense Ratios." For services rendered to the Fund, Northstar
receives an advisory fee at the annual rate of .75% of average
daily net assets on the first $250 million, scaled down at
various increments to .55% on assets in excess of $1 billion. As
of August 15, 1995, the Fund had net assets of approximately $45
million. For services rendered to Strategic, Northstar receives
an advisory fee of .65% of average daily net assets.
For the Fund's fiscal year ended October 31, 1994, operating
expenses of the Fund were equal to 1.50% of net assets for Class
A shares, and 2.20% of net assets for Class B and Class C shares,
after giving effect to expense reimbursements from Northstar
pursuant to an expense cap voluntarily imposed by the Adviser.
For the fiscal period ended December 31, 1994, Strategic's
operating expenses were equal to 1.90% (annualized) of net assets
for its only class of shares at that time (which class was sold
subject to a contingent deferred sales charge and distribution
charges similar to those of the Fund's Class B shares) after an
expense reimbursement by Advest, Inc., the former principal
underwriter for the fund, pursuant to a previously existing
expense cap voluntarily imposed by the fund's former adviser.
Prior to June 2, 1995, Strategic had only one class of shares
(now referred to as the "T Class" of shares), which class is no
longer offered for sale. Strategic now offers for sale Class A,
Class B and Class C shares.
d. Distribution Arrangements
Shares of Strategic and the Fund are sold to the public at a
public offering price which, in the case of Class A shares,
includes an initial sales charge which varies depending on the
size of the purchase, from 4.75% on purchases under $100,000 to
0% on purchases of $1 million and above. A contingent deferred
sales charge may be imposed on purchases of $1 million and above
at the time of redemption. Each fund offers certain arrangements
for Class A shares that will result in reduced sales charges,
including cumulative quantity discounts, group purchases, and
statements of intention, and each fund waives the sales charge
with respect to certain qualified persons. Each fund also offers
Class B shares and Class C shares, each of which imposes a
contingent deferred sales charge ("CDSC") in connection with
certain redemptions. The CDSC will be imposed on most Class B
share redemptions made within five (5) years of purchase at the
maximum amount of 5 percent for redemptions made within one year
from the date of purchase, declining to 0% after the fifth year
of investment. Class C shares impose a 1% CDSC on redemptions
made within one year of purchase. The sales charge on Class B and
Class C shares is waived under certain circumstances and in
connection with redemptions by certain qualified persons. The
minimum initial purchase for each fund is $2,500, and the minimum
subsequent purchase is $100.
In addition, each fund has adopted a distribution plan for each
class of shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act"). Pursuant to
the distribution plans, the funds are each required to reimburse
the underwriter, NWNL Northstar Distributors, Inc.
("Distributors"), an affiliate of Northstar, monthly for actual
expenses of Distributors, up to a maximum annual rate in the case
of Class A shares of .30% of the fund's average daily net assets
represented by Class A shares, and up to 1.00% of average daily
net assets in the case of Class B and Class C shares, for
distribution expenditures incurred in connection with the sale
and promotion of each class of shares of each fund, and the
furnishing to each class of shares of the respective funds of
shareholder services.
Comparative Fee Table
A table comparing the annual fund operating expenses for
Strategic Class A, Class B and Class C with the annual fund
operating expenses for the Fund Class A, Class B and Class C and
the Combined Fund Class A, Class B and Class C, assuming the
Reorganization has been consummated, is provided below:
Annual Fund Operating Expenses
(as a percentage of average net assets)
STRATEGIC (1)
Class A Class B Class C
Management Fees 0.65% 0.65% 0.65%
Administration Fees None None None
12b-1 Service and
Distribution Fees 0.30% 1.00% 1.00%
Other Expenses 0.93% 0.93% 0.93%
Total Fund
Operating Expenses 1.88% 2.58% 2.58%
THE FUND (1)
Class A Class B Class C
Management Fees 0.75% 0.75% 0.75%
Administration Fees 0.10% 0.10% 0.10%
12b-1 Service and
Distribution Fees 0.30% 1.00% 1.00%
Other Expenses 0.60% 0.79% 6.96%
Total Fund
Operating Expenses 1.75% 2.64% 8.81%
COMBINED
(PRO FORMA)
Class A Class B Class C
Management Fees 0.65% 0.65% 0.65%
Administration Fees None None None
12b-1 Service and
Distribution Fees 0.30% 1.00% 1.00%
Other Expenses 0.45% 0.45% 0.45%
Total Fund
Operating Expenses 1.40% 2.10% 2.10%
__________________________________
(1) The percentages in the table expressing annual fund
operating expenses for Strategic and the Fund are based on
amounts incurred during the fiscal period for each of the funds
ended December 31, 1994 and October 31, 1994, respectively,
without giving effect to expense caps voluntarily imposed by the
respective advisers and related reimbursements made pursuant to
such caps. As of December 31, 1994, no Class A, Class B or Class
C shares of Strategic were offered; expenses for these classes
are estimated based upon expenses of the Class T shares, which
shares are no longer offered for sale, and adjusted to restate
the expense information using the current fees that would have
been applicable had they been in effect during the relevant time
period. If annual operating expenses of Strategic exceed the
levels set forth for Class A, Class B and Class C shares in the
forma table, the Adviser will reimburse the fund for amounts in
excess thereof pursuant to an expense cap voluntarily imposed by
the Adviser through December 31, 1995. Annual operating expenses
of the Fund have also been voluntarily capped by the Adviser at
1.50% for Class A shares and 2.20% for Class B and Class C shares
through October 31, 1995.
_________________________________
Financial Highlights for Strategic
Net Asset Net Realized
Value & Unrealized
Period Beginning Net Invest- Gain (Loss)
Ended of Period ment Income on Investments
Strategic Income Fund, Class A
6/05/95 -
6/30/95 12.24 0.02 (0.02)
Strategic Income Fund, Class B
6/05/95 -
6/30/95 12.24 0.04 (0.05)
Strategic Income Fund, Class C
6/05/95 -
6/30/95 12.24 0.07 (0.09)
Strategic Income Fund, Class T
6/30/95 11.70 0.48 0.45
7/01/94 -
12/31/94 12.00 0.51 (0.25)
Dividends
Declared Distributions
Total From From Net Declared From
Period Investment Investment Net Realized
Ended Operations Income Gain
Strategic Income Fund, Class A
6/05/95 -
6/30/95 0.00 (0.09) -
Strategic Income Fund, Class B
6/05/95 -
6/30/95 (0.01) (0.08) -
Strategic Income Fund, Class C
6/05/95 -
6/30/95 (0.02) (0.08) -
Strategic Income Fund, Class T
6/30/95 0.93 (0.48) -
7/01/94 -
12/31/94 0.26 (0.49) (0.05)
Net
Period Distributions Total Asset Value,
Ended From Capital Distributions End of Period
Strategic Income Fund, Class A
6/05/95 -
6/30/95 - (0.09) 12.15
Strategic Income Fund, Class B
6/05/95 -
6/30/95 - (0.08) 12.15
Strategic Income Fund, Class C
6/05/95 -
6/30/95 - (0.08) 12.14
Strategic Income Fund, Class T
6/30/95 - (0.48) 12.15
7/01/94 -
12/31/94 (0.01) (0.55) 11.71
Ratio of
Net Assets, Expenses
Period Total End of Period to Average
Ended Return (000's) Net Assets (1)
Strategic Income Fund, Class A
6/05/95 -
6/30/95 (0.36) 160 1.89
Strategic Income Fund, Class B
6/05/95 -
6/30/95 (0.42) 435 2.18
Strategic Income Fund, Class C
6/05/95 -
6/30/95 (0.50) 3 2.12
Strategic Income Fund, Class T
6/30/95 7.97 30,456 1.91
7/01/94 -
12/31/94 2.14 25,252 1.90
Ratio of Ratio of Net
Expense Investment
Reimbursement Income
Period to Average To Average Portfolio
Ended Net Assets(1) Net Assets(1) Turnover
Strategic Income Fund, Class A
6/05/95 -
6/30/95 - 12.22 115
Strategic Income Fund, Class B
6/05/95 -
6/30/95 - 9.29 115
Strategic Income Fund, Class C
6/05/95 -
6/30/95 - 7.99 115
Strategic Income Fund, Class T
6/30/95 - 8.16 115
7/01/94 -
12/31/94 0.63 7.92 156
e. Exchange and Other Privileges
Class A, B and C shares of the Fund and of Strategic may be
exchanged without a sales charge for the same class of shares of
any of the other registered investment companies managed or
advised by Northstar, subject to certain conditions.
Each fund also offers its shareholders an Automatic Investment
Plan, a Withdrawal Program, and Dividend and Distribution
Reinvestment Options.
f. Redemption Procedures
Shares of both funds may be redeemed at any time at their net
asset value next determined after receipt of a complete
redemption request; Class B and Class C shares may be subject to
a CDSC at the time of redemption.
3. Tax Considerations
The Reorganization is being structured as a tax-free
reorganization for Federal income tax purposes. If the
Reorganization does in fact qualify for such treatment as
intended, the Fund and Strategic will obtain an opinion of the
law firm of Dechert Price & Rhoads to that effect. That opinion
will be based on certain facts, assumptions and representations
received from the Fund and Strategic.
For further information about the tax consequences of the
Reorganization, see "The Reorganization -- Tax Consequences."
SPECIAL CONSIDERATIONS AND RISK FACTORS
Strategic may invest up to 60% of its assets (and not less than
20%) in high-yield high-risk securities and up to 80% of its
assets in foreign securities, and the Fund may invest up to 50%
of its assets in high-yield high-risk securities and up to 35% of
its assets in foreign securities. Therefore, the risks inherent
in such investments are applicable to both entities.
High-yield high-risk securities, commonly known as "junk bonds,"
are predominantly speculative, and are characterized by
substantial risk concerning payment of interest and principal.
The market for these securities may consist of a limited number
of dealers and investors, and the market value of such securities
may reflect individual corporate developments rather than general
economic conditions. Factors adversely affecting the market value
of high-yield high-risk securities will adversely affect a fund's
net asset value to the extent the fund's assets are invested in
such securities.
Based upon the monthly weighted average ratings of all bonds held
during the respective last semi-annual periods of each of the
Fund and Strategic, the percentage of the total investments of
each of the Fund and Strategic represented by bonds rated by
Moody's Investors Service, Inc. ("Moody's") or by Standard &
Poor's Corporation ("S&P"), separated into each rating category,
is as follows:
Rating The Fund Strategic
Moody's or S&P's 4/30/95 6/30/95
Aaa AAA 19.2 30.2
Aa AA 6.9 13.6
A A 1.3 2.2
Baa BBB 22.8 24.4
Ba BB 15.0 29.6
B B 28.8 ----
Caa CCC 4.2 ----
Ca CC ---- ----
C C ---- ----
Not rated Not Rated 1.8 ----
Investing in the securities of non-U.S. companies involves
special risks and considerations not typically associated with
investing in U.S. companies. These include differences in
accounting, auditing and financial reporting standards, generally
higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse
changes in investment or exchange control regulations, political
instability which could affect U.S. investments in foreign
countries, and potential restriction in the flow of international
capital. Additionally, dividends payable on foreign securities
may be subject to foreign taxes withheld prior to distribution.
Foreign Securities often trade with less frequency and volume
than domestic securities and therefore may exhibit greater price
volatility, and changes in foreign exchange rates will affect the
value of those securities which are denominated or quoted in
currencies other than the U.S. dollar. Many of the foreign
securities held by either fund will not be registered with, nor
the issuers thereof be subject to, the reporting requirements of
the Commission. Accordingly, there may be less publicly available
information about the securities and about foreign companies or
governments than is available about a domestic company or
government entity. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States economy in
such respects as growth of Gross Domestic Product, rate of
inflation, capital reinvestment, resource self-sufficiency and
balance of payment positions.
The use of forward currency exchange contracts by the funds
involves certain investment risks and transaction costs to which
the funds might not otherwise be subject. Although permitted,
the Fund has never used this hedging technique; Strategic employs
this technique from time to time. Such risks include: (i) the
Adviser may not always be able to accurately predict movements
within currency markets, (ii) the skills and techniques needed to
use forward currency contracts are different from those needed to
select the securities in which a fund invests and (iii) there is
no assurance that a liquid secondary market will exist that would
enable the Adviser to "close out" existing (current) contracts or
futures positions or options when doing so is desirable. Each
fund's successful use of forward currency exchange contracts,
options on foreign currencies, futures contracts on foreign
currencies and options on such contracts depends upon the
Adviser's ability to predict the direction of the market and
political conditions, which require different skills and
techniques than predicting changes in the securities markets
generally. For instance, if the value of securities being hedged
moves in a favorable direction, the advantage to a fund would be
wholly or partially offset by a loss in the forward contracts or
futures contracts. Further, if the value of the securities being
hedged does not change, the fund's net income would be less than
if the fund had not hedged, since there are transaction costs
associated with the use of these investment practices. These
practices are subject to various additional risks. The
correlation between movements in the price of options and futures
contracts and the price of the currencies being hedged is
imperfect. The use of these instruments will hedge only the
currency risks associated with investments in foreign securities,
not market risks. In addition, if a fund purchases these
instruments to hedge against currency advances before it invests
in securities denominated in such currency and the currency
market declines, the fund might incur a loss on the futures
contract. A fund's ability to establish and maintain positions
will depend on market liquidity. The ability of a fund to close
out a futures position or an option depends upon a liquid
secondary market. There is no assurance that liquid secondary
markets will exist for any particular futures contract or option
at any particular time.
Each as a Massachusetts business trust, neither Strategic nor the
Trust, on behalf of the Fund, is required to hold shareholders
meetings unless so required under the provisions of the 1940 Act.
Under Massachusetts law, shareholders of a business trust could,
under certain limited circumstances, be held personally liable
for the obligations of the trust. The Declaration of Trust of the
Trust and the Amended and Restated Declaration of Trust of
Strategic each contains an express disclaimer of shareholder
liability for acts or obligations of the respective funds and
requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
Strategic or the Fund or Trustees of either fund. The Declaration
of Trust of the Trust and the Amended and Restated Declaration of
Trust of Strategic each also provides for indemnification out of
trust property for all losses and expenses of shareholders held
personally liable for the obligations of the fund. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to
circumstances in which a disclaimer is inoperative and Strategic
or the Fund itself would be unable to meet its obligations. A
significant number of mutual funds in the United States are
organized as Massachusetts business trusts.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following comparison of the Fund and Strategic is qualified
in its entirety by reference to the Fund's prospectus and SAI
dated January 17, 1995 (the "Multi-Sector Prospectus"), and
Strategic's prospectus and SAI dated June 5, 1995 (the "Strategic
Prospectus"), which are incorporated herein by reference.
The investment objective of the Fund is a fundamental policy and
therefore may not be changed without the approval of the holders
of a majority of the outstanding shares of the Fund. The
investment objective of Strategic is a non-fundamental policy and
therefore may be changed without shareholder approval upon thirty
days advance notice of any change to shareholders.
The Fund, under normal circumstances, invests at least 65% of its
assets in the following four sectors of the fixed income market:
(a) securities issued or guaranteed as to principal and interest
by the U.S. Government, its agencies, authorities or
instrumentalities ("U.S. Government Bonds"); (b) corporate debt
securities rated at the time of purchase as investment grade by a
nationally recognized securities rating organization ("NRSRO") or
deemed to be of comparable quality by the Adviser ("Investment
Grade Bonds"); (c) investment grade or comparable quality debt
securities issued by foreign corporate issuers and securities
issued by foreign governments and their political subdivisions
"Foreign Bonds"); and (d) high-yield high-risk corporate fixed
income securities ("High Yield Bonds") of U.S and foreign
issuers. The Fund's assets generally are invested in each market
sector but the Fund may invest any amount of its assets in any
one sector, except for High Yield Bonds and Foreign Bonds
(including Foreign High Yield Bonds), which are limited,
respectively, to 50% and 35% of the Fund's assets, determined at
the time of investment, and the Fund may choose not to invest in
a sector in order to achieve its investment objective. The
Adviser believes that this strategy may achieve a more stable net
asset value since diversification over several market sectors
tends to reduce volatility. However, there can be no assurance
that certain economic and other factors will not cause
fluctuations in the value of the securities held by the Fund,
resulting in fluctuations of the Fund's net asset value.
Strategic invests at least 65% of its assets in the following
three sectors of the fixed income market: (a) U.S. Government
Sector (consists of debt obligations of the U.S. Government, its
agencies and instrumentalities); (b) High Yield Sector (consists
of high-yield high-risk, lower rated and non-rated U.S. and
foreign fixed-income securities); (c) International Sector
(consists of investment grade equivalent debt obligations of
foreign governments and their agencies and instrumentalities,
which may be denominated in U.S. dollars or other currencies).
Under normal market conditions, Strategic will maintain at least
20% of its assets in each of the three sectors and may not invest
more than 60% of its total assets in any one sector. The
Adviser, under normal market conditions, will invest
substantially all of Strategic's assets in the three sectors, and
will determine the amount to be invested in each sector based
upon its assessment of the maximum level of current income that
can be achieved from a portfolio invested in all three sectors
without incurring undue risks to principal value.
Each fund's assets allocated to the various market sectors are
managed in accordance with stated investment policies, except
that for defensive purposes under unusual market conditions, the
funds may at times invest in short-term investments for liquidity
purposes, or hold assets in cash. Each fund may also enter into
futures contracts and related options, and engage in a variety of
other hedging techniques, including foreign exchange contracts.
The Fund and Strategic may each utilize currency hedging to
minimize foreign currency exposure so that each fund may invest
in a country's market although the outlook for that country's
currency may be poor. The objective of the use of currency
hedging is to reduce the impact of currency fluctuations on the
fund's portfolio. The Fund and Strategic are permitted to use a
variety of investment hedging techniques including the use of
forward foreign currency exchange contracts, futures contracts on
foreign currencies, options on futures contracts and options on
foreign currencies. In order to hedge against adverse movements
in exchange rates between currencies, each fund may enter into
forward foreign currency exchange contracts for the purchase or
sale of a specified currency at a specified future date. In
addition, when the Adviser believes that a particular currency
may decline compared to the U.S. dollar or another currency, each
fund may enter into a foreign contract to sell the currency that
the Adviser expects to decline in an amount approximating the
value of some or all of the fund's portfolio securities
denominated in that currency. Each fund may engage in futures
contracts on foreign currencies and options on these futures
themselves as a hedge against changes in the value of the
currencies to which the fund is subject or to which either fund
expects to be subject in connection with futures purchases. Each
fund may also engage in such transactions when they are
economically appropriate for the reduction of risks inherent in
the ongoing management of the fund. Each fund may purchase and
write put and call options on foreign currencies traded on
securities exchanges or boards of trade (foreign and domestic)
for hedging purposes in a manner similar to that in which forward
currency contracts and futures contracts on foreign currencies
will be employed. In addition to the use of the currency hedging
techniques mentioned above, each fund may write covered call
options contracts on U.S. securities which it owns if such
options are listed on an organized securities exchange and the
Adviser determines that it is consistent with the fund's
investment objective. There are certain risks associated with
the use of these investment techniques and transaction costs to
which each fund might not be otherwise subject. See "Special
Considerations and Risk Factors."
As a matter of fundamental policy, neither fund may purchase any
security if, as a result: (i) as to 75% of its total assets, more
than 5% of the fund's total assets would be invested in
securities of a single issuer, (ii) the fund would own 10% or
more of the outstanding voting securities of any single issuer or
(iii) 25% or more of the fund's total assets would be
concentrated in any one industry.
Both funds have a similar fundamental policy with respect to
borrowing, which is limited to bank borrowing and then only when
there is asset coverage of at least 300%. As a non-fundamental
policy, the Fund may not borrow an amount equal to more than 10%
of the market value of its total assets, and may not purchase
additional securities while borrowings are in excess of 5% of the
market value of the Fund's total assets; Strategic may not borrow
money in excess of 5% of its total assets. Neither fund has
previously engaged in any bank borrowing activity.
Each fund may also engage in the following investment techniques:
(i) invest in mortgage-backed securities; (ii) purchase U.S.
Treasury and corporate zero coupon bonds, step coupon and
paid-in-kind bonds; (iii) enter into repurchase agreements; (iv)
enter into forward commitment contracts or purchase securities on
a when-issued or delayed delivery basis, (v) lend securities;
(vi) purchase loan participations and (vii) invest in private
placements and Rule 144A securities. The Fund may also enter into
reverse repurchase and dollar roll agreements.
COMPARISON OF ADVISORY FEES & EXPENSE RATIOS
The following comparison is qualified in its entirety by
reference to the Fund's Prospectus and Strategic's Prospectus,
which are incorporated herein by reference.
The investment adviser for the Fund and Strategic is Northstar.
Pursuant to the Investment Advisory Agreement with Northstar, the
Fund pays Northstar an advisory fee at an annual rate of: 0.75%
of the value of the net assets of the Fund on the first $250
million; 0.70% of the value of the net assets of the Fund between
$250 million and $500 million; 0.65% of the value of the net
assets between $500 million and $750 million; 0.60% of the value
of the net assets between $750 million and $1 billion; and 0.55%
of the value of the net assets over $1 billion. Pursuant to the
Investment Advisory Agreement with Northstar, Strategic pays
Northstar an advisory fee computed on average daily net assets of
Strategic at an annual rate of .65% of average net assets of the
fund.
Northstar has agreed, under the terms of each Investment Advisory
Agreement, to reimburse the funds to the extent that, in any
fiscal year, aggregate annual expenses of either fund, exclusive
of taxes, interest, brokerage fees, payments made pursuant to a
Rule 12b-1 distribution plan, and extraordinary charges such as
litigation costs, exceed the most restrictive expense limitations
imposed by any state in which Strategic's shares are qualified
for sale. Currently, the most restrictive expense limitation
applicable to Strategic (or the Fund) is imposed by California,
which provides that aggregate annual expenses of an investment
company (which excludes interest, taxes, certain annual
distribution plan expenses, litigation costs and capital items
such as brokerage costs) shall not normally exceed 2.5% of the
first $30,000,000 of the company's average net assets, 2% of the
next $70,000,000 of the company's average net assets, and 1.5% of
any amount of the average net assets of the investment company in
excess of $100,000,000 for any fiscal year. To the extent that a
fund's expenses exceed this limitation, the Adviser would be
required to reduce or rebate its fee. The Adviser would not be
required to absorb any other expenses in excess of its fees.
For the period ended October 31, 1994, the Fund's expenses,
before any waiver or expense reimbursement by the Adviser, were
1.75% of average net assets represented by Class A shares; 2.64%
of those represented by Class B shares and 8.81% of average net
assets represented by Class C shares from the period of inception
of each class offering (November 8, 1993 for Class A shares,
February 9, 1994 for Class B shares and March 21, 1994 for Class
C shares). For the fiscal year ended December 31, 1994,
Strategic's expenses before any waiver or expense reimbursement
by the fund's former adviser, Boston Security Counsellors, Inc.,
was 2.53% of average net assets from the period of inception on
July 1, 1994.
THE REORGANIZATION
The terms and conditions upon which the Reorganization may be
consummated are set forth in the Agreement and Plan of
Reorganization, dated June 2, 1995 between the Fund and Strategic
(the "Agreement") (see Exhibit A attached hereto). If certain
conditions, including approval by the shareholders of the Fund,
are satisfied, all of the Fund's assets will be transferred to
Strategic and its certain identified liabilities assumed by
Strategic. This will occur on the "Effective Date" of the
Reorganization, which is October 27, 1995, or such later date as
the parties may agree.
On the Effective Date, after the transfer of the Fund's assets to
Strategic and assumption of certain identified of the Fund's
liabilities by Strategic, the Fund's shareholders will receive
the number of newly-issued Class A, Class B and Class C shares of
Strategic of equal aggregate value to the aggregate value of the
Class A, Class B and Class C shares of the Fund which were
previously held. The newly issued Class A, Class B and Class C
shares will be credited to each shareholder's account as of the
Effective Date.
1. Terms of the Agreement
On the Effective Date, all the assets and certain identified
liabilities of the Fund will be transferred to Strategic in
exchange for Class A, Class B and Class C voting shares of
Strategic on the basis of relative net asset value. The Fund
will then distribute to its shareholders the Class A, Class B and
Class C shares, as appropriate, of Strategic received by the Fund
pursuant to the terms of the Agreement in complete liquidation of
the Fund.
The transaction described above, which will take place on the
Effective Date, will not result in a diminution or inflation of
the value of any shareholder's investment with respect to the
newly issued Class A, Class B and Class C shares of Strategic as
compared with the Class A, Class B and Class C shares of the Fund
previously held.
As of the Effective Date, Strategic will, through its transfer
agent, credit on its books and confirm in writing an appropriate
number of full and fractional Class A, Class B and Class C shares
of Strategic to each Class A, Class B and Class C shareholder of
the Fund, where applicable, regardless of whether such
shareholder holds physically-issued certificates. As of the
Effective Date, any such certificate representing Class A, Class
B and Class C shares of the Fund will represent only the right to
receive an appropriate number of Class A, Class B and Class C
shares of Strategic. Therefore, as of the Effective Date,
present certificate holders of the Fund will be asked to
surrender their certificates. No redemption or repurchase of any
Strategic Class A, Class B and Class C shares credited to former
shareholders of the Fund in place of Fund shares represented by
unsurrendered certificates will be permitted until such
certificates have been surrendered for cancellation. Any
shareholder of the Fund who wishes to receive a certificate
representing his or her Class A, Class B and Class C shares in
Strategic must submit a written request therefor, along with any
certificates representing Class A, Class B and Class C shares of
the Fund, accompanied by such proper instruments of transfer,
such as stock powers and signature guarantees, as Strategic may
reasonably require.
The Agreement sets forth certain conditions to the obligations of
the parties to proceed with the Reorganization, including the
approval of the Reorganization by shareholders of the Fund, an
opinion of counsel as to tax matters (depending on then-existing
facts and circumstances), and the accuracy of various
representations and warranties of each fund. Further, if the
Reorganization is not approved at the Meeting, the funds will
continue to operate separately; however, the proposal may be
resubmitted to the Fund's shareholders, or the Trustees of the
Trust, on behalf of the Fund, may consider what other action, if
any, should be taken, including operating the Fund as it
presently operates, terminating future sales of shares of the
Fund, or seeking shareholder approval to liquidate the Fund.
2. Description of Securities to Be Issued
Shareholders of the Fund will be issued Class A, Class B and
Class C shares of beneficial interest of Strategic without par
value. Each share of beneficial interest entitles the holder to
one vote at all meetings of Strategic shareholders, except where
matters relate solely to a particular class, in which case only
holders of that class of shares are entitled to vote.
Shareholders of each class participate equally in dividends and
distributions declared by Strategic and in remaining net assets
on liquidation after satisfaction of outstanding liabilities,
provided, however, that such amounts distributed to shareholders
may vary by class as a result of different expenses attributable
to the respective classes. Strategic shares are fully paid and
nonassessable, have no preemptive, conversion or cumulative
voting rights (except for conversion rights to Class A shares
associated with the Class B and Class T shares of Strategic), are
transferable without restriction, and are redeemable at net asset
value, which redemption proceeds may be reduced by the amount of
the CDSC imposed on redemption, if any.
3. Reasons for and Purposes of the Reorganization
On February 15, 1995, the Adviser and ReliaStar Financial Corp.
("ReliaStar"), its indirect holding company, entered into a
Purchase and Sale Agreement with Advest Group Inc. ("AGI") and
certain subsidiaries of AGI, to purchase the stock of a wholly
owned subsidiary of AGI. The transaction was completed on June 2,
1995. As an indirect result of the transaction, the Adviser
became the investment adviser to Strategic, and Distributors
became the fund's principal underwriter. Because the investment
objectives, policies and techniques of Strategic and the Fund are
similar to one another, it led the Adviser and Distributors to
conclude it would be useful to combine the assets of the two
funds. By combining the assets, Distributors could better
coordinate marketing efforts and alleviate the potential for
public confusion that might result from offering two similar
funds. Moreover, the Adviser concluded that efficiencies could be
realized by operating a single fund having as its objective high
current income rather than incurring the expense of operating two
such funds separately.
Furthermore, since the Fund's inception on November 8, 1993, the
assets have grown to only $45 million as of July 31, 1995, and of
this amount, approximately $20 million represents investments by
one or more affiliates of the Adviser. In light of the slow
growth in assets over the preceding period from inception and the
factors described above, the Trustees considered and determined
at a meeting held on April 26, 1995 that the Reorganization was
the appropriate course of action. After a discussion of various
available options, the Trustees of the Trust, on behalf of the
Fund, including all of the Trustees who are not "interested
persons" (as that term is defined in the 1940 Act), unanimously
adopted a resolution declaring the Reorganization advisable and
directed that it be submitted to the shareholders for
consideration. Several factors, including those described below,
influenced the Trustees' determination.
As indicated above, the Fund's net assets have grown to only $45
million since November of 1993. While asset size remains low, the
fixed expenses incurred in maintaining the fund's status as an
open-end investment company, including the expenses incurred in
complying with the reporting requirements of the Commission and
the states in which the Fund's shares are sold, and the attendant
auditing and legal fees, have increased as fee caps and waivers
initially offered by third party service providers have expired,
and such fixed expenses are incurred regardless of the number of
shareholders or the size of the Fund.
The Fund's ratio of expenses to average net assets on an
annualized basis before the Adviser reimbursed the Fund was 1.75%
for Class A shares, 2.64% for Class B shares, and 8.81% for Class
C shares for the fiscal year ended October 31, 1994, and for the
semi-annual period ending April 30, 1995 1.61% for Class A, 2.34%
for Class B and 3.14% for Class C shares. Since it would take a
significant increase in the Fund's assets to decrease materially
its expense ratio, it is not expected that the expense ratio
would decrease in the near future if the Fund continued its
separate existence, particularly in light of the fact that
Distributors also will be distributing shares of Strategic, a
fund very similar to the Fund. It is anticipated that Fund
Shareholders will benefit from a lower expense ratio in Strategic
after the combination (see "Comparison of Advisory Fees and
Expense Ratios" and "Comparative Fee Table").
For the period from inception (November 8, 1993) to October 31,
1994, the Fund's total return for Class A shares was (6.18%),
(9.61%) for Class B shares (inception date February 9, 1994) and
(7.29%) for Class C shares (inception date March 21, 1994). For
the period from November 1, 1994 through April 30, 1995 the
Fund's total return was 6.52% for Class A shares, 6.12% for Class
B shares, and 6.36% for Class C shares. While the Adviser
believes that over the next market cycle the Fund's performance
may continue to improve, they believe that short-term results
will not rise to an adequate competitive level to provide
sufficient inducement to encourage additional sales.
At the Trustees' meeting held on April 26, 1995, the Trustees
considered the various alternatives available, including the
transfer of the Fund's assets, subject to certain identified
liabilities, to Strategic and the liquidation and dissolution of
the Fund. After considering a number of factors, the Trustees
determined that the sale to Strategic was the most advisable
course of action. The Trustees were of the view that Strategic
presented opportunity for the Fund shareholders to continue to
receive the services of Northstar, in a situation where
shareholders could potentially benefit from economies of scale.
(Strategic had total net assets of approximately $29.2 million at
May 1, 1995.) The Trustees compared the investment objectives,
policies, restrictions, techniques and risks of the Fund and
Strategic, and concluded that Strategic may afford shareholders
equal investment flexibility with similar objectives but with the
benefits that accompany a larger asset base. Furthermore, it was
noted that the overall expense ratio of Strategic was lower than
that of the Fund. See "Special Considerations and Risk Factors,"
"Comparison of Investment Objectives and Policies," "Comparison
of Advisory Fees and Expense Ratios" and "Comparative Fee Table."
In considering the potential effects of the Reorganization on
Fund shareholders, the Trustees reviewed a comparative cost
analysis. Strategic's advisory fees are payable at a lower
annual rate than are the Fund's fees and no administrative fee is
payable through June 1, 1997. Northstar has agreed to reimburse
the Fund and Strategic for expenses in excess of the lowest
applicable state expense limitation. Both the Fund and Strategic
shares are sold at a public offering price that in the case of
most Class A shares includes a sales charge. In the case of most
Class B and Class C share purchases, a sales charge will be
imposed at the time of redemption, in the case of Class B shares,
on a declining scale for up to five years from the date of
purchase, and in the case of Class C shares, for one year from
the date of purchase. Each class of each fund is also subject to
a Rule 12b-1 distribution plan. See "Summary -- Summary
Comparison of the Fund and Strategic," "Comparison of Investment
Objectives and Policies" and "Comparison of Advisory Fees and
Expense Ratios." Based upon the comparable cost structure of the
two funds and in view of all relevant factors, the Trustees of
the Trust, on behalf of the Fund, determined that on balance, the
Reorganization would be beneficial to the Fund's shareholders.
The Trustees of the Fund also reviewed the organizational and
financial capability and reputation of Northstar, its principals
and affiliates. Northstar is an indirect, majority-owned
subsidiary of ReliaStar, a holding company whose subsidiaries
specialize in the life and health insurance businesses. Combined
minority interests of senior management of Northstar represent a
20% ownership interest in the Adviser. Northstar serves as
adviser to ten other registered investment companies which,
including the funds, represented in excess of $900 million in
combined assets as of July 30, 1995.
The Fund has established an expense accrual of $.001 per share
which is estimated to cover the ongoing expense of the Fund, as
well as the legal, accounting and other expenses associated with
the Reorganization.
The right of a shareholder to redeem shares of the Fund at any
time prior to the Effective Time has not been impaired by the
approval of the Reorganization. Therefore, a shareholder may
redeem in accordance with the redemption procedure set forth in
the Fund's current prospectus. The Fund does not impose any
redemption charges; however, certain redemptions may be subject
to a CDSC. Shareholders should consult with their personal tax
advisors as to the different tax consequences of redeeming their
shares as opposed to exchanging their shares for Strategic shares
in the Reorganization. See "Tax Consequences" below.
4. Certain Effects of the Reorganization on Shareholders of the
Fund
Upon consummation of the Reorganization, any prior election by
Fund shareholders to reinvest dividends and distributions in
additional shares or to receive dividends or distributions in
cash will continue in effect until changed as set forth in
Strategic's Prospectus (such options for reinvestment being
identical to the Fund's). Shareholders of the Fund will receive
shares of Strategic having, on the Effective Date, the equivalent
value in the aggregate of the shares of the Fund previously held,
in accordance with the terms of the Agreement.
5. Expenses of the Reorganization
The aggregate expense to both funds for effecting the
Reorganization is estimated at approximately $20,000. The Fund
and Strategic will each bear its respective expenses incurred in
the Reorganization.
6. Certain Legal Effects
Upon consummation of the Reorganization, Strategic will continue
to be governed by the provisions of its current Amended and
Restated Declaration of Trust and By-Laws. Strategic's affairs
will be supervised by the current Trustees of Strategic.
7. Tax Consequences
The Reorganization has been structured with the intention that it
will qualify for Federal income tax purposes as a tax-free
reorganization under Section 368(a)(1) of the Internal revenue
Code of 1986, as amended (the "Code"). In the event that the
Reorganization so qualifies based on existing facts and
circumstances at the time of consummation of the Reorganization,
the Fund and Strategic will receive an opinion of counsel to that
effect. Accordingly, pursuant to this treatment, no gain or loss
will be recognized by the Fund, Strategic or Fund shareholders as
a result of the Reorganization; the basis of Strategic shares
received by Fund shareholders in exchange for their shares of the
Fund will equal the basis of the Fund shares so surrendered; the
holding period of Strategic shares received by Fund shareholders
in exchange for their shares of the Fund will include the period
during which such shareholders held shares of the Fund (provided
that the Fund shares were held as capital assets on the date of
the Reorganization); the basis of the assets acquired by
Strategic will be the same as the basis of such assets when held
by the Fund immediately prior to the Reorganization; and the
holding period of the assets of the Fund when held by Strategic
will include the period during which such assets were held by the
Fund.
The opinion of counsel will be based upon certain representations
made by Strategic and the Fund. While an opinion of counsel does
not bind the Internal Revenue Service (the "IRS") or the courts,
it will reflect such counsel's view, as of the closing of the
Reorganization, as to the expected Federal income tax treatment
of the Reorganization. If the IRS were to take a position
contrary to the views expressed by such counsel, and succeed in
asserting such position, shareholders would be treated as having
received shares of Strategic in a transaction in which gain or
loss would be recognized for Federal income tax purposes and
Strategic would be treated for such purposes as having purchased
the assets of the Fund for their fair market value.
In the event that more than fifty percent of the Fund's shares
are redeemed prior to or shortly after the date of consummation
of the Reorganization, the Reorganization most probably will not
qualify as a tax-free reorganization under the Code. The
Reorganization will nevertheless be consummated, subject to the
other conditions of the Agreement. In such event (i) the basis of
the assets of the Fund acquired by Strategic will be their value
on the date of the Reorganization and the holding period will
start on the day following such date; (ii) each shareholder of
the Fund will recognize gain or loss on the exchange of his or
her Fund shares for Strategic shares, generally equal to the
difference between his or her basis in the surrendered Fund
shares and the value of the Strategic shares received in exchange
as of the Effective Date; and (iii) the holding period for the
Strategic shares received by a former Fund shareholder will
commence as of the day following the Effective Date.
At its fiscal year end on October 31, 1994, the Fund had capital
loss carryforwards of approximately $1.6 million. The Fund
currently also has net unrealized losses of approximately
$712,000, because the aggregate basis for all of the Fund's
assets exceeds the fair market value of those assets. If the
Reorganization is carried out, the ability of Strategic to
utilize the Fund's capital loss carryforwards, as well as any
recognized loss attributable to the Fund's net unrealized built-
in losses immediately before the Reorganization, will be limited
under the Code. As a result of this limitation, it is possible
that Strategic will not be able to use these losses as rapidly as
the Fund might have been able to, and part or all of these losses
may not be usable by Strategic at all. The ability of Strategic
or the Fund to absorb losses in the future depends on a variety
of factors that cannot be known in advance, including the
existence of capital gains eligible to be offset. Net capital
loss carryforwards of regulated investment companies generally
expire at the end of the eighth taxable year after they arise if
they have not been absorbed by that time. Therefore, under the
limitation described above, it is possible that some or all of
the losses from the Fund will expire unutilized.
Shareholders should consult their tax advisors regarding the
effect of the proposed transactions in light of their individual
circumstances. As the foregoing discussion relates only to
Federal income tax consequences, shareholders should also consult
their tax advisors as to the state and local tax consequences of
such transactions.
8. Recommendation of the Trustees
Based upon their review, the Trustees of the Trust, on behalf of
the Fund, concluded that the participation of the Fund in the
proposed Reorganization would be in the best interests of the
Fund and its shareholders and that the Reorganization would not
result in the dilution of existing shareholders' interests. The
Trustees of the Trust, on behalf of the Fund, including the
Independent Trustees, have unanimously recommended that the
Fund's shareholders vote FOR the Reorganization. See
"Information Concerning the Special Meeting -- Voting Rights and
Required Vote."
PRO-FORMA CAPITALIZATION
The capitalization of the Class A shares of the Fund and
Strategic as of June 30, 1995 and the pro forma combined
capitalization of Strategic as of that date after giving effect
to the Reorganization are as follows:
Pro Forma
Strategic The Fund Adjustments Combined
Net Assets: 159,807 27,089,705 27,249,512
Net Asset Value
PerShare
Outstanding: 12.15 4.48 12.15
Shares
Outstanding: 13,156 6,052,931 (3,823,326) 2,242,761
The capitalization of the Class B shares of the Fund and
Strategic as of June 30, 1995 and the pro forma combined
capitalization of Strategic as of that date after giving effect
to the Reorganization are as follows:
Pro Forma
Strategic The Fund Adjustments Combined
Net Assets: 435,420 15,905,188 16,340,608
Net Asset Value
PerShare
Outstanding: 12.15 4.47 12.15
Shares
Outstanding: 35,844 3,555,536 (2,246,467) 1,344,913
The capitalization of the Class C shares of the Fund and
Strategic as of June 30, 1995 and the pro forma combined
capitalization of Strategic as of that date after giving effect
to the Reorganization are as follows:
Pro Forma
Strategic The Fund Adjustments Combined
Net Assets: 2,696 1,007,950 1,010,646
Net Asset Value
PerShare
Outstanding: 12.14 4.48 12.14
Shares
Outstanding: 222 224,963 (141,936) 83,249
The capitalization of Class T shares of Strategic is not
presented, as no Class T shares will be issued to Fund
shareholders pursuant to the Reorganization, and, therefore, no
pro forma adjustments will be made.
PERFORMANCE INFORMATION
Total return is a measure of the change in value of an
investment in a fund over the period covered, which assumes that
any dividends or capital gains distributions are automatically
reinvested in shares of the same class of that fund rather than
paid to the investor in cash. The formula for total return used
by a fund is prescribed by the Commission and includes three
steps: (1) adding to the total number of shares of the
particular class that would be purchased by a hypothetical $1,000
investment in the fund (giving effect to the deduction of a sales
charge, if applicable) all additional shares that would have been
purchased if all dividends and distributions paid or distributed
during the period had been automatically reinvested; (2)
calculating the redeemable value of the hypothetical initial
investment as of the end of the period by multiplying the total
number of shares owned at the end of the period by the net asset
value per share of the relevant class on the last trading day of
the period (and giving effect to a CDSC, if applicable); and (3)
dividing this account value for the hypothetical investor by the
amount of the initial investment, and annualizing the result for
periods of less than one year. Total return may be stated with
or without giving effect to any expense limitations in effect for
a fund.
1. Average Annual Total Return -- Class A Shares
The following table reflects average annual total returns for one
year and since inception (November 8, 1993) periods ending April
30, 1995 for Class A shares of the Fund based on net asset
values:
Period The Fund
One Year 3.62%
Since
Inception 0.62%
2. Average Annual Total Return -- Class B Shares
The following table reflects average annual total returns for the
one year and since inception (February 9, 1994) periods ending
April 30, 1995 for Class B shares of the Fund based on net asset
value:
Period The Fund
One Year 2.83%
Since
Inception -3.93%
3. Average Annual Total Return -- Class C Shares
The following table reflects average annual total returns for the
one year and since inception (March 21, 1994) periods ending
April 30, 1995 for Class C shares of the Fund based on net asset
value:
Period The Fund
One Year 3.07%
Since
Inception -1.49%
4. Average Annual Total Return -- Class T Shares
This information relates to the performance of Class T shares of
Strategic under advisory agreements between Strategic and Boston
Security Counsellors, Inc., which agreements were terminated on
June 2, 1995. Class A, Class B and Class C shares of Strategic
were not issued until June 5, 1995; therefore, total return
information for those classes is not provided. As stated above,
Class T shares are no longer offered for sale.
The following table reflects average annual total returns for
Strategic Class T shares for the one-year period ended June 30,
1995.
Period Strategic
One Year 10.28%
Current yield reflects the income per share earned by a fund's
portfolio investments. Yield for each class will be computed by
annualizing net investment income per share for a recent 30-day
period and dividing that amount by the maximum public offering
price, which in the case of Class A shares includes the sales
load, of the relevant class (reduced by any undeclared earned
income expected to be paid shortly as a dividend) on the last
trading day of that period.
5. Yield
The yield of the Class A, Class B and Class C shares of Strategic
for the 30-day period ended July 31, 1995 was 7.44%, 7.14% and
7.11%, respectively. The yield of the Class A, Class B and Class
C shares of the Fund for the 30-day period ended July 31, 1995
was 7.47%, 7.15% and 7.15%, respectively.
INFORMATION CONCERNING THE MEETING
Proxies in the form enclosed with this Proxy Statement/
Prospectus are being solicited by the Trustees of the Fund for
use at the special meeting of shareholders of the Fund (the
"Meeting"). It is anticipated that this Proxy
Statement/Prospectus will first be mailed to shareholders on or
about September 18, 1995.
The costs of preparing, printing and mailing the accompanying
Notice of Special Meeting and this Proxy Statement/Prospectus and
the costs of the Meeting will be borne by the Fund. Such costs
will come to approximately $10,000. Proxy materials may be
distributed through brokers, custodians and nominees to
beneficial owners and the Fund may reimburse such parties for
reasonable charges and expenses. In addition, proxies may be
solicited by telephone or telegraph by officers, employees and
agents of the Fund on behalf of the Trustees, or by independent
solicitors, the expenses of which may be charged to the Fund.
The Fund has not yet retained a proxy solicitor and does not
currently intend to do so. If the Fund does retain a proxy
solicitor, however, such a solicitor would typically be paid a
fee of $1,500 for a solicitation of this size. The mailing
address of the Fund is Two Pickwick Plaza, Greenwich, Connecticut
06830.
1. Date, Time and Place of Meeting
The Meeting will be held on October 27, 1995 at the offices of
the Fund, Two Pickwick Plaza, Greenwich, Connecticut 06830, at
10:30 a.m., EST.
2. Solicitation, Revocation and Use of Proxies
A shareholder executing and returning a proxy has the power to
revoke it any time prior to its exercise by executing a
superseding proxy or by submitting a notice of revocation to the
Secretary of the Fund. Although mere attendance at the Meeting
will not revoke a proxy, a shareholder present at the Meeting may
withdraw his proxy and vote in person.
All shares represented by properly executed proxies, unless such
proxies have previously been revoked, will be voted at the
Meeting in accordance with the directions on the proxies; if no
direction is indicated, the shares will be voted FOR the approval
of the Reorganization.
3. Record Date and Outstanding Shares
Only holders of record of the Fund's shares of beneficial
interest, par value $0.01 per share, at the close of business on
August 31, 1995 (the "Record Date") are entitled to vote at the
Meeting and any adjournment thereof. The holders of greater than
50% of the Fund shares outstanding at the close of business on
the Record Date present in person or represented by proxy will
constitute a quorum for the Meeting. For purposes of determining
the presence of a quorum for transacting business at the Meeting,
abstentions and broker "non-votes" will be treated as shares that
are present, but which have not been voted. Broker "non-votes"
are proxies received by the Fund from brokers or nominees when
the broker or nominee neither has received instructions from the
beneficial owner(s) or other person(s) entitled to vote nor has
discretionary power to vote on a particular matter. Abstentions
and broker "non-votes" will have the effect of a vote AGAINST the
proposed Reorganization, which proposal requires the affirmative
vote of a majority of all of the votes entitled to be cast at the
Meeting.
In the event that a quorum is not present at the Meeting, or a
quorum is present, but sufficient votes to approve the
Reorganization are not received, the persons named as proxies may
propose one or more adjournments of the meeting to permit further
solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the
meeting in person or by proxy. If a quorum is present, the
persons named as proxies will vote those proxies which they are
entitled to vote FOR the Reorganization in favor of such an
adjournment and will vote those proxies which they are required
to vote AGAINST the Reorganization against any such adjournment.
At the close of business on the Record Date, there were
______________ shares of beneficial interest of the Fund
outstanding and entitled to vote.
4. Voting Rights and Required Vote
Each share of beneficial interest of the Fund is entitled to one
vote. See "Security Ownership of Certain Shareholders and
Management." Approval of the Reorganization requires the
affirmative vote of a majority of the Fund's shares of beneficial
interest outstanding and entitled to vote at the Meeting (as the
term "majority" is defined in the 1940 Act). If the
Reorganization is not approved by the shareholders of the Fund,
Trustees of the Trust, on behalf of the Fund, will consider other
possible courses of action, including operating the Fund as it
presently operates, terminating future sales of shares of the
Fund, or seeking shareholder approval to liquidate the Fund. The
votes of the shareholders of Strategic are not being solicited
because their approval or consent is not necessary for the
Reorganization to take place. On August 31, 1994 there were
_______________ shares of Strategic outstanding. [No person was
known by management of Strategic to own beneficially or of record
more than 5% of the outstanding shares of Strategic on that
date.] All of the officers and directors of Strategic as a group
own less than 1% of Strategic's shares.
SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS AND MANAGEMENT
As of August 31, 1995 Northwestern National Life Insurance
Company, 20 Washington Avenue South, Minneapolis, MN 55401,which
was organized in Minnesota, and Northern Life Insurance Company,
1110 Third Avenue, Seattle, WA 98101, which was organized in
Washington, were the record owner of _______% and of _______%,
respectively, of the Fund's outstanding shares. [No other persons
were known by management to own beneficially or of record more
than 5% of the outstanding shares of the Fund.]
Trustees and officers as a group owned beneficially or of record
less than 1% of the outstanding shares of the Fund as of August
31, 1995.
FINANCIAL STATEMENTS
The financial statements of the Trust contained in its annual
report to shareholders for the fiscal year ended October 31, 1994
have been audited by Coopers & Lybrand L.L.P., the Fund's
independent auditors. The financial statements of Strategic
contained in its annual report to shareholders for the fiscal
year ended December 31, 1994 have been audited by Price
Waterhouse LLP, Strategic's independent accountants. These
financial statements and the unaudited semi-annual reports to
shareholders of the Fund and Strategic for the six-month periods
ended April 30, 1995 and June 30, 1995, respectively, are
incorporated by reference in the SAI to this Proxy
Statement/Prospectus and are incorporated by reference herein.
Such financial statements will be provided upon request of the
SAI to this Proxy Statement/Prospectus.
INFORMATION FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
The funds are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith, file reports, proxy material and other
information with the Commission. Such reports, proxy material
and other information can be inspected and copied at the Public
Reference Room maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates.
OTHER MATTERS
The Trustees of the Trust, on behalf of the Fund, know of no
other matters that may come before the Meeting. If any such
matters should properly come before the Meeting, it is the
intention of the persons named in the enclosed form of proxy to
vote such proxy in accordance with their best judgment.
Please mark, sign, date and return the enclosed proxy promptly.
No postage is required on the enclosed envelope if mailed in the
United States.
By Order of the Trustees,
Lisa Hurley
Secretary
Greenwich, Connecticut
_______, 1995
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of this second day of June, 1995, by and between
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND (the "Acquiring Fund"),
a Massachusetts business trust with its principal place of
business at Two Pickwick Plaza, Greenwich, CT 06830 and Northstar
Advantage Trust (the "Trust"), a Massachusetts business trust
with its principal place of business at Two Pickwick Plaza,
Greenwich, Connecticut 06830, on behalf of NORTHSTAR ADVANTAGE
MULTI-SECTOR BOND FUND (the "Acquired Fund"), a separate series
of the Trust.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section
368(a) of the United States Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the
assets of the Acquired Fund to the Acquiring Fund in exchange
solely for Class A, Class B and Class C voting shares of
beneficial interest (no par value per share) of the Acquiring
Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of certain identified liabilities of the Acquired
Fund, and the distribution of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in complete liquidation of the
Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund is a series of and the Acquiring
Fund is an open-end, registered investment company of the
management type and the Acquired Fund owns securities which
generally are assets of the character in which the Acquiring Fund
is permitted to invest;
WHEREAS, the Trustees of the Acquiring Fund have determined
that the exchange of all or substantially all of the assets of
the Acquired Fund for Acquiring Fund Shares and the assumption of
certain identified liabilities of the Acquired Fund by the
Acquiring Fund is in the best interests of the Acquiring Fund and
its shareholders and that the interests of the existing
shareholders of the Acquiring Fund would not be diluted as a
result of this transaction;
WHEREAS, the Trustees of the Trust, on behalf of the
Acquired Fund, have determined that the exchange of all or
substantially all of the assets of the Acquired Fund for
Acquiring Fund Shares and the assumption of certain identified
liabilities of the Acquired Fund by the Acquiring Fund is in the
best interests of the Acquired Fund and its shareholders and that
the interests of the existing shareholders of the Acquired Fund
would not be diluted as a result of this transaction; and
WHEREAS, the purpose of the Reorganization is to combine the
assets of the Acquiring Fund with those of the Acquired Fund in
an attempt to achieve greater operating economies and increased
portfolio diversification;
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties
hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING
FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES, THE
ASSUMPTION OF CERTAIN IDENTIFIED ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained
herein, the Acquired Fund agrees to transfer all of the Acquired
Fund's assets, as set forth in paragraph 1.2, to the Acquiring
Fund, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Acquired Fund the number of full and fractional
Class A, Class B and Class C Acquiring Fund Shares determined by
dividing the value of the Acquired Fund's net assets with respect
to each class, computed in the manner and as of the time and date
set forth in paragraph 2.1, by the net asset value of one
Acquiring Fund Share of the same class, computed in the manner
and as of the time and date set forth in paragraph 2.2; and (ii)
to assume certain identified liabilities of the Acquired Fund, as
set forth in paragraph 1.3. Such transactions shall take place
at the closing provided for in paragraph 3.1 (the "Closing").
1.2 The assets of the Acquired Fund to be acquired by the
Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities and futures
interests and dividends or interests receivable that are owned by
the Acquired Fund and any deferred or prepaid expenses shown as
an asset on the books of the Acquired Fund on the closing date
provided for in paragraph 3.1 (the "Closing Date").
1.3 The Acquired Fund will endeavor to discharge all of its
known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume all liabilities, expenses, costs,
charges and reserves reflected on an unaudited statement of
assets and liabilities of the Acquired Fund prepared by the
administrator of the Acquiring Fund and the Acquired Fund, as of
the Valuation Date (as defined in paragraph 2.1) in accordance
with generally accepted accounting principles ("GAAP")
consistently applied from the prior audited period. The
Acquiring Fund shall assume only those liabilities of the
Acquired Fund reflected on that unaudited statement of assets and
liabilities, and shall not assume any other liabilities.
1.4 Immediately after the transfer of assets provided for
in paragraph 1.1, the Acquired Fund will distribute to the
Acquired Fund's shareholders of record with respect to each class
of its shares, determined as of immediately after the close of
business on the Closing Date (the "Acquired Fund Shareholders"),
on a pro rata basis within that class, the Acquiring Fund Shares
of the same class received by the Acquired Fund pursuant to
paragraph 1.1, and will completely liquidate. Such distribution
and liquidation will be accomplished, with respect to each class
of the Acquired Fund's shares, by the transfer of the Acquiring
Fund Shares then credited to the account of the Acquired Fund on
the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund
Shareholders. The aggregate net asset value of Class A, Class B
and Class C Acquiring Fund Shares to be so credited to Class A,
Class B and Class C Acquired Fund Shareholders shall, with
respect to each class, be equal to the aggregate net asset value
of the Acquired Fund shares of that same class owned by such
shareholders on the Closing Date. All issued and outstanding
shares of the Acquired Fund will simultaneously be canceled on
the books of the Acquired Fund, although share certificates
representing interests in Class A, Class B and Class C shares of
the Acquired Fund will represent a number of the same class of
Acquiring Fund Shares after the Closing Date, as determined in
accordance with Section 2.3. The Acquiring Fund shall not issue
certificates representing the Class A, Class B and Class C
Acquiring Fund Shares in connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the
Acquiring Fund's then-current prospectus and statement of
additional information.
1.6 Any reporting responsibility of the Acquired Fund
including, but not limited to, the responsibility for filing of
regulatory reports, tax returns, or other documents with the
Securities and Exchange Commission (the "Commission"), any state
securities commission, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and
shall remain the responsibility of the Acquired Fund.
2. VALUATION
2.1 The value of the Acquired Fund's assets to be acquired
by the Acquiring Fund hereunder shall be the value of such assets
computed as of immediately after the close of business of the New
York Stock Exchange and after the declaration of any dividends on
the Closing Date (such time and date being hereinafter called the
"Valuation Date"), using the valuation procedures set forth in
the Acquiring Fund's Amended and Restated Declaration of Trust
and then-current prospectus or statement of additional
information.
2.2 The net asset value of a Class A, Class B or Class C
Acquiring Fund Share shall be the net asset value per share
computed with respect to that class as of immediately after the
close of business of the New York Stock Exchange and after the
declaration of any dividends on the Valuation Date, using the
valuation procedures set forth in the Acquiring Fund's Amended
and Restated Declaration of Trust and then-current prospectus or
statement of additional information.
2.3 The number of the Class A, Class B and Class C
Acquiring Fund Shares to be issued (including fractional shares,
if any) in exchange for the Acquired Fund's assets shall be
determined with respect to each such class by dividing the value
of the net assets with respect to the Class A, Class B or Class C
shares of the Acquired Fund, as the case may be, determined using
the same valuation procedures referred to in paragraph 2.1, by
the net asset value of an Acquiring Fund Share, determined in
accordance with paragraph 2.2.
2.4 All computations of value shall be made by Northstar
Investment Management Corporation ("Northstar") or its designated
agent.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be October 27, 1995, or such
other date as the parties may agree to in writing. All acts
taking place at the Closing shall be deemed to take place
simultaneously as of immediately after the close of business on
the Closing Date unless otherwise agreed to by the parties. The
close of business on the Closing Date shall be as of 4:00 p.m.,
New York time. The Closing shall be held at the offices of
Northstar, Two Pickwick Plaza, Greenwich, Connecticut, or at such
other time and/or place as the parties may agree.
3.2 Custodial Trust Company, as custodian for the Acquired
Fund (the "Custodian"), shall deliver, at the Closing, a
certificate of an authorized officer stating that the Acquired
Fund's portfolio securities, cash, and any other assets shall
have been delivered in proper form to the Acquiring Fund within
two business days prior to or on the Closing Date.
3.3 The Shareholder Services Group, Inc. (the "Transfer
Agent"), on behalf of the Acquired Fund, shall deliver at the
Closing a certificate of an authorized officer stating that its
records contain the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership of
outstanding Class A, Class B and Class C shares owned by each
such shareholder immediately prior to the Closing. The Acquiring
Fund shall issue and deliver a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date to the
Secretary of the Acquired Fund, or provide evidence satisfactory
to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing each party shall deliver to the
other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other
party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust, on behalf of the Acquired Fund, represents
and warrants to the Acquiring Fund as follows:
(a) The Trust is a business trust duly organized and
validly existing under the laws of the Commonwealth of
Massachusetts with power under the Trust's Declaration of Trust
to own all of its properties and assets and, to the knowledge of
the Trust, to carry on its business as it is now being conducted;
(b) The Acquired Fund is a series of a registered
investment company classified as a management company of the
open-end type, and its registration with the Commission as an
investment company under the Investment Company Act of 1940, as
amended ("1940 Act"), and the registration of its shares under
the Securities Act of 1933, as amended ("1933 Act"), are in full
force and effect;
(c) To the knowledge of the Trust, no consent, approval,
authorization, or order of any court or governmental authority is
required for the consummation by the Acquired Fund of the
transactions contemplated herein, except such as have been
obtained under the 1933 Act, the Securities Exchange Act of 1934,
as amended (the "1934 Act") and the 1940 Act and such as may be
required by state securities laws;
(d) The Acquired Fund is not engaged currently, and the
execution, delivery and performance of this Agreement will not
result, in a material violation of its Declaration of Trust or
By-Laws or of any agreement, indenture, instrument, contract,
lease or other undertaking to which the Acquired Fund is a party
or by which it is bound;
(e) The Acquired Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated
with liability to it prior to the Closing Date;
(f) Except as otherwise disclosed in writing to and
accepted by the Acquiring Fund, no material litigation or
administrative proceeding or investigation of or before any court
or governmental body is presently pending or, to its knowledge,
threatened against the Acquired Fund or any of its properties or
assets that, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its
business. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions herein contemplated;
(g) The Statement of Assets and Liabilities of the Acquired
Fund at October 31, 1994 has been audited by Coopers & Lybrand
L.L.P., independent accountants, and is in accordance with GAAP
consistently applied, and such statement (a copy of which has
been furnished to the Acquiring Fund) presents fairly, in all
material respects, the financial condition of the Acquired Fund
as of such date in accordance with GAAP, and there are no known
contingent liabilities of the Acquired Fund required to be
reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(h) Since October 31, 1994, there has not been any material
adverse change in the Acquired Fund's financial condition,
assets, liabilities or business, other than changes occurring in
the ordinary course of business, or any incurrence by the
Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund. For the
purposes of this subparagraph (g), a decline in net asset value
per share of the Acquired Fund, the discharge of Acquired Fund
liabilities, or the redemption of Acquired Fund shares by
Acquired Fund Shareholders shall not constitute a material
adverse change;
(i) On the Closing Date, all material Federal and other tax
returns and reports of the Acquired Fund required by law to have
been filed by such date (including any extensions) shall have
been filed and are or will be correct in all material respects,
and all Federal and other taxes shown as due or required to be
shown as due on said returns and reports shall have been paid, or
provision shall have been made for the payment thereof, and to
the best of the Acquired Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with
respect to such returns;
(j) For each taxable year of its operation (including the
taxable year ending on the Closing Date), the Acquired Fund has
met the requirements of Subchapter M of the Code for
qualification as a regulated investment company and has elected
to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net
capital gain (as defined in the Code) that has accrued through
the Closing Date;
(k) All issued and outstanding shares of the Acquired Fund
are, and on the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable by the Acquired Fund
(recognizing that, under Massachusetts law, Acquired Fund
Shareholders could, under certain circumstances, be held
personally liable for obligations of the Acquired Fund). All of
the issued and outstanding shares of the Acquired Fund will, at
the time of closing, be held by the persons and in the amounts
set forth in the records of the Transfer Agent, on behalf of the
Acquired Fund, as provided in paragraph 3.3. The Acquired Fund
does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of the Acquired Fund shares, nor
is there outstanding any security convertible into any of the
Acquired Fund shares;
(l) On the Closing Date, the Acquired Fund will have good
and marketable title to the Acquired Fund's assets to be
transferred to the Acquiring Fund pursuant to paragraph 1.2 and
full right, power, and authority to sell, assign, transfer and
deliver such assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such assets, the
Acquiring Fund will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act,
other than as disclosed to the Acquiring Fund;
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing
Date by all necessary action on the part of the Acquired Fund's
Trustees, and, subject to the approval of the Acquired Fund
Shareholders, this Agreement will constitute a valid and binding
obligation of the Trust, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors'
rights and to general equity principles;
(n) The information to be furnished by the Acquired Fund
for use in registration statements, proxy materials and other
documents filed or to be filed with any federal, state or local
regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection
with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all
material respects with Federal securities and other laws and
regulations thereunder applicable thereto; and
(o) The proxy statement of the Acquired Fund (the "Proxy
Statement") to be included in the Registration Statement referred
to in paragraph 5.6 , insofar as it relates to the Acquired Fund,
will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not
materially misleading.
4.2 The Acquiring Fund represents and warrants to the
Acquired Fund as follows:
(a) The Acquiring Fund is a business trust duly organized
and validly existing under the laws of the Commonwealth of
Massachusetts with power under the Acquiring Fund's Amended and
Restated Declaration of Trust to own all of its properties and
assets and, to the knowledge of the Acquiring Fund, to carry on
its business as it is now being conducted;
(b) The Acquiring Fund is a registered investment company
classified as a management company of the open-end type, and its
registration with the Commission as an investment company under
the 1940 Act and the registration of its shares under the 1933
Act, are in full force and effect;
(c) To the knowledge of the Acquiring Fund, no consent,
approval, authorization, or order of any court or governmental
authority is required for the consummation by the Acquiring Fund
of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and
such as may be required by state securities laws;
(d) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material
respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially
misleading;
(e) On the Closing Date, the Acquiring Fund will have good
and marketable title to the Acquiring Fund's assets;
(f) The Acquiring Fund is not engaged currently, and the
execution, delivery and performance of this Agreement will not
result, in a material violation of the Acquiring Fund's Amended
and Restated Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to
which the Acquiring Fund is a party or by which it is bound;
(g) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or, to its knowledge, threatened against the
Acquiring Fund or any of its properties or assets, except as
previously disclosed in writing to the Acquired Fund. The
Acquiring Fund knows of no facts which might form the basis for
the institution of such proceedings and is not a party to or
subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects
its business or its ability to consummate the transactions
contemplated herein;
(h) The Statement of Assets and Liabilities of the
Acquiring Fund at December 31, 1994 has been audited by Price
Waterhouse, independent accountants, and is in accordance with
GAAP consistently applied, and such statement (a copy of which
has been furnished to the Acquired Fund) presents fairly, in all
material respects, the financial position of the Acquiring Fund
as of such date in accordance with GAAP, and there are no known
contingent liabilities of the Acquiring Fund required to be
reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(i) Since December 31, 1994, there has not been any
material adverse change in the Acquiring Fund's financial
condition, assets, liabilities or business, other than changes
occurring in the ordinary course of business, or any incurrence
by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred. For purposes of
this subparagraph (i), a decline in net asset value per share of
the Acquiring Fund, the discharge of Acquiring Fund liabilities,
or the redemption of Acquiring Fund Shares by Acquiring Fund
Shareholders, shall not constitute a material adverse change;
(j) On the Closing Date, all material Federal and other tax
returns and reports of the Acquiring Fund required by law to have
been filed by such date (including any extensions) shall have
been filed and are or will be correct, and all Federal and other
taxes shown as due or required to be shown as due on said returns
and reports shall have been paid or provision shall have been
made for the payment thereof, and to the best of the Acquiring
Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(k) For each taxable year of its operation, the Acquiring
Fund has met the requirements of Subchapter M of the Code for
qualification as a regulated investment company and has elected
to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, and will do so
for the taxable year including the Closing Date;
(l) All issued and outstanding Acquiring Fund Shares are,
and on the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable by the Acquiring Fund
(recognizing that, under Massachusetts law, Acquiring Fund
Shareholders could, under certain circumstances, be held
personally liable for obligations of the Acquiring Fund). The
Acquiring Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into
any Acquiring Fund Shares;
(m) The execution, delivery and performance of this
Agreement will have been fully authorized prior to the Closing
Date by all necessary action, if any, on the part of the Trustees
of the Acquiring Fund and this Agreement will constitute a valid
and binding obligation of the Acquiring Fund, enforceable in
accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity
principles;
(n) The Class A, Class B and Class C Acquiring Fund Shares
to be issued and delivered to the Acquired Fund, for the account
of the Acquired Fund Shareholders, pursuant to the terms of this
Agreement, will on the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly
issued Acquiring Fund Shares, and will be fully paid and
non-assessable by the Acquiring Fund (recognizing that, under
Massachusetts law, Acquiring Fund Shareholders could, under
certain circumstances, be held personally liable for obligations
of the Acquiring Fund);
(o) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material
respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially
misleading;
(p) The information to be furnished by the Acquiring Fund
for use in the registration statements, proxy materials and other
documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete
in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations
applicable thereto;
(q) The Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund)
will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statement therein, in light of
the circumstances under which such statements were made not
materially misleading; and
(r) The Acquiring Fund agrees to use all reasonable efforts
to obtain the approvals and authorizations required by the 1933
Act, the 1940 Act and such of the state blue sky or securities
laws as may be necessary in order to continue its operations
after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 The Acquiring Fund and the Acquired Fund each will
operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such
ordinary course of business will include the declaration and
payment of customary dividends and distributions, and any other
distribution that may be advisable.
5.2 The Acquired Fund will call a meeting of the Acquired
Fund Shareholders to consider and act upon this Agreement and to
take all other action necessary to obtain approval of the
transactions contemplated herein.
5.3 The Acquired Fund covenants that the Class A, Class B
and Class C Acquiring Fund Shares to be issued hereunder are not
being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms of this
Agreement.
5.4 The Acquired Fund will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably
request concerning the beneficial ownership of the Acquired Fund
shares.
5.5 Subject to the provisions of this Agreement, the
Acquiring Fund and the Acquired Fund will each take, or cause to
be taken, all action, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.
5.6 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a
prospectus (the "Prospectus") which will include the Proxy
Statement referred to in paragraph 4.1(o), all to be included in
a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the
1934 Act and the 1940 Act, in connection with the meeting of the
Acquired Fund Shareholders to consider approval of this Agreement
and the transactions contemplated herein.
5.7 As soon as is reasonably practicable after the Closing,
the Acquired Fund will make a liquidating distribution to its
shareholders consisting of the Class A, Class B and Class C
Acquiring Fund Shares received at the Closing.
5.8 The Acquiring Fund and the Acquired Fund shall each use
its reasonable best efforts to fulfill or obtain the fulfillment
of the conditions precedent to effect the transactions
contemplated by this Agreement as promptly as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the
transactions provided for herein shall be subject, at the
Acquired Fund's election, to the performance by the Acquiring
Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following
further conditions:
6.1 All representations and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may
be affected by the transactions contemplated by this Agreement,
as of the Closing Date, with the same force and effect as if made
on and as of the Closing Date.
6.2 The Acquiring Fund shall have delivered to the Acquired
Fund a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in a form
reasonably satisfactory to the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and
warranties of the Acquiring Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement and
as to such other matters as the Acquired Fund shall reasonably
request.
6.3 The Acquired Fund shall have received on the Closing
Date an opinion of Dechert Price & Rhoads, in a form reasonably
satisfactory to the Acquired Fund, and dated as of the Closing
Date, to the effect that:
(a) The Acquiring Fund is a business trust, duly organized
and validly existing under the laws of the Commonwealth of
Massachusetts; (b) the Acquiring Fund has the power under its
Amended and Restated Declaration of Trust, to own all of its
properties and assets and, to the knowledge of such counsel, to
carry on its business as presently conducted in accordance with
the description thereof in the Acquiring Fund's registration
statement under the 1940 Act; (c) the Agreement has been duly
authorized, executed and delivered by the Acquiring Fund, and
constitutes a valid and legally binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated thereby will not,
result in the violation of the Acquiring Fund's Amended and
Restated Declaration of Trust and By-laws or of any agreement to
which the Acquiring Fund is a party or by which it is bound; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or
made by the Acquiring Fund under the Federal laws of the United
States or the laws of the Commonwealth of Massachusetts for the
consummation of the transactions contemplated in the Agreement
have been obtained or made.
6.4 The Acquiring Fund shall have performed all of the
covenants and complied with all of the provisions required by
this Agreement to be performed or complied with by the Acquiring
Fund on or before the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the
transactions provided for herein shall be subject, at the
Acquiring Fund's election to the performance by the Acquired Fund
of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Trust, with
respect to the Acquired Fund contained in this Agreement shall be
true and correct in all material respects as of the date hereof
and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date;
7.2 The Acquired Fund shall have delivered to the Acquiring
Fund a statement of the Acquired Fund's assets and liabilities,
as of the Closing Date, certified by the Treasurer of the
Acquired Fund;
7.3 The Acquired Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by
its President or Vice President and its Treasurer or Assistant
Treasurer, in form and substance satisfactory to the Acquiring
Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquired Fund made in this
Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated
by this Agreement, and as to such other matters as the Acquiring
Fund shall reasonably request;
7.4 The Acquiring Fund shall have received on the Closing
Date an opinion of Dechert Price & Rhoads, in a form reasonably
satisfactory to the Acquiring Fund, and dated as of the Closing
Date, to the effect that:
(a) The Trust is a business trust, duly organized and
validly existing under the laws of the Commonwealth of
Massachusetts; (b) the Trust, on behalf of the Acquired Fund, has
the power under its Declaration of Trust, to own all of its
properties and assets and, to the knowledge of such counsel, to
carry on its business as presently conducted in accordance with
the description thereof in the Trust's registration statement
under the 1940 Act; (c) the Agreement has been duly authorized,
executed and delivered by the Trust, on behalf of the Acquired
Fund, and constitutes a valid and legally binding obligation of
the Trust, on behalf of the Acquired Fund, enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of
general applicability relating to or affecting creditors' rights
and to general equity principles; (d) the execution and delivery
of the Agreement did not, and the consummation of the
transactions contemplated thereby will not, result in the
violation of the Trust's Declaration of Trust and By-laws or of
any agreement to which the Trust or the Acquired Fund is a party
or by which it is bound; and (e) to the knowledge of such
counsel, all regulatory consents, authorizations, approvals or
filings required to be obtained or made by the Acquired Fund
under the Federal laws of the United States or the laws of the
Commonwealth of Massachusetts for the consummation of the
transactions contemplated in the Agreement have been obtained or
made; and
7.5 The Acquired Fund shall have performed all of the
covenants and complied with all of the provisions required by
this Agreement to be performed or complied with by the Acquired
Fund on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE ACQUIRED FUND
If any of the conditions set forth below do not exist on or
before the Closing Date with respect to the Acquired Fund or the
Acquiring Fund, the other party to this Agreement shall, at its
option, not be required to consummate the transactions
contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein
shall have been approved by the requisite vote of the holders of
the outstanding shares of the Acquired Fund in accordance with
the provisions of the Trust's Declaration of Trust and By-Laws
and certified copies of the resolutions evidencing such approval
shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor
the Acquired Fund may waive the conditions set forth in this
paragraph 8.1;
8.2 On the Closing Date no action, suit or other proceeding
shall be pending or, to its knowledge, threatened before any
court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents,
orders and permits of Federal, state and local regulatory
authorities deemed necessary by the Acquiring Fund or the
Acquired Fund to permit consummation, in all material respects,
of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the
assets or properties of the Acquiring Fund or the Acquired Fund,
provided that either party hereto may for itself waive any of
such conditions;
8.4 The Registration Statement shall have become effective
under the 1933 Act and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best
knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act; and
8.5 The parties shall have received the opinion of Dechert
Price & Rhoads addressed to the Acquiring Fund and Acquired Fund
substantially to the effect that the transaction contemplated by
this Agreement shall constitute a tax-free reorganization for
Federal income tax purposes, unless, based on the circumstances
existing at the time of the Closing, Dechert Price & Rhoads
determines that the transaction contemplated by this Agreement
does not qualify as such. The delivery of such opinion is
conditioned upon receipt by Dechert Price & Rhoads of
representations it shall request of the Acquiring Fund and the
Acquired Fund. Notwithstanding anything herein to the contrary,
neither the Acquiring Fund nor the Acquired Fund may waive the
condition set forth in this paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund and the Trust, on behalf of the
Acquired Fund, each represents and warrants to the other that
there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2 Each party to this Agreement shall bear its own
expenses in connection with carrying out the terms of this
Agreement, except that all costs associated with the parties'
application for exemptive relief from the provisions of Sections
17(a) and 17(d) of the 1940 Act shall be borne by the funds'
investment adviser.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Acquired Fund agree that
neither party has made any representation, warranty or covenant
not set forth herein and that this Agreement constitutes the
entire agreement between the parties.
10.2 The representations, warranties and covenants contained
in this Agreement or in any document delivered pursuant hereto or
in connection herewith shall survive the consummation of the
transactions contemplated hereunder. The covenants to be
performed after the Closing shall survive the Closing.
11. TERMINATION
This Agreement and the transactions contemplated hereby may
be terminated and abandoned by either party by resolution of the
party's Trustees, at any time prior to the Closing Date, if
circumstances should develop that, in the opinion of such board,
make proceeding with the Agreement inadvisable.
12. AMENDMENTS
This agreement may be amended, modified or supplemented in
such manner as may be mutually agreed upon in writing by the
authorized officers of the Acquired Fund and the Acquiring Fund;
provided, however, that following the meeting of the Acquired
Fund Shareholders called by the Acquired Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of
the Class A, Class B and Class C Acquiring Fund Shares to be
issued to the Acquired Fund Shareholders under this Agreement to
the detriment of such shareholders without their further
approval.
13. NOTICES
Any notice, report, statement or demand required or
permitted by any provisions of this Agreement shall be in writing
and shall be given by prepaid telegraph, telecopy or certified
mail addressed to the Acquiring Fund, Two Pickwick Plaza,
Greenwich, CT 06830, or to the Acquired Fund, Two Pickwick Plaza,
Greenwich, Connecticut 06830.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
14.2 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns,
but no assignment or transfer hereof or of any rights or
obligations hereunder shall be made by any party without the
written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto
and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
14.5 It is expressly agreed that the obligations of the
Acquiring Fund hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents, or employees
of the Acquiring Fund personally, but shall bind only the trust
property of the Acquiring Fund, as provided in the Amended and
Restated Declaration of Trust of the Acquiring Fund. The
execution and delivery by such officers shall not be deemed to
have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the
trust property of the Acquiring Fund as provided in the Amended
and Restated Declaration of Trust of the Acquiring Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed by its President or Vice President
and its seal to be affixed thereto and attested by its Secretary
or Assistant Secretary.
Attest: NORTHSTAR ADVANTAGE
STRATEGIC INCOME FUND
______________________________ By:_________________
Secretary
Its:_____________________
Attest: NORTHSTAR ADVANTAGE
TRUST,
on behalf of Northstar
Advantage Multi-Sector
Bond Fund
______________________________ By:_________________
Secretary
Its:_____________________
Part B. STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the assets of
Northstar Advantage Multi-Sector Bond Fund
a portfolio of
NORTHSTAR ADVANTAGE TRUST
Two Pickwick Plaza
Greenwich, Connecticut 06830
Telephone (800) 595-7827
BY AND IN EXCHANGE FOR CLASS A, CLASS B AND CLASS C SHARES OF
Northstar Advantage Strategic Income Fund
Two Pickwick Plaza
Greenwich, Connecticut 06830
Telephone (800) 595-7827
This Statement of Additional Information is available to the
Shareholders of Northstar Advantage Multi-Sector Bond Fund (the
"Fund") in connection with a proposed transaction whereby
Northstar Advantage Strategic Income Fund ("Strategic") will
acquire all of the assets of the Fund and assume certain
identified liabilities of the Fund in exchange for Class A, Class
B and Class C shares of Strategic.
This Statement of Additional Information consists of this
cover page and the following documents, each of which is attached
hereto and incorporated by reference herein:
(1) The Statement of Additional Information of Strategic
dated June 5, 1995.
(2) Pro forma combining financial statements (unaudited) of
the Fund and Strategic as of June 30, 1994.
This Statement of Additional Information also consists of
the following documents, each of which is incorporated by
reference herein as follows:
(1) The Annual Report of Strategic for the fiscal year
ended December 31, 1994 (incorporated by reference
herein to the filing thereof with the SEC on March 2,
1995).
(2) The Semi-Annual Report of Strategic for the six-month
period ended June 30, 1995 (incorporated by reference
herein to the filing thereof with the SEC on or before
September 8, 1995).
(3) The Annual Report of the Fund for the fiscal year ended
October 31, 1994 (incorporated by reference herein to
the filing thereof with the SEC on January 10, 1995).
(4) The Semi-Annual Report of the Fund for the six-month
period ended April 30, 1995 (incorporated by reference
herein to the filing thereof with the SEC on July 11,
1995).
This Statement of Additional Information is not a
prospectus. A Proxy Statement/Prospectus dated ______, 1995
relating to the above-referenced matter may be obtained by
writing to Northstar Advantage Strategic Income Fund at the
address above or by calling Northstar Advantage Strategic Income
Fund at (800) 595-7827. This Statement of Additional Information
relates to, and should be read in conjunction with, such Proxy
Statement/Prospectus.
The date of this Statement of Additional Information is
________, 1995.
NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES FUND
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND
NORTHSTAR ADVANTAGE HIGH YIELD FUND
NORTHSTAR ADVANTAGE MANAGED INCOME FUND
NORTHSTAR ADVANTAGE GROWTH FUND
NORTHSTAR ADVANTAGE SPECIAL FUND
Two Pickwick Plaza
Greenwich, Connecticut 06830
(203) 863-6200
(800) 595-7827
STATEMENT OF ADDITIONAL INFORMATION
Northstar Advantage Government Securities Fund, Northstar
Advantage Strategic Income Fund, Northstar Advantage High Yield
Fund, Northstar Advantage Managed Income Fund, Northstar
Advantage Growth Fund and Northstar Advantage Special Fund (the
"Funds") are open-end diversified management investment
companies. Each is a separate investment company with its own
investment objectives and specific investment goals.
NORTHSTAR ADVANTAGE GOVERNMENT SECURITIES FUND ("Government
Securities Fund") seeks to achieve a high level of current income
and to conserve principal by investing in debt obligations issued
or guaranteed by the U.S. Government or its agencies and
instrumentalities.
NORTHSTAR ADVANTAGE STRATEGIC INCOME FUND ("Strategic Income
Fund") seeks to achieve high current income. The Fund generally
allocates its investments among the following three sectors of
the fixed income securities markets: debt obligations of the U.S.
Government, its agencies and instrumentalities; high yield, high
risk, lower rated and nonrated U.S. and foreign income
securities; and investment grade debt obligations of foreign
governments, their agencies and instrumentalities.
NORTHSTAR ADVANTAGE HIGH YIELD FUND ("High Yield Fund") seeks
high current income and, secondarily, capital appreciation. This
Fund invests primarily in long-term and intermediate-term fixed
income securities, with emphasis on high yield, high risk, lower
rated and nonrated corporate debt instruments.
NORTHSTAR ADVANTAGE MANAGED INCOME FUND ("Income Fund") seeks to
realize income and, secondarily, capital appreciation. Basically
conservative, this Fund invests in a balance of debt securities
(generally investment grade), common and preferred stocks, and
debt securities and preferred stocks convertible into common
stock.
NORTHSTAR ADVANTAGE GROWTH FUND ("Growth Fund") seeks to achieve
long-term growth of capital and, secondarily, to realize income.
This Fund invests principally in common stocks and, to a lesser
extent, it may also invest in preferred stocks and convertible
securities.
NORTHSTAR ADVANTAGE SPECIAL FUND ("Special Fund") seeks to
achieve capital appreciation through investment in a diversified
portfolio of equity securities selected for their potential for
growth. This Fund does not seek current income. The Fund
invests primarily in smaller, lesser-known companies that may be
subject to greater price volatility than more mature companies.
Northstar Investment Management Corporation (the "Adviser") is
the investment adviser for each Fund. NWNL Northstar
Distributors, Inc. (the "Underwriter") is the underwriter to the
Funds, and Northstar Administrators Corporation is the Funds'
administrator (the "Administrator"). The Underwriter and
Administrator are affiliates of the Adviser.
This document is not the Prospectus of the Funds but is
incorporated therein by reference and should be read in
conjunction with the Prospectus dated June 5, 1995. Copies of
the Prospectus may be obtained upon request and without charge by
contacting the Adviser at the address or phone number above.
Investment Restrictions 3
Other Investment Techniques 6
Portfolio Transactions and Brokerage 35
Services of the Adviser and Administrator 38
Net Asset Value 41
How to Buy Shares 42
Alternative Purchase Arrangements 42
Exchange Privileges 46
Redemption of Shares 46
Dividends, Distributions and Taxes 47
Underwriter and Distribution Services 52
Trustees and Officers 55
Other Information 60
Performance Information 60
Financial Statements 75
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. Each Fund has adopted
certain fundamental investment policies. These fundamental
investment policies cannot be changed unless the change is
approved by the lesser of (i) 67% or more of the voting
securities present at a meeting, if the holders of more than 50%
of the outstanding voting securities of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding
voting securities of the Fund.
These policies, which are identical for each of the Funds,
provide, among other things, that a Fund may not: (i) borrow
money, except from a bank and as a temporary measure for
extraordinary or emergency purposes, provided the Fund maintains
asset coverage of 300% for all borrowings; (ii) purchase
securities of any one issuer (except Government securities) if,
as a result, more than 5% of the Fund's total assets would be
invested in that issuer or the Fund would own or hold more than
10% of the outstanding voting securities of the issuer, provided,
however, that up to 25% of the Fund's total assets may be
invested without regard to these limitations; (iii) underwrite
the securities of other issuers, except to the extent that in
connection with the disposition of portfolio securities, the Fund
may be deemed to be an underwriter; (iv) concentrate its assets
in the securities of issuers all of which conduct their principal
business activities in the same industry (this restriction does
not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities); (v) make any
investment in real estate, commodities or commodities contracts,
except that the Fund may: (a) purchase or sell readily marketable
securities which are secured by interest in real estate or issued
by companies which deal in real estate, including real estate
investment and mortgage investment trusts; and (b) engage in
financial futures contracts and related options as described
herein and in the Funds' Prospectus; (vi) make loans, except that
the Fund may (a) invest in repurchase agreements, and (b) loan
its portfolio securities in amounts up to one-third of the market
or other fair value of its total assets; and (vii) issue senior
securities, except as appropriate to evidence indebtedness which
it is permitted to incur, provided that the deposit or payment by
the Fund of initial or maintenance margin in connection with
futures contracts and related options is not considered the
issuance of senior securities.
Non-Fundamental Investment Policies. Each Fund has
adopted certain investment restrictions which may be changed at
any time by the Board of Trustees without a vote of shareholders.
These non-fundamental limitations provide that a Fund may not:
(1) borrow money in excess of 5% of its total assets (taken
at market value);
(2) pledge, mortgage or hypothecate in excess of 5% of its
total assets (The deposit or payment by a Fund of
initial or maintenance margin in connection with
futures contracts and related options is not considered
a pledge or hypothecation of assets.);
(3) purchase more than 10% of the voting securities of any
one issuer, except U.S. Government Securities;
(4) invest more than 15% of its net assets in illiquid
securities, including repurchase agreements maturing in
more than 7 days, that cannot be disposed of within the
normal course of business at approximately the amount
at which the Fund has valued the securities, excluding
restricted securities that have been determined by the
Trustees of the Fund (or the persons designated by them
to make such determinations) to be readily marketable;
(5) purchase securities of any issuer with a record of less
than 3 years continuous operations, including
predecessors, except U.S. Government Securities and
obligations issued or guaranteed by any foreign
government or its agencies or instrumentalities, if
such purchase would cause the investments of a Fund in
all such issuers to exceed 5% of the total assets of
the Fund taken at market value;
(6) purchase securities on margin, except a Fund may obtain
such short-term credits as may be necessary for the
clearance of purchases and sales of securities (The
deposit or payment by a Fund of initial or maintenance
margin in connection with futures contracts or related
options is not considered the purchase of a security on
margin);
(7) write put and call options unless the options are
covered and the Fund invests through premium payments
no more than 5% of its total assets in options
transactions other than options on futures contracts;
(8) purchase and sell futures contracts and options on
futures contracts unless the sum of margin deposits on
all futures contracts held by the Fund and premiums
paid on related options held by the Fund does not
exceed more than 5% of the Fund's total assets unless
the transaction meets certain "bona fide hedging"
criteria (In the case of an option that is in-the-money
at the time of purchase, the in-the-money amount may be
excluded in computing the 5%.);
(9) invest in securities of any issuer if any officer or
trustee of the Fund or any officer or director of the
Fund's investment adviser owns more than 1/2 of 1% of
the outstanding securities of the issuer and such
officers, directors and trustees own in the aggregate
more than 5% of the securities of such issuer;
(10) invest in interests in oil, gas or other mineral
exploration or development programs (although it may
invest in issuers which own or invest in such
interests);
(11) purchase securities of any investment company except by
purchase in the open market where no commission or
profit to a sponsor or dealer results from such
purchase or except when such purchase, though not made
in the open market, is part of a plan of merger,
consolidation, reorganization or acquisition of assets;
in any event, a Fund may not purchase more than 3% of
the outstanding voting securities of another investment
company, may not invest more than 5% of its total
assets in another investment company and may not invest
more than 10% of its total assets in other investment
companies;
(12) purchase warrants if as a result warrants taken at the
lower of cost or market value would represent more than
5% of the value of the Fund's net assets or if warrants
that are not listed on the New York or American Stock
Exchanges or on an exchange with comparable listing
requirements taken at the lower of cost or market value
would represent more than 2% of the value of the Fund's
net assets (For this purpose, warrants attached to
securities will be deemed to have no value); and
(13) make short sales, unless, by virtue of its ownership of
other securities, the Fund has the right to obtain
securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the
sale is made upon the same conditions, except in
connection with arbitrage transactions.
(14) Invest in interests of real estate limited partnerships
(Strategic Income Fund only).
OTHER INVESTMENT TECHNIQUES
Options and Futures Strategies
The Adviser may at times seek to hedge against a decline in
the value of securities included in a Fund's portfolio or an
increase in the price of securities which it plans to purchase
for a Fund through the writing and purchase of options and the
purchase and sale of financial futures contracts and related
options. Expenses and losses incurred as a result of such
hedging strategies will reduce the current return of the Funds
employing these hedging strategies. In addition, the Adviser may
seek to increase the current return of a Fund's portfolio by
writing covered call or secured put options.
The ability of the Funds to engage in options and futures
strategies described below will depend on the availability of
liquid markets in such instruments. Accordingly, no assurances
can be given that the Funds will be able to use these instruments
effectively for the purposes stated below. Options and futures
transactions will involve certain risks which are described below
under "Risks of Options and Futures Strategies." The Funds will
not engage in options and futures transactions for leveraging
purposes.
Writing Covered Options on Securities. Each Fund may write
covered call options and covered put options on securities of the
types in which it is permitted to invest from time to time as the
Adviser determines is appropriate in seeking to attain its
investment objectives. Call options written by a Fund give the
holder the right to buy the underlying security from the Fund at
a stated exercise price; put options written by a Fund give the
holder the right to sell the underlying security to the Fund at a
stated price.
A Fund may only write call options on a covered basis or for
cross-hedging purposes and will only write secured put options.
A call option is covered if the Fund owns or has the right to
acquire the underlying securities subject to the call option (or
comparable securities satisfying the cover requirements of
securities exchanges) at all times during the option period. A
call option is for cross-hedging purposes if it is not covered,
but is designed to provide a hedge against another security which
the Fund owns or has the right to acquire. In the case of a call
written for cross-hedging purposes or a put option, the Fund will
maintain in a segregated account at its custodian bank cash or
short-term U.S. Government Securities, or, in the case of the
Strategic Income Fund, short-term debt obligations, with a value
equal to or greater than the Fund's obligation under the option.
The Funds may also write combinations of secured puts and covered
calls on the same underlying security.
A Fund will receive a premium from writing an option, which
increases the Fund's return in the event the option expires
unexercised or is terminated at a profit. The amount of the
premium will reflect, among other things, the relationship of the
market price of the underlying security to the exercise price of
the option, the term of the option, and the volatility of the
market price of the underlying security. By writing a call
option, a Fund will limit its opportunity to profit from any
increase in the market value of the underlying security above the
exercise price of the option. By writing a put option, a Fund
will assume the risk that it may be required to purchase the
underlying security for an exercise price higher than its then-
current market price, resulting in a potential capital loss if
the purchase price exceeds the market price plus the amount of
the premium received.
A Fund may terminate an option which it has written prior to
its expiration by entering into a closing purchase transaction in
which it purchases an option having the same terms as the option
written. The Fund will realize a profit (or loss) from such
transaction if the cost of such transaction is less (or more)
than the premium received from the writing of the option.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option
may be offset in whole or in part by unrealized appreciation of
the underlying security owned by the Fund.
When a Fund writes a call option but does not own the
underlying security, and when it writes a put option, the Fund
may be required to deposit cash or securities with its broker as
"margin", or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements imposed by
the Federal Reserve Board and by stock exchanges and other
self-regulatory organizations.
Purchasing Put and Call Options on Securities. Each Fund
may purchase put options to protect its portfolio holdings in an
underlying security against a decline in market value. This
protection is provided during the life of the put option since
the Fund, as holder of the put, is able to sell the underlying
security at the exercise price regardless of any decline in the
underlying security's market price. For the purchase of a put
option to be profitable, the market price of the underlying
security must decline sufficiently below the exercise price to
cover the premium and transaction costs. By using put options in
this manner, any profit which the Fund purchasing the put option
might otherwise have realized on the underlying security will be
reduced by the premium paid for the put option and by transaction
costs.
A Fund may also purchase a call option to hedge against an
increase in price of a security that it intends to purchase.
This protection is provided during the life of the call option
since the Fund, as holder of the call, is able to buy the
underlying security at the exercise price regardless of any
increase in the underlying security's market price. For the
purchase of a call option to be profitable, the market price of
the underlying security must rise sufficiently above the exercise
price to cover the premium and transaction costs. By using call
options in this manner, any profit which the Fund purchasing the
call option might have realized had it bought the underlying
security at the time it purchased the call option will be reduced
by the premium paid for the call option and by transaction costs.
Each Fund does not intend to purchase put or call options
if, as a result of any such transaction, the aggregate cost of
options held by a Fund at the time of such transaction would
exceed 5% of the total assets of such Fund.
Risk Factors in Options Transactions. The successful use of
a Fund's options strategies depends in large part on the ability
of the Adviser to forecast correctly interest rate and market
movements. For example, if a Fund were to write a call option
based on the Adviser's expectation that the price of the
underlying security would fall, but the price rose instead, the
Fund could be required to sell the security upon exercise at a
price below the current market price. Similarly, if a Fund were
to write a put option based on the Adviser's view that the price
of the underlying security would rise, but the price fell
instead, the Fund could be required to purchase the security upon
exercise at a price higher than the current market price.
When a Fund purchases an option, it runs the risk that it
will lose its entire investment in the option in a relatively
short period of time, unless the Fund exercises the option or
enters into a closing sale transaction before the option's
expiration. If the price of the underlying security does not
rise (in the case of a call) or fall (in the case of a put) to an
extent sufficient to cover the option premium and transaction
costs, the Fund will lose part or all of its investment in the
option. This contrasts with an investment by the Fund in the
underlying security, since the Fund will not realize a loss if
the security's price does not change.
The effective use of options also depends on a Fund's
ability to terminate option positions at times when the Adviser
deems it desirable to do so. There is no assurance that a Fund
will be able to effect closing transactions at any particular
time or at an acceptable price.
If a secondary market in options were to become unavailable,
the Funds could no longer engage in closing transactions. Lack
of investor interest might adversely affect the liquidity of the
market for particular options or series of options. A market may
discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if
unusual events, such as volume in excess of trading or clearing
capability, were to interrupt its normal operations.
A market may at times find it necessary to impose
restrictions on particular types of options transactions, such as
opening transactions. For example, if an underlying security
ceases to meet qualifications imposed by the market or the
Options Clearing Corporation, new series of options on that
security will no longer be opened to replace expiring series, and
opening transactions in existing series may be prohibited. If an
options market were to become unavailable, a Fund, as a holder of
an option would be able to realize profits or limit losses only
by exercising the option, and the Fund, as option writer, would
remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying
options purchased or sold by a Fund could result in losses on the
options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as
well. As a result, the Fund as purchaser or writer of an option
will be unable to close out its positions until options trading
resumes, and it may be faced with considerable losses if trading
in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation or other options
markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option
will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The Fund,
as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's
expiration.
Special risks are presented by internationally-traded
options. Because of time differences between the United States
and various foreign countries, and because different holidays are
observed in different countries, foreign options markets may be
open for trading during hours or on days when United States
markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United
States.
Over-the-Counter Options. The Staff of the Division of
Investment Management of the Securities and Exchange Commission
(the "SEC") has taken the position that over-the-counter ("OTC")
options purchased by a Fund are illiquid securities. Although
the Staff has indicated that it is continuing to evaluate this
issue, pending further developments, the Funds intend to enter
into OTC options transactions only with primary dealers in U.S.
Government Securities and, in the case of OTC options written by
a Fund, only pursuant to an agreement that will assure that the
Fund will at all times have the right to repurchase the option
written by it from the dealer at a specified formula price. The
Fund will treat the amount by which such formula price exceeds
the amount, if any, by which the option may be "in-the-money" as
an illiquid investment. It is the present policy of the Funds
not to enter into any OTC option transaction if, as a result,
more than [15%] of the Fund's net assets would be invested in
(i) illiquid investments (determined under the foregoing formula)
relating to OTC options written by the Fund, (ii) OTC options
purchased by the Fund, (iii) securities which are not readily
marketable, and (iv) repurchase agreement maturing in more than
seven days.
Futures Contracts. A financial futures contract sale
creates an obligation by the seller to deliver the type of
financial instrument called for in the contract in a specified
delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to take delivery
of the type of financial instrument called for in the contract in
a specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade, known as "contract markets," approved for such
trading by the Commodity Futures Trading Commission (the "CFTC"),
and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market.
Although futures contracts by their terms call for actual
delivery or acceptance of commodities or securities, in most
cases the contracts are closed out before the settlement date
without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for
the same aggregate amount of the specific type of financial
instrument or commodity with the same delivery date. If the
price of the initial sale of the futures contract exceeds the
price of the offsetting purchase, the seller is paid the
difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the
seller realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the purchaser's entering into a
futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the
purchase price exceeds the offsetting sale price, he realizes a
loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved
by the CFTC is treated as short-term gain or loss, and 60% is
treated as long-term gain or loss.
A Fund may sell financial futures contracts in anticipation
of an increase in the general level of interest rates.
Generally, as interest rates rise, the market value of the
securities held by the Funds will fall, thus reducing their net
asset value. This interest rate risk can be reduced without
employing futures as a hedge by selling such securities and
either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. However, this strategy
entails increased transaction costs in the form of dealer spreads
and brokerage commissions and would typically reduce the Fund's
average yield as a result of the shortening of maturities.
The sale of financial futures contracts provides a means of
hedging against rising interest rates. As rates increase, the
value of a Fund's short position in the futures contracts will
also tend to increase, thus offsetting all or a portion of the
depreciation in the market value of the Fund's investments which
are being hedged. While the Fund will incur commission expenses
in selling and closing out futures positions (which is done by
taking an opposite position in the futures contract), commissions
on futures transactions tend to be lower than transaction costs
incurred in the purchase and sale of portfolio securities.
A Fund may purchase interest rate futures contracts in
anticipation of a decline in interest rates when it is not fully
invested. As such purchases are made, the Fund intends that an
equivalent amount of futures contracts will be closed out.
Unlike when a Fund purchases or sells a security, no price
is paid or received by a Fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the Fund is
required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S.
Government Securities. This amount is known as "initial margin."
The nature of initial margin in futures transactions is different
from that of margin in securities transactions in that futures
contract margin does not involve the borrowing of funds to
finance the transactions. Rather, initial margin is similar to a
performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts
also involve brokerage costs.
Subsequent payments, called variation margin or "maintenance
margin" to and from the broker (or the custodian) are made on a
daily basis as the price of the underlying security or commodity
fluctuates, making the long and short positions in the futures
contract more or less valuable. This is known as "marking to the
market." For example, when a Fund has purchased a futures
contract on a security and the price of the underlying security
has risen, that position will have increased in value and the
Fund will receive from the broker a variation margin payment
based on that increase in value. Conversely, when a Fund has
purchased a security futures contract and the price of the
underlying security has declined, the position would be less
valuable and the Fund would be required to make a variation
margin payment to the broker.
A Fund may elect to close some or all of its futures
positions at any time prior to their expiration in order to
reduce or eliminate a hedge position then currently held by the
Fund. The Fund may close its positions by taking opposite
positions which will operate to terminate the Fund's position in
the futures contracts. Final determinations of variation margin
are then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Such closing transactions involve additional commission costs.
Options on Futures Contracts. A Fund may purchase and write
call and put options on futures contracts it may buy or sell and
enter into closing transactions with respect to such options to
terminate existing positions. Options on futures contracts give
the purchaser the right in return for the premium paid to assume
a position in a futures contract at the specified option exercise
price at any time during the period of the option. A Fund may
use options on futures contracts in lieu of purchasing or writing
options directly on the underlying securities or purchasing and
selling the underlying futures. For example, to hedge against a
possible decrease in the value of its portfolio securities, a
Fund may purchase put options or write call options on futures
contracts rather than selling futures contracts. Similarly, a
Fund may purchase call options or write put options on futures
contracts, rather than purchasing such futures, to hedge against
possible increases in the price of debt securities which the Fund
intends to purchase. Such options generally operate in the same
manner as options purchased or written directly on the underlying
investments.
A Fund, when engaging in transactions in futures and related
options on such futures will be required to deposit initial
margin and variation margin to reflect changes in the value of
the futures contract. See the discussion above under "Futures
Contracts". Brokers may establish deposit requirements higher
than exchange minimums.
Limitations. A Fund will not purchase or sell futures
contracts or options on futures contracts or indices if, as a
result, the sum of the margin deposits on its existing futures
contracts and related options positions and premiums paid for
options on futures contracts would exceed 5% of the Fund's total
assets. In addition, with respect to each futures contract
purchased or long position in an option, the Fund will set aside
in a segregated account at its custodian bank an amount of cash
or short term U.S. Government Securities equal to the total
market value of such contracts less the initial margin deposited
therefor.
A Fund will sell futures contracts only to offset expected
declines in the value of portfolio securities, and the value of
such futures contracts will not exceed the total market value of
those securities (plus such additional amount as may be necessary
because of differences in the volatility factor of the portfolio
securities vis-a-vis the futures contracts).
Risks of Transactions in Futures Contracts and Related
Options. Successful use of futures contracts by a Fund is
subject to the Adviser's ability to predict movements in the
direction of interest rates and other factors affecting
securities markets. For example, if a Fund has hedged against
the possibility of decline in the values of its investment and
the values of its investments increase instead, the Fund will
have lost part or all of the benefit of the increase through
payments of daily maintenance margin. A Fund may have to sell
investments at a time when it may be disadvantageous to do so in
order to meet margin requirements.
The use of options and futures involves the risk of
imperfect correlation between movements in options and futures
prices and movements in the price of securities which are the
subject of the hedge. The successful use of these strategies
also depends on the ability of the Adviser to forecast correctly
interest rate movements and general stock market price movements.
The risk increases as the composition of the portfolio of a Fund
using these strategies diverges from the composition of the
relevant option or futures contract.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to a Fund because the maximum amount at risk
is the premium paid for the options (plus transaction costs).
However, there may be circumstances when the purchase of a call
or put option on a futures contract would result in a loss to a
Fund when the purchase or sale of a futures contract would not,
such as when there is no movement in the prices of the hedged
investments. The writing of an option on a futures contract
involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.
The effective use of options and futures strategies by a
Fund depends, among other things, on the Fund's ability to
terminate options and futures positions at times when the Adviser
deems it desirable to do so. Although a Fund will not enter into
an option or futures position unless the Adviser believes that a
liquid market exists for such option or future, there can be no
assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price.
The Funds generally expect that their options and futures
transactions will be conducted on recognized securities
exchanges. In certain instances, however, a Fund may purchase
and sell options in the over-the-counter market. The Staff of
the Securities and Exchange Commission considers over-the-counter
options and securities underlying them to be illiquid. A Fund's
ability to terminate option positions established in the over-
the-counter market may be more limited than in the case of
exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail
to meet their obligations to the Fund.
For instance, to reduce or eliminate a hedge position held
by a Fund, the Fund may seek to close out a position. The
ability to establish and close out positions will be subject to
the development and maintenance of a liquid secondary market. It
is not certain that this market will develop or continue to exist
for particular futures contracts or options. Reasons for the
absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in
certain contracts or options; (ii) restrictions may be imposed by
an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of
contracts or options, or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the
secondary market on that exchange for such contracts or options
(or in the class or series of contracts or options) would cease
to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be
exercisable in accordance with their terms.
U.S. Treasury Security Futures Contracts and Options. If a
Fund invests in tax-exempt securities issued by a governmental
entity, the Fund may purchase and sell futures contracts and
related options on U.S. Treasury securities when, in the opinion
of the Adviser, price movements in Treasury security futures and
related options will correlate closely with price movements in
the tax-exempt securities which are the subject of the hedge.
U.S. Treasury security futures contracts require the seller to
deliver, or the purchaser to take delivery of, the type of U.S.
Treasury security called for in the contract at a specified date
and price. Options on U.S. Treasury security futures contracts
give the purchaser the right in return for the premium paid to
assume a position in a U.S. Treasury security futures contract at
the specific option exercise price at any time during the period
of the option.
Successful use of U.S. Treasury security futures contracts
by a Fund is subject to the Adviser's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if a Fund
had sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect tax-exempt securities held in its
portfolio, and the prices of the Fund's tax-exempt securities
increase instead as a result of a decline in interest rates, the
Fund will lose part or all of the benefit of the increased value
of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements at
a time when it may be disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for tax-exempt
securities. For example, if a Fund has hedged against a decline
in the values of tax-exempt securities held by it by selling U.S.
Treasury security futures, and the values of U.S. Treasury
securities subsequently increase while the values of its tax-
exempt securities decrease, the Fund would incur losses on both
the U.S. Treasury security futures contracts written by it and
the tax-exempt securities held in its portfolio. The Adviser
will seek to reduce this risk by monitoring movements in markets
for U.S Treasury security futures and options and for tax-exempt
securities closely.
Index Futures Contracts. An index futures contract is a
contract to buy or sell units of an index at a specified future
date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to
as buying or purchasing a contract or holding a long position in
the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. A Fund may
enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective. A Fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price
Index ("S&P 500") is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500
assigns relative weightings to the common stocks included in the
Index, and the value fluctuates with changes in the market values
of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if a
Fund enters into a futures contract to buy 500 units of the S&P
500 at a specified future date at a contract price of $150 and
the S&P 500 is at $154 on that future date, the Fund will gain
$2,000 (500 units x gain of $4). If a Fund enters into a futures
contract to sell 500 units of the stock index at a specified
future date at a contract price of $150 and the S&P 500 is at
$152 on that future date, the Fund will lose $1,000 (500 units x
loss of $2).
There are several risks in connection with the use by a Fund
of index futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the prices of the
index futures and movements in the prices of securities which are
the subject of the hedge. The Adviser will, however, attempt to
reduce this risk by buying or selling, to the extent possible,
futures on indices the movements of which will, in its judgment,
have a significant correlation with movements in the prices of
the securities sought to be hedged.
The successful use of index futures by a Fund for hedging
purposes is also subject to the Adviser's ability to predict
movements in the direction of the market. It is possible that,
where a Fund has sold futures to hedge its portfolio against a
decline in the market, the index on which the futures are written
may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose
money on the futures and also experience a decline in value in
its portfolio securities. It is also possible that, if a Fund
has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and
securities prices increase instead, the Fund will lose part of
all of the benefit of the increased value of those securities it
has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it is
disadvantageous to do so.
In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in the index futures and the portion of the portfolio
being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain
market distortions. First, all participants in the futures
market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the index and futures markets. Second,
margin requirements in the futures markets are less onerous than
margin requirements in the securities market, and as a result the
futures market may attract more speculators than the securities
market does. Increased participation by speculators in the
futures market may also cause temporary price distortions. Due
to the possibility of price distortions in the futures market and
also because of the imperfect correlation between movements in
the index and movements in the prices of index futures, even a
correct forecast of general market trends by the Adviser may
still not result in a successful hedging transaction over a short
time period.
Options on Index Futures. Options on index futures are
similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during
the period of the option. The delivery of the futures position
by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount by
which the market price of the index futures contract, at
exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the index
futures. If an option is exercised on the last trading day prior
to its expiration date, the settlement will be made entirely in
cash equal to the difference between the exercise price of the
option and the closing level of the index of options. Those who
fail to exercise their options prior to the exercise date suffer
a loss of the premium paid.
Options on Indices. As an alternative to purchasing call
and put options on index futures, a Fund may purchase and sell
call and put options on the underlying indices themselves. Such
options would be used in a manner identical to the use of options
on index futures.
Index Warrants - Strategic Income Fund
The Strategic Income Fund may purchase put warrants and call
warrants whose values vary depending on the change in the value
of one or more specified securities indices ("index warrants").
Index warrants are generally issued by banks or other financial
institutions and give the holder the right, at any time during
the term of the warrant, to receive upon exercise of the warrant
a cash payment from the issuer based on the value of the
underlying index at the time of exercise. In general, if the
value of the underlying index rises above the exercise price of
the index warrant, the holder of a call warrant will be entitled
to receive a cash payment from the issuer upon exercise based on
the difference between the value of the index and the exercise
price of the warrant; if the value of the underlying index falls,
the holder of a put warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the exercise price of the warrant and the value of the
index. The holder of a warrant would not be entitled to any
payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the
underlying index, or, in the case of a put warrant, the exercise
price is less than the value of the underlying index. If the
Strategic Income Fund were not to exercise an index warrant prior
to its expiration, then the Fund would lose the amount of the
purchase price paid by it for the warrant. The Strategic Income
Fund will normally use index warrants in a manner similar to its
use of options on securities indices. The risks of the Fund's
use of index warrants are generally similar to those relating to
its use of index options. Unlike most index options, however,
index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although the Strategic Income Fund will normally
invest only in exchange-listed warrants, index warrants are not
likely to be as liquid as certain index options backed by a
recognized clearing agency. In addition, the terms of index
warrants may limit the Fund's ability to exercise the warrants at
such time, or in such quantities, as the Fund would otherwise
wish to do.
Repurchase Agreements
A repurchase agreement is an agreement under which a Fund
acquires a money market instrument (generally a security, issued
by the U.S. Government or an agency thereof, a banker's
acceptance or a certificate of deposit) from a commercial bank,
broker or dealer, subject to resale to the seller at an agreed
upon price and date (normally the next business day). The resale
price reflects an agreed upon interest rate effective for the
period the instrument is held by the Fund and is unrelated to the
interest rate on the underlying instrument. In these
transactions, the instruments acquired by a Fund (including
accrued interest) must have a total value in excess of the value
of the repurchase agreement and will be held by the Fund's
custodian bank until repurchased. The Adviser will use standards
set by the relevant Fund's Trustees in reviewing the credit
worthiness of parties to repurchase agreements with such Fund.
In addition, no more than an aggregate of 15% of a Fund's net
assets, at the time of investment, will be invested in illiquid
investments including repurchase agreements having maturities
longer than seven days.
Pursuant to an Exemptive Order under Section 17(d) and Rule
17d-1 obtained by the Funds, excluding the Strategic Income Fund,
on March 5, 1991, the Funds, excluding the Strategic Income Fund,
may deposit uninvested cash balances into a single joint account
to be used to enter into repurchase agreements.
The use of repurchase agreements by a Fund involves certain
risks. For example, if the seller under a repurchase agreement
defaults on its obligation to repurchase the underlying
instrument at a time when the value of the instrument has
declined, the Fund may incur a loss upon its disposition. If the
seller becomes insolvent and subject to liquidation or
reorganization under bankruptcy or other laws, a bankruptcy court
may determine that the underlying instrument is collateral for a
loan by the Fund and therefore is subject to sale by the trustee
in bankruptcy. Finally, a Fund's right to liquidate its
collateral in the event of a default could involve certain costs,
losses or delays and, to the extent that proceeds from any sale
upon default of the obligation to repurchase are less than the
repurchase price, the Fund could suffer a loss.
As an alternative to using repurchase agreements, a Fund may
from time to time invest up to 5% of its assets in money market
investment companies sponsored by a third party for short-term
liquidity purposes. Such investments are subject to the non-
fundamental investment limitation described herein.
Lending Portfolio Securities
A Fund may lend portfolio securities to broker-dealers and
other financial institutions in an amount up to one-third of the
value of its total assets, provided that such loans are callable
at any time by the Fund and are at all times secured by
collateral held by the Fund at least equal to the market value,
determined daily, of the loaned securities. A Fund loaning
securities will continue to receive any income on the loaned
securities, and at the same time will earn interest on cash
collateral (which will be invested in short-term debt
obligations) or a securities lending fee in the case of
collateral in the form of U.S. Government Securities. A loan may
be terminated at any time by either the Fund loaning the
securities or the borrower. Upon termination of a loan, the
borrower will be required to return the securities to the Fund,
and any gain or loss in the market price during the period of the
loan would accrue to the Fund. If the borrower fails to maintain
the requisite amount of collateral, the loan will automatically
terminate, and the Fund may use the collateral to replace the
loaned securities while holding the borrower liable for any
excess of the replacement cost over the amount of the collateral.
When voting or consent rights which accompany loaned
securities pass to the borrower, a Fund will follow the policy of
calling the loan, in whole or in part as may be appropriate, to
permit the exercise of such rights if the matters involved would
have a material effect on the Fund's investment in the securities
which are the subject of the loan. The Funds may pay reasonable
finders, administrative and custody fees in connection with loans
of their portfolio securities.
As with any extension of credit, there are risks of delay in
recovery of the loaned securities and in some cases loss of
rights in the collateral should the borrower of the securities
fail financially. However, loans of portfolio securities will
only be made to firms considered by the Adviser to be credit
worthy under guidelines adopted by the Trustees.
Forward Commitments
Each Fund may enter into forward commitments to purchase
securities. An amount of cash or short-term U.S. Government
Securities equal to the Fund's commitment will be deposited in a
segregated account at the Fund's custodian bank to secure the
Fund's obligation. Although a Fund will generally enter into
forward commitments to purchase securities with the intention of
actually acquiring the securities for its portfolio (or for
delivery pursuant to options contracts it has entered into), the
Fund may dispose of a security prior to settlement if the Adviser
deems it advisable to do so. A Fund entering into the forward
commitment may realize short-term gains or losses in connection
with such sales.
The Strategic Income Fund may enter into To Be Announced
("TBA") sale commitments wherein the unit price and the estimated
principal amount are established upon entering into the contract,
with the actual principal amount being within a specified range
of the estimate. The Strategic Income Fund will enter into TBA
sale commitments to hedge its portfolio positions or to sell
mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received
until the contractual settlement date. During the time a TBA
sale commitment is outstanding, the Fund will maintain in a
segregated account, cash or high-grade debt obligations in an
amount sufficient to meet the purchase price. Unsettled TBA sale
commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss on the commitment without regard to any
unrealized gains or loss on the underlying security. If the Fund
delivers securities under the commitment, the Fund realizes a
gain or loss from the sale of the securities based upon the unit
price established at the date of the commitment was entered into.
Floating or Variable Rate Instruments
The Funds may purchase floating or variable rate bonds,
which normally provide that the holder can demand payment of the
obligation on short notice at par with accrued interest, which
bonds are frequently secured by letters of credit or other credit
support arrangements provided by banks. Floating or variable
rate instruments provide for adjustments in the interest rate at
specified intervals (weekly, monthly, semiannually, etc.). The
revised rates are usually set at the issuer's discretion, in
which case the investor normally enjoys the right to "put" the
security back to the issuer or the stockholder's agent. Rate
revisions may alternatively be determined by formula or in some
other contractual fashion. To the extent that such letters of
credit or other arrangements constitute an unconditional
guarantee of the issuer's obligations, the banks may be treated
as the issuer of a security for the purposes of complying with
the diversification requirements set forth in Section 5(b) of the
1940 Act and Rule 5b-2 thereunder. A Fund would anticipate using
these bonds as cash equivalents pending longer term investment of
its funds. Other longer term fixed-rate bonds, with a right of
the holder to request redemption at certain times (often annually
after the lapse of an intermediate term), may also be purchased
by a Fund. These bonds are more defensive than conventional
long-term bonds (protecting to some degree against a rise in
interest rates), while providing greater opportunity than
comparable intermediate term bonds since the Fund may retain the
bond if interest rates decline. By acquiring these kinds of
bonds, a Fund obtains the contractual right to require the issuer
of the security or some other person (other than a broker or
dealer) to purchase the security at an agreed upon price, which
right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Since
this right is assignable with the security which is readily
marketable and valued in the customary manner, a Fund will not
assign any separate value to such right.
Zero Coupon Treasury Securities
Each Fund may invest a portion of its total assets in "zero
coupon" Treasury securities, which consist of Treasury bills or
stripped interest or principal components of U.S. Treasury bonds
or notes. A zero coupon security pays no interest to its holder
during its life. An investor acquires a zero coupon security at
a price which is generally an amount based upon its present
value, and which, depending upon the time remaining until
maturity, may be significantly less than its face value
(sometimes referred to as "deep discount" price). Upon maturity
of the zero coupon security, the investor receives the face value
of the security.
Zero coupon Treasury bonds or notes consist of stripped
interest or principal components held in STRIPS form issued
through the U.S. Treasury's STRIPS program which permits the
beneficial ownership of the component to be recorded directly in
the Treasury book-entry system. The Funds may also purchase
custodial receipts evidencing beneficial ownership of direct
interests in component parts of U.S. Treasury bonds or notes held
by a bank in a custodian or trust account.
Stripped interests in U.S. Treasury securities that are not
issued through the U.S. Treasury's STRIPS program are not
considered to be U.S. Government Securities.
Zero coupon securities do not entitle the holder to any
periodic payments of interest prior to maturity. Accordingly,
such securities usually trade at a deep discount from their face
or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt
obligations of comparable maturities which make periodic
distributions of interest. On the other hand, because there are
no periodic interest payments to be reinvested prior to maturity,
zero coupon securities eliminate the reinvestment risk and lock
in a rate of return to maturity. Current Federal tax law
requires that a holder (such as a Fund) of a zero coupon security
accrue a portion of the discount at which the security was
purchased as income each year even though during the year no
interest payment on the security is received in cash.
Additional Information on GNMAs
A substantial portion of the assets of the Government
Securities Fund have at various times been invested in
obligations of the Government National Mortgage Association
(popularly called GNMAs or Ginnie Maes). Other Funds may also
invest in GNMAs from time to time. The following is additional
information concerning GNMAs which supplements the information
presented in the Prospectus.
GNMAs are mortgage backed securities representing part
ownership of a pool of mortgage loans. GNMA Certificates differ
from bonds in that principal is scheduled to be paid back by the
borrower over the length of the loan rather than returned in a
lump sum at maturity. The Funds purchase "modified pass-through"
type GNMA Certificates for which principal and interest are
guaranteed, rather than the "straight pass through" Certificates
for which such guarantee is not available. The Funds also
purchase "variable rate" GNMA Certificates and may purchase other
types which may be used with GNMA's guarantee.
GNMA Certificates are created by an "issuer," which is a
Federal Housing Administration ("FHA") approved lender, such as
mortgage bankers, commercial bankers and savings and loan
associations, who also meet criteria imposed by GNMA. The issuer
assembles a specific pool of mortgages insured by either the FHA
or the Farmers Home Administration or guaranteed by the Veterans
Administration. Upon application by the issuer, and after
approval by GNMA of the pool, GNMA provides its commitment for
the guarantee of principal and interest on the GNMA Certificates
secured by the mortgages included in the pool. The GNMA
Certificates, endorsed by GNMA, are then sold by the issuer
through securities dealers.
When mortgages in the pool underlying a GNMA Certificate are
prepaid by mortgagors or as a result of foreclosure, such
principal payments are passed through to the Certificate holders
(such as a Fund). Accordingly, the life of the GNMA Certificate
is likely to be substantially shorter than the stated maturity of
the mortgages in the underlying pool. Because of such variation
in prepayment rights, it is not possible to accurately predict
the life of a particular GNMA Certificate, but FHA statistics
indicate that 25 to 30 year single-family dwelling mortgages have
an average life of approximately 12 years. To the extent
mortgage rates on the mortgages which underlie GNMA Certificates
are greater than or less than prevailing market mortgage rates,
the average life of a GNMA Certificate may be less than or more
than 12 years. Generally, GNMA Certificates bear a "coupon rate"
which represents the effect of FHA-Veterans Administration
mortgage rates for the underlying pool of mortgages, less 0.5%
which constitutes the GNMA and issuer's fees. For providing its
guarantee, GNMA currently receives an annual fee of 0.06% of the
outstanding principal on Certificates backed by single-family
dwelling mortgages, and the issuer currently receives an annual
fee of 0.44% for assembling the pool and for passing through
monthly payments of interest and principal.
Payments to holders of GNMA Certificates consist of the
monthly distributions of interest and principal less the GNMA and
issuer's fees. The portion of the monthly payment which
represents a return of principal may be reinvested by a Fund
holding the GNMA in then-available GNMA obligations which may
bear interest at a rate higher or lower than the obligation from
which the payment was received, or in a differing security. The
actual yield to be earned by the holder of a GNMA Certificate is
calculated by dividing such payments by the purchase price paid
for the GNMA Certificate (which may be at a premium or a discount
from the face value of the Certificate). Unpredictable
prepayments of principal, however, can greatly change realized
yields. In a period of declining interest rates it is more
likely that mortgages contained in GNMA pools will be prepaid
thus reducing the effective yield. Moreover, any premium paid on
the purchase of a GNMA Certificate will be lost if the obligation
is prepaid. In periods of falling interest rates this potential
for prepayment may reduce the general upward price increase of
GNMA Certificates which might otherwise occur. As with other
debt instruments, the price of GNMA Certificates is likely to
decrease in times of rising interest rates. Price changes of the
GNMA Certificates held by a Fund have a direct impact on the net
asset value per share of the Fund.
When interest rates rise, the value of a GNMA Certificate
will generally decline. Conversely, when rates fall, the GNMA
Certificate value may rise, although not as much as other debt
issues due to the prepayment feature.
The GNMA guarantee of principal and interest on GNMA
Certificates is backed by the full faith and credit of the United
States Government. GNMA may borrow U.S. Treasury funds to the
extent needed to make payments under the guarantee.
Although the securities in the Government Securities Fund's
portfolio are guaranteed as to principal and interest by the U.S.
Government or its instrumentalities, the market value of these
securities, upon which daily net asset value is based, may
fluctuate based upon such factors as changing interest rates. As
a result, the price per share the shareholder receives on
redemption may be more or less than the price paid for the
shares. The dividends per share paid by the Government
Securities Fund may also vary.
Foreign Securities
Each Fund, except Government Securities Fund, may invest up
to 20% of its net assets in foreign securities, of which 10% of
its net assets may be invested in foreign securities which are
not listed on a U.S. securities exchange. Strategic Income
Fund, in particular, may invest up to the limit of its total
assets specified in the Prospectus in securities principally
traded in markets outside the United States. Eurodollar
certificates of deposit are excluded for purposes of this
limitation. Foreign investments can be effected favorably or
unfavorably by changes in currency exchange rates and in exchange
control regulations. There may be less publicly available
information about a foreign company than about a U.S. company,
and foreign companies may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to
those applicable to U.S. companies. Securities of some foreign
companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian
fees are generally higher than in the United States. Investments
in foreign securities can involve other risks different from
those affecting U.S. investments, including local, political or
economic developments, expropriation or nationalization of assets
and imposition of withholding tax or variations in foreign
exchange rates. A Fund may purchase and sell forward foreign
currency contracts. These represent agreements to purchase or
sell specified currencies at specified dates and prices. A Fund
will only purchase and sell forward foreign currency contracts in
amounts the Adviser deems appropriate to hedge existing or
anticipated portfolio positions and will not use such forward
contracts for speculative purposes. Foreign securities, like
other assets of a Fund, will be held by the Fund's custodian or
by a subcustodian.
Currency Transactions - Strategic Income Fund
The Strategic Income Fund may engage in currency
transactions to protect against uncertainty in the level of
future currency exchange rates. In addition, the Strategic Income
Fund may write covered call and put options on foreign currencies
for the purpose of increasing its current return.
Hedging Transactions. Generally, the Strategic Income Fund
may engage in both "transaction hedging" and "position hedging".
When it engages in transaction hedging, the Fund enters into
foreign currency transactions with respect to specific
receivables or payables, generally arising in connection with the
purchase or sale of portfolio securities. The Fund will engage
in transaction hedging when it desires to "lock in" the U.S.
dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging, the Fund will attempt
to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and
the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the
dividend or interest payment is earned, and the date on which
such payments are made or received.
The Strategic Income Fund may purchase or sell a foreign
currency on a spot (or cash) basis at the prevailing spot rate in
connection with the settlement of transactions in portfolio
securities denominated in that foreign currency. The Fund may
also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell
foreign currency futures contracts.
For transaction hedging purposes, the Strategic Income Fund
may also purchase exchanged listed and over-the-counter call and
put options on foreign currency futures contracts and on foreign
currencies. A put option on a futures contract gives the Fund
the right to assume a short position in the futures contract
until the expiration of the option. A put option on a currency
gives the Fund the right to sell the currency at an exercise
price until the expiration of the option. A call option on a
futures contract gives the Fund the right to assume a long
position in the futures contract until the expiration of the
option. A call option on a currency gives the Fund the right to
purchase the currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the Strategic Income
Fund enters into foreign currency exchange transactions to
protect against a decline in the values of the foreign currencies
in which its Portfolio securities are denominated (or an increase
in the value of currency for securities which the Fund expects to
purchase, when the Fund holds cash or short-term investments).
In connection with position hedging, the Fund may purchase put or
call options on foreign currency and on foreign currency futures
contracts and buy or sell forward contracts and foreign currency
futures contracts. The Fund may also purchase or sell foreign
currency on a spot basis.
The precise matching of the amounts of foreign currency
exchange transactions and the value of the portfolio securities
involved is not generally possible since the future value of such
securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the
dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast precisely the market value of
portfolio securities at the expiration or maturity of a forward
or futures contract. Accordingly, it may be necessary for the
Strategic Income Fund to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less
than the amount of foreign currency the Fund is obligated to
deliver and a decision is made to sell the security or securities
and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if
the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate
fluctuations in the underlying prices of the securities which the
Strategic Income Fund owns or intends to purchase or sell. Such
techniques simply establish a rate of exchange which one can
achieve at some future time. The success of a hedging
transaction depends upon the Adviser's ability to forecast future
currency exchange rate changes. A hedging transaction may not be
fully effective, either because a currency rate forecast is
incorrect or because of other factors affecting the markets for
hedging instruments, some of which factors are described below.
In addition, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the
increase in value of such currency. As more fully explained
below, currency hedging transactions also involve risks and costs
in addition to the risks and costs involved in the Fund's
investments in the securities that are the subject of the hedge.
The Strategic Income Fund may seek to increase its current
return or to offset some of the costs of hedging against
fluctuations in current exchange rates by writing covered call
options and covered put options on foreign currencies. The Fund
receives a premium from writing a call or put option, which
increases the Fund's current return if the option expires
unexercised or closed out at a net profit. The Fund may
terminate an option that it has written prior to its expiration
by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written.
The Strategic Income Fund's currency hedging transactions
may call for the delivery of one foreign currency in exchange for
another foreign currency and may at times not involve currencies
in which its Portfolio securities are then denominated. The
Adviser will engage in such "cross hedging" activities when it
believes that such transactions provide significant hedging
opportunities for the Fund. Cross hedging transactions by the
Fund involve the risk of imperfect correlation between changes in
the values of the currencies to which such transactions relate
and changes in the value of the currency or other asset or
liability which is the subject of the hedge.
Currency Forward and Futures Contracts. A forward currency
contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days
from the date of the contracts as agreed by the parties, at a
price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement and no commissions are charged at any stage
for trades. A currency futures contract is a standardized
contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of
the contract. Currency futures contracts traded in the United
States are designed by and traded on exchanges regulated by the
CFTC, such as the New York Mercantile Exchange.
Currency exchange contracts differ from currency futures
contracts in certain respects. For example, futures contracts
are traded on exchanges between parties whose identity is not
disclosed to each other. The terms of futures contracts are not
negotiated between the two parties, but instead are standardized
as to maturity date and contract amount. Transactions in futures
contracts generally involve the payment of commissions to brokers
who act as intermediaries in the transactions. By contract,
forward currency exchange contracts are traded directly between
currency traders so that no intermediary is required. In
purchasing a futures contract, the Strategic Income Fund is
generally required to deposit an amount of "initial margin" to
the account of the broker involved in the transaction, and to
make daily payments of variation margin if adverse changes in the
market value of the contract occur before the maturity date of
the contract. A forward contract, by contrast, generally
requires no margin or other deposit.
At the maturity of a forward or futures contract, the terms
of the contract will require the Strategic Income Fund either to
accept or to make delivery of the currency specified in the
contract. At or prior to maturity, however, the Fund may seek to
enter into a closing transaction involving the purchase or sale
of an offsetting contract. Such a closing transaction will
extinguish the parties' obligations to make and accept delivery
of currencies at the scheduled maturity. Closing transactions
with respect to forward contracts are usually effected directly
with the currency trader who is a party to the original forward
contract. The Fund's ability to effect a closing transaction
with respect to a noncancellable forward currency contract is
limited by the willingness and ability of the other party to the
contract to effect such a transaction. Forward currency
contracts also involve the risk, at all times, that the other
party to the contract will default on its obligations. Such a
default could deprive the Fund of any of the expected benefits of
the hedging transaction and could result in expenses and delays
if the Fund seeks to pursue remedies against the defaulting
party.
Closing transactions with respect to futures contracts are
effected through a broker on a commodities exchange and involve
the payment of a brokers' commission. A clearing corporation
associated with the exchange generally assumes responsibility for
closing out such contracts. Positions in currency futures
contracts may be closed out only on an exchange or board of trade
which provides a secondary market in such contracts. Although
the Strategic Income Fund intends to purchase or sell currency
futures contracts only on exchanges or boards of trade where
there appears to be an active secondary market, there is no
assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or at any particular
time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of
variation margin. In some circumstances, the Fund might have to
sell other assets to meet its variation margin payment
obligations.
Futures transactions also involve a number of other risks.
These include the risk that movements in the value of futures
contracts may not precisely match changes in the value of the
underlying currencies. Such disparities may limit the
effectiveness of the hedging transaction. The Strategic Income
Fund will maintain in a segregated account with its custodian
cash or high quality debt obligations in an amount at least equal
to the difference between (1) the amount of currency that the
Fund is obligated to deliver under outstanding forward and
futures contracts and (2) the current value (determined daily) of
the Fund's liquid securities holdings that trade in that currency
(plus any variation margin already paid on such futures
contracts).
Currency Options. The Strategic Income Fund may purchase
put or call options on currencies. A put option gives the Fund
the right, on or before a specified date, to sell to the other
party to the contract a specified amount of a currency for a
specified price measured in another currency. A call option
gives the Fund a similar right to buy a specified amount of a
currency from the other party. The Fund pays a purchase price
(called a "premium" when it initially acquires the option.
Currency options are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been
listed on several exchanges. Options are traded not only on the
currencies of individual countries, but also on the European
Currency Unit ("ECU"). The ECU is composed of amounts of a
number of currencies, and is the official medium of exchange of
the European Union's European Monetary System.
Currency options involve a number of risks. These include
the risk, in the case of over-the-counter options, that the other
party will default on its obligations. Such a default could
deprive the Strategic Income Fund of the expected benefits of the
hedging transaction and could result in expenses and delays if
the Fund seeks to pursue remedies against the defaulting party.
Another risk associated with options is that, if anticipated
currency price movements do not occur, the Strategic Income Fund
may never exercise its rights under the option, in which case the
option will expire worthless and the Fund will not recover the
value of the premium it paid to acquire the option.
Options on currencies are affected by many of the same
factors that influence exchange rates and investments generally.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by political and economic factors
applicable to the issuing country. The exchange rates of foreign
currencies (and therefore the values of foreign currency options)
may be affected significantly, fixed, or supported directly or
indirectly by U.S. and foreign government actions. Government
intervention may increase the risk involved in purchasing or
selling foreign currency options, since exchange rates may not be
free to fluctuate in response to other market forces.
The value of a foreign currency option reflects the value of
an exchange rate, which in turn reflects the relative values of
two currencies, the U.S. dollar and the particular foreign
currency involved. Because foreign currency transactions
occurring in the interbank market involve substantially larger
amounts than those that may be involved in the exercise of
foreign currency options, investors may be disadvantaged by
having to deal in an odd lot market for the underlying foreign
currencies in connection with options at prices that are less
favorable than for round lots. Foreign government restrictions
or taxes could result in adverse changes in the cost of acquiring
or disposing of foreign currencies.
There is no systematic reporting or last sale information
for foreign currencies and there is no regulatory requirement
that quotations available through dealers or other market
sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large
round-lot transactions in the interbank market and thus may not
reflect exchange rates for smaller odd-lot transactions (less
than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a 24-hour a day, global
market. To the extent the options markets are closed while the
markets for the underlying currencies are open, significant price
and rate movements may take place in the underlying markets that
cannot be reflected in the options markets.
Settlement Procedures. Settlement procedures relating to
the Strategic Income Fund's investments in foreign securities and
to the Fund's foreign currency exchange transactions may be more
complex than settlements with respect to investments in debt or
equity securities of U.S issuers, and may involve certain risks
not present in the Fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currency may occur within a foreign country, and the Fund
may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.
Foreign Currency Conversion. Although foreign exchange
dealers do not charge a fee for currency conversion, they realize
a profit based on the difference (the "spread") between prices at
which they are buying and selling various currencies.
Accordingly, a dealer may offer to sell a foreign currency to the
Strategic Income Fund at one rate, while offering a lesser rate
of exchange should the Fund desire to resell that currency to the
dealer.
Short-term Trading - Strategic Income Fund
In seeking the Strategic Income Fund's objective, the
Adviser will buy or sell Portfolio securities whenever the
Adviser believes it appropriate to do so. In deciding whether to
sell a Portfolio security, the Adviser will not consider how long
the Fund has owned the security. From time to time the Fund will
buy securities intending to seek short-term trading profits. A
change in the securities held by the Fund is known as "portfolio
turnover" and generally involves some expense to the Fund. These
expenses may include brokerage commissions or dealer mark-ups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the Strategic Income Fund to realize
net short-term capital gains, such gains will be taxable as
ordinary income. As a result of the Fund's investment policies,
under certain market conditions the Fund's portfolio turnover
rate may be higher than that of other mutual funds. Portfolio
turnover rate for a fiscal year is the ratio of the lesser of
purchases or sales of portfolio securities to the monthly average
of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The Fund's
portfolio turnover rate is not a limiting factor when the Adviser
considers a change in the Fund's portfolio.
High Yield Securities
Strategic Income Fund, High Yield Fund, Income Fund and
Growth Fund each may invest in lower-rated fixed income
securities to the extent described in the Prospectus. The lower
ratings of certain securities held by these Funds reflect a
greater possibility that adverse changes in the financial
condition of the issuer or in general economic conditions, or
both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal.
The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of
securities held by these Funds more volatile and could limit a
Fund's ability to sell its securities at prices approximating the
values the Fund had placed on such securities. In the absence of
a liquid trading market for the securities held by it, a Fund may
be unable at times to establish the fair value of such
securities. The rating assigned to a security by Moody's
Investors Service, Inc. or Standard & Poor's Corporation (or by
any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the
security. See Appendix A to the Prospectus for a description of
security ratings.
Like those of other fixed income securities, the values of
lower-rated securities fluctuate in response to changes in
interest rates. Thus, a decrease in interest rates will
generally result in an increase in the value of a Fund's assets.
Conversely during periods of rising interest rates, the value of
a Fund's assets will generally decline. In addition, the values
of such securities are also affected by changes in general
economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized
rating services in their ratings of any fixed income security and
in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments.
Changes in the value of portfolio securities generally will not
affect cash income derived from such securities, but will effect
a Fund's net asset value. A Fund will not necessarily dispose of
a security when its rating is reduced below its rating at the
time of purchase, although the Adviser will monitor the
investment to determine whether its retention will assist in
meeting a Fund's investment objective.
Certain securities held by a Fund may permit the issuer at
its option to call, or redeem, its securities. If an issuer were
to redeem securities held by a Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
Loan Participations and Assignments
A Fund's investment in Loan Participations (as defined in
the Prospectus) typically will result in the Fund having a
contractual relationship only with the Lender and not with the
borrower. The Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only
from the Lender selling the Participation and only upon receipt
by the Lender of the payments from the borrower. In connection
with purchasing Participations, the Fund generally will have no
right to enforce compliance by the borrower with the terms of the
loan agreement relating to the Loan, nor any right of set-off
against the borrower, and the Fund may not directly benefit from
any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund may be subject to the
credit risk of both the borrower and the Lender that is selling
the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general
creditor of the Lender and may not benefit from any set-off
between the Lender and the borrower. Certain Participations may
be structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender
with respect to the Participation, but even under such a
structure, in the event of the Lender's insolvency, the Lender's
servicing of the Participations may be delayed and the
assignability of the Participation impaired.
When a Fund purchases Loan Assignments (as defined in the
Prospectus) from Lenders, it will acquire direct rights against
the borrowers on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and
potential assignors, however, the rights and obligations acquired
by the Fund as the purchaser of an Assignment may differ from,
and be more limited than, those held by the assigning Lender.
Because there is no liquid market for such securities, the Funds
anticipate that such securities could be sold only to a limited
number of institutional investors. The lack of a liquid
secondary market may have an adverse impact on the value of such
securities and a Fund's ability to dispose of particular
Assignments or Participations when necessary to meet redemptions
of Fund shares, the Fund's liquidity needs or in response to a
specific economic event such as deterioration in the credit
worthiness of the borrower. The lack of a liquid secondary
market for Assignments and Participations also may make it more
difficult for a Fund to value these securities for purposes of
calculating its net asset value.
When-Issued Securities
A Fund may purchase securities on a when-issued or delayed
delivery basis. In such transactions, the price is fixed at the
time the commitment to purchase is made, but delivery and payment
for the securities take place at a later date, normally within
one month. At the time a Fund makes the commitment to purchase a
security on a when-issued or delayed delivery basis, it will
record the transaction and reflect the value of the security less
the liability to pay the purchase price in determining the Fund's
net asset value. The value of the security on the settlement
date may be more or less than the price paid as a result of,
among other things, changes in the level of interest rates or
other market factors. Accordingly, there is a risk of loss which
is in addition to the risk of decline in the value of the Fund's
other assets. No interest accrues on the security between the
time a Fund enters into the commitment and the time the security
is delivered. The Fund will establish a segregated account with
its custodian in which it will maintain cash and marketable
securities equal in value to commitments for when-issued or
delayed delivery securities. While when-issued or delayed
delivery securities may be sold prior to the settlement date, it
is intended that a Fund will purchase such securities with the
purpose of actually acquiring them, unless a sale appears
desirable for investment reasons.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser places orders for the purchase and sale of
securities, supervises their execution and negotiates brokerage
commissions on behalf of each Fund. It is the practice of the
Adviser to seek the best prices and best execution of orders and
to negotiate brokerage commissions which in the Adviser's opinion
are reasonable in relation to the value of the brokerage services
provided by the executing broker. Brokers who have executed
orders for the Funds are asked to quote a fair commission for
their services. If the execution is satisfactory and if the
requested rate approximates rates currently being quoted by the
other brokers selected by the Adviser, the rate is deemed by the
Adviser to be reasonable. Brokers may ask for higher rates of
commission if all or a portion of the securities involved in the
transaction are positioned by the broker, if the broker believes
it has brought a Fund an unusually favorable trading opportunity,
or if the broker regards its research services as being of
exceptional value, and payment of such commissions is authorized
by the Adviser after the transaction has been consummated. If
the Adviser more than occasionally differs with the broker's
appraisal of opportunity or value, the broker would not be
selected to execute trades in the future. The Adviser believes
that each Fund benefits with a securities industry comprised of
many and diverse firms and that the long-term interest of
shareholders of the Funds is best served by its brokerage
policies which include paying a fair commission rather than
seeking to exploit its leverage to force the lowest possible
commission rate. The primary factors considered in determining
the firms to which brokerage orders are given are the Adviser's
appraisal of the firm's ability to execute the order in the
desired manner, the value of research services provided by the
firm, and the firm's attitude toward and interest in mutual funds
in general, including the sale of mutual funds managed and
sponsored by the Adviser. The Adviser does not offer or promise
to any broker an amount or percentage of brokerage commissions as
an inducement or reward for the sale of shares of the Funds.
Over-the-counter purchases and sales are transacted directly with
principal market-makers, except in those circumstances where in
the opinion of the Adviser better prices and execution are
available elsewhere.
In general terms, the nature of research services provided
by brokers encompasses statistical and background information,
and forecasts and interpretations with respect to U.S. and
foreign economies, U.S. and foreign money markets, fixed income
markets and equity markets, specific industry groups and
individual issues. Research services will vary from firm to
firm, with broadest coverage generally from the large full-line
firms. Smaller firms in general tend to provide information and
interpretations on a smaller scale, frequently with a regional
emphasis. In addition, several firms monitor federal, state,
local and foreign political developments; many of the brokers
also provide access to outside consultants. The outside research
assistance is particularly useful to the Adviser's staff since
the brokers as a group tend to monitor a broader universe of
securities and other matters than the Adviser's staff can follow.
In addition, it provides the Adviser with a diverse perspective
on financial markets. Research and investment information is
provided by these and other brokers at no cost to the Adviser and
is available for the benefit of other accounts advised by the
Adviser and its affiliates, and not all of this information will
be used in connection with the Funds. While this information may
be useful in varying degrees and may tend to reduce the Adviser's
expenses, it is not possible to estimate its value, and, in the
opinion of the Adviser, it does not reduce the Adviser's expenses
in a determinable amount. The extent to which the Adviser makes
use of statistical, research and other services furnished by
brokers is considered by the Adviser in the allocation of
brokerage business, but there is no formula by which such
business is allocated. The Adviser does so in accordance with
its judgment of the best interest of the Funds and their
shareholders.
Purchases and sales of fixed income securities will usually
be principal transactions. Such securities often will be
purchased or sold from or to dealers serving as market makers for
the securities at a net price. Each Fund will also purchase such
securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed
income securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing fixed income
securities transactions consists primarily of dealer spreads and
underwriting commissions.
In purchasing and selling fixed income securities, it is the
policy of each Fund to obtain the best results taking into
account the dealer's general execution and operational
facilities, the type of transaction involved and other factors,
such as the dealer's risk in positioning the securities involved.
While the Adviser generally seeks reasonably competitive spreads
or commissions, the Funds will not necessarily pay the lowest
spread or commission available.
Each Fund may, in circumstances in which two or more dealers
are in a position to offer comparable results, give preference to
a dealer which has provided statistical or other research
services to the Funds. By allocating transactions in this
manner, the Adviser is able to supplement its research and
analysis with the views and information of other securities
firms. During the fiscal year ended December 31, 1994, each of
the Funds listed below paid total brokerage commission indicated
below, including commissions to Advest, Inc. ("Advest"), an
affiliate of the Funds' former investment adviser.
Brokerage Commissions
Paid During Fiscal 1994
Percent of Percent of
Aggregate Dollar
Fund Total Advest Commissions Amount
Government Fund $ 0 $ 0 0% 0%
High Yield Fund $ 13,184 $ 0 0% 0%
Income Fund $ 97,750 $ 0 0% 0%
Growth Fund $151,132 $24,340 16.11% 16.56%
Special Fund $ 47,281 $ 5,288 11.18% 11.30%
Strategic Income
Fund $ 0 $ 0 0% 0%
SERVICES OF THE ADVISER AND ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with each Fund,
Northstar Investment Management Corporation acts as the
investment adviser to each Fund. In this capacity, the Adviser,
subject to the authority of the Trustees of the Funds, is
responsible for furnishing continuous investment supervision to
the Funds and is responsible for the management of each Fund's
portfolio.
The Adviser is an indirect, majority-owned subsidiary of
ReliaStar Financial Corp. ("ReliaStar"). Combined minority
interests held by members of senior management currently equal
20%. ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the life insurance business. Through
Northwestern National Life Insurance Company ("Northwestern") and
other subsidiaries, ReliaStar issues and distributes individual
life insurance and annuities, group life and health insurance and
life and health reinsurance, and provides related investment
management services. The address of the Adviser is Two Pickwick
Plaza, Greenwich, Connecticut 06830. The address of ReliaStar is
20 Washington Avenue South, Minneapolis, Minnesota 55401.
The Adviser charges a fee under each advisory agreement to
Government Securities Fund, High Yield Fund, Income Fund, Growth
Fund, Special Fund and Strategic Income Fund at an annual rate,
after expense reimbursements, of 0.45%, 0.45%, 0.65%, 0.75%,
0.75% and 0.65% of such Fund's average daily net assets,
respectively. This fee is accrued daily and payable monthly.
The Adviser has agreed that if, in any fiscal year, the
aggregate expenses of a Fund, exclusive of taxes, distribution
fees, brokerage, interest and (with the prior consent of any
necessary state securities commissions) extraordinary expenses,
but including the management fee, exceed the most restrictive
expense limitations applicable to the Fund under state securities
laws or published regulations thereunder, the Adviser will refund
on a proportionate basis to the Fund whose expenses exceeded such
limitation the excess over such amount up to the total fee
received by the Adviser. Currently, the most restrictive of such
limitations would require the Adviser to reimburse such a Fund to
the extent that in any fiscal year such aggregate expenses exceed
2.5% of the first $30,000,000 of the average net assets, 2.0% of
the next $70,000,000 of the average net assets and 1.5% of any
amount of the average net assets in excess of $100,000,000.
Each Investment Advisory Agreement was approved by the
Trustees of the affected Fund on March 1, 1995 and by the
shareholders of such Fund on June 2, 1995. Each Investment
Advisory Agreement will continue in effect until June 2, 1997,
and thereafter, will continue in effect from year to year if
specifically approved annually (a) by the Trustees, acting
separately on behalf of the particular Fund, including a majority
of the Disinterested Trustees, or by (b) a majority of the
outstanding voting securities of each class of such Fund as
defined in the 1940 Act.
A Fund's Investment Advisory Agreement may be terminated as
to any class without penalty at any time by a similar vote upon
not more than 60 days' nor less than 30 days' written notice by
the Adviser, the Trustees, or a majority of the outstanding
voting securities of such class of such Fund as defined in the
1940 Act. It will automatically terminate in the event of its
assignment as defined in Section 2(a)(4) of the 1940 Act.
Northstar Administrators Corporation serves as administrator
for the Funds pursuant to an Administrative Services Agreement
with each Fund. Subject to the supervision of the Board of
Trustees, the Administrator provides the overall business
management and administrative services necessary to the proper
conduct of the Funds' business, except for those services
performed by the Adviser under the Investment Advisory
Agreements, the custodian for the Funds under the Custodian
Agreements, and the transfer agent for the Funds under the
Transfer Agency Agreements. The Administrator acts as liaison
among these service providers to the Funds. The Administrator is
also responsible for ensuring that the Funds operate in
compliance with applicable legal requirements and for monitoring
the Adviser for compliance with requirements under applicable law
and with the investment policies and restrictions of the Funds.
The Administrator is an affiliate of the Adviser. The address of
the Administrator is Two Pickwick Plaza, Greenwich, Connecticut
06830.
Each Administrative Services Agreement was approved by the
Trustees of the particular Fund on March 8, 1995. The Agreements
provide that until June 2, 1997, the Administrator will not
receive any compensation under such agreements and thereafter
shall receive such compensation as the Board of Trustees of the
Funds may determine. The Agreements will continue in effect
until June 2, 1997, and from year to year thereafter, provided
such continuance is approved annually by a majority of the
Disinterested Trustees of the affected Fund.
Prior to June 5, 1995, the Funds were managed by Boston
Security Counsellors, Inc. ("BSC") and did not utilize the
services of an administrator. During the fiscal years ended
December 31, 1994, 1993 and 1992, the Funds listed below paid BSC
the following investment advisory fees:
Total Advisory Fees Paid
Fund During Year Ended Fees Paid
1994 1993 12/31/92
Government Fund(1) $747,846 $767,370 $598,226
High Yield Fund 622,761 432,06 204,277(2)
Income Fund 519,729 447,631 338,308
Growth Fund 604,576 517,203 354,835
Special Fund 268,139 145,178 56,668
Strategic Income
Fund 57,726 -- --
(1) Net of waiver of investment advisory fees of $332,370,
$341,054 and $265,879 for the years ended December 31, 1994,
1993, and 1992, respectively. BSC elected to waive 0.20% of
its investment advisory fee, effective January 1, 1989 for
the Government Securities Fund.
(2) As described below, BSC reimbursed High Yield Fund for
certain expenses. The figures presented in the table do not
reflect such reimbursement.
For the period July 1, 1994 (commencement of the Strategic
Income Fund's operations) through December 31, 1994, Advest, an
affiliate of BSC, voluntarily reimbursed the Strategic Income
Fund for $57,336 in expenses. Accordingly, expenses borne by
Strategic Income Fund for the six-month period ended December 31,
1994, amounted to $170,198, representing 1.90% of the Strategic
Income Fund's average net assets. During the year ended,
December 31, 1992, BSC reimbursed the High Yield Fund for $23,576
of operating expenses. This expense reimbursement was in excess
of the reimbursement required of BSC under its investment
advisory agreement with that Fund.
NET ASSET VALUE
The net asset value of each Fund's shares fluctuates and is
determined separately for each class as of the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m. EST),
on each business day that the Exchange is open. Net asset value
per share is computed by determining the value of a Fund's assets
(securities held plus cash and other assets, including dividend
and interest accrued but not received) less all liabilities of
the Fund (including accrued expenses other than class specific
expenses), and dividing the result by the total number of shares
outstanding at such time. The specific expenses borne by each
class of shares will be deducted from that class and will result
in different net asset values and dividends. The net asset value
per share of the Class B, Class C and Class T shares of each Fund
will generally be lower than that of the Class A shares because
of the higher class-specific expenses borne by each of the
Class B, Class C and Class T shares.
Portfolio securities, options and futures contracts and
options thereon which are traded on national exchanges or on the
NASDAQ System are valued at the last sale or settlement price on
the exchange or market where primarily traded or, if none that
day, at the mean of the last reported bid and asked prices, using
prices as of the close of trading on the applicable exchange or
market. Securities and options which are traded in the over-the-
counter market (other than on the NASDAQ System) are valued at
the mean of the last available bid and asked prices. Such
valuations are based on quotations of one or more dealers that
make markets in the securities as obtained from such dealers or
from a pricing service. Securities with an initial maturity or
remaining maturity of 60 days or less may be valued at amortized
cost, provided that it approximates market value. Securities
(including over-the-counter options) for which market quotations
are not readily available (which may constitute a major portion
of the High Yield Fund's portfolio) and other assets are valued
at their fair value as determined by or under the direction of
the Trustees. Such fair value may be determined by various
methods, including utilizing information furnished by pricing
services which determine calculations for such securities using
methods based, among other things, upon market transactions for
comparable securities and various relationships between
securities which are generally recognized as relevant.
HOW TO BUY SHARES
The minimum initial purchase is $2,500. In the case of
employee payroll deductions plans, organized group plans and
other benefit programs or arrangements offered by certain
dealers, the minimum initial investment may be fixed from time to
time at such lesser amounts as the Adviser in its sole discretion
may determine, and may in certain cases be waived from time to
time by the Adviser in its sole discretion. See the Funds'
current Prospectus.
ALTERNATIVE PURCHASE ARRANGEMENTS
Each of the Funds offers four classes of shares, three of
which may be purchased from investment dealers. The alternative
purchase arrangements are outlined below and described more fully
in the Funds' Prospectus.
Class A Shares. An investor who elects the initial sales
charge alternative acquires Class A shares. Class A shares incur
a sales charge when they are purchased. Class A shares are
subject to ongoing distribution and service fees at an annual
rate of up to 0.30% of each Fund's aggregate average daily net
assets attributable to the Class A shares. Certain purchases of
Class A shares qualify for reduced initial sales charges or a
waiver thereof.
Class B Shares and Class C Shares. An investor who elects
the contingent deferred sales charge alternative acquires Class B
shares. Class B shares do not incur a sales charge when they are
purchased, but they are subject to a contingent deferred sales
charge if they are redeemed within five years of purchase. An
investor who elects the limited contingent deferred sales charge
alternative acquires Class C shares. Class C shares do not incur
a sales charge when purchased, and are subject to a low level
contingent deferred sales charge only if redeemed within one year
of purchase. The contingent deferred sales charge on Class B and
Class C shares may be waived in connection with certain
qualifying redemptions or exchanges.
Class B and Class C shares are subject to ongoing
distribution and service fees at an annual rate of up to 1.00% of
a Fund's aggregate average daily net assets attributable to the
respective class. Class B and Class C shares enjoy the benefit
of permitting all of the investor's dollars to work from the time
the investment is made, subject to the higher ongoing
distribution fee paid by Class B and Class C shares which will
cause such shares to have a higher expense ratio and to pay lower
dividends to the extent any dividends are paid (and thus have a
less competitive return) than those related to Class A shares.
Class B shares will automatically convert to Class A shares eight
years after the end of the calendar month in which the
shareholder's order to purchase was accepted, in the
circumstances and subject to the qualifications described in the
Funds' Prospectus. The purpose of the conversion feature is to
relieve the holders of the Class B shares that have been
outstanding for a period of time sufficient for the Underwriter
to have been compensated for distribution expenses related to the
Class B shares from most of the burden of such distribution
related expenses. See "Conversion Feature," below. There is no
conversion feature offered on Class C shares.
Class T Shares. Prior to June 5, 1995, each Fund offered
only one class of shares (currently designated as, the "Class T
shares"). Class T shares are no longer offered for sale by any
Fund, except in connection with reinvestment of dividends and
other distributions, upon exchange of Class T shares of another
Fund or upon exchange from the Class T Account of the Money
Market Portfolio (see "Exchange Privileges"). Until November 30,
1995, Class T shares may also be purchased with funds withdrawn
from an Advantage Insured Account; provided that such funds were
in the account on June 5, 1995. A contingent deferred sales
charge is imposed upon redemptions of Class T shares made within
four years of purchase. Class T shares of each Fund pay ongoing
distribution and service fees to the Underwriter at a combined
annual rate of up to 0.95% (in the case of Growth Fund, Special
Fund and Strategic Income Fund), 0.75% (in the case of Income
Fund) and 0.65% (in the case of Government Securities Fund and
High Yield Fund) of the annual average daily net assets
attributable to such Fund's Class T shares.
The alternative purchase arrangements permit an investor to
choose the method of purchasing shares that the investor prefers
given the amount of the purchase, the length of time the investor
expects to hold the shares, whether the investor wishes to
receive distributions in cash or to reinvest them in additional
shares of the Fund and other circumstances. Investors should
consider whether, during the anticipated life of their investment
in a Fund, the accumulated continuing distribution fees and the
contingent deferred sales charges on Class B shares prior to
conversion or on Class C shares, if any, would be economically
more advantageous than the initial sales charge and accumulated
service and distribution fees on Class A shares purchased at the
same time, and the effect of the lower expenses attributable to
Class A shares.
Class A shares are subject to a lower distribution fee and,
accordingly, pay correspondingly higher dividends per share, to
the extent any dividends are paid. However, because initial
sales charges are deducted at the time of purchase, such
investors would not have all their funds invested initially and,
therefore, would initially own fewer shares. Investors whether
or not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might
consider purchasing Class A shares, because the accumulated
continuing distribution charges on Class B or Class C shares may
exceed the initial sales charge on Class A shares during the life
of the investment. Again, however, such investors must weigh
this consideration against the fact that, because of such initial
sales charges, not all their funds will be invested initially.
However, other investors might determine that it would be more
advantageous to purchase Class B shares or Class C shares to have
all their funds invested initially, although remaining subject to
higher distribution fees until conversion (and redemption fees
for five years from the date of purchase) in the case of Class B
shares; and to higher distribution fees for the life of the
investment (and redemption fees for one year) in the case of
Class C shares. Sales personnel of broker-dealers distributing
each Fund's shares may receive differing compensation for selling
the different classes of shares.
Dividends paid by each Fund, if any, with respect to each
class of shares will be calculated in the same manner, at the
same time and on the same day, except that the higher
distribution fee and any incremental transfer agency costs
relating to Class B and Class C shares will be borne exclusively
by that class. See "Dividends, Distributions and Taxes."
The Trustees have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing
basis, the Trustees, pursuant to their fiduciary duties under the
1940 Act and state laws, will seek to ensure that no such
conflict arises.
Class B Share and Class T Share Conversion Feature. Class B
shares include all shares purchased pursuant to the contingent
deferred sales charge alternative which have been outstanding for
less than the period ending eight years after the end of the
month in which the shares were issued. At the end of this
period, Class B shares will automatically convert to Class A
shares and will no longer be subject to the higher distribution
fee. Class T shares convert to Class A shares at the end of the
month which is the later of (i) eight years after the Class T
shares were purchased or (ii) May 31, 1998. Such conversion will
be on the basis of the relative net asset value of the two
classes without the imposition of any sales load, fee or other
charge. The purpose of the conversion feature is to relieve the
holders of Class B and Class T shares that have been outstanding
for a period of time sufficient for the Underwriter or former
underwriter to have been compensated for distribution expenses
related to the Class B and Class T shares from most of the burden
of such distribution-related expenses.
For purposes of conversion to Class A, shares purchased
through the reinvestment of dividends and distributions paid in
respect of Class B or Class T shares in a shareholder's Fund
account will be considered to be held in a separate sub-account.
Each time any Class B shares in the shareholder's Fund account
(other than those in the sub-account) convert to Class A, an
equal pro rata portion of the Class B or Class T shares in the
sub-account will also convert to Class A.
Considerations Associated with Multiple Class Distribution
Structure. Each Fund is applying to the Internal Revenue Service
(the "IRS") for, but has not yet received, rulings, to the effect
that (i) the implementation of the multiple class purchase
arrangement will not result in a Fund's dividends or
distributions constituting "preferential dividends" under the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii)
that any conversion feature associated with a class of shares
does not constitute a taxable event under Federal income tax law.
While rulings similar to the ones sought by the Funds as to
preferential dividends have been issued previously by the IRS,
complete assurance cannot be given that the Funds eventually will
receive such rulings. While an adverse determination by the IRS
currently is not expected, the Funds may be required to reassess
(and reserve the right to do so) their multiple class share
structure were the IRS not to rule favorably, insofar as a
negative ruling could impact on a Fund's ability to qualify as a
regulated investment company. In addition, were the IRS not to
rule favorably, a Fund might make additional distributions if
doing so would assist such Fund in complying with general
practices of distributing sufficient income to reduce or
eliminate U.S. Federal income and excise taxes. The conversion
of Class B or Class T shares to Class A shares may be suspended
if such an opinion or ruling is not available. In that event, no
further conversions of Class B or Class T shares would occur, and
these shares might continue to be subject to the higher Class B
or Class T distribution fee, respectively, for an indefinite
period, which, for Class B and Class T shares, may extend beyond
the proposed conversion date.
EXCHANGE PRIVILEGES
Shareholders may exchange shares of a Fund for the same
class of shares of another Fund and, except in the case of
Class T shares, certain other investment companies in which the
Adviser acts as investment adviser. Shareholders may also
exchange their shares for shares of The Cash Management Fund, a
series of Solomon Brothers Investment Services (an open-end
management investment company comprised of various portfolios,
herein referred to as "Money Market Portfolio," that is not one
of the Funds, but is available by purchase or exchange through
the Underwriter). Except for Class T shares, telephone exchange
privileges are available. For Federal income tax purposes, an
exchange will be treated as a sale and purchase of shares.
Special rules may apply in computing the amount of gain or loss
in these situations. (See "Dividends, Distributions and Taxes"
for information on the Federal income tax treatment of a
disposition of shares.) See the Funds' current Prospectus for
more information regarding exchanges.
REDEMPTION OF SHARES
Payment for shares redeemed must ordinarily be mailed within
three days after tender. The right to redeem shares may be
suspended and payment therefor postponed during periods when the
New York Stock Exchange is closed, other than customary weekend
and holiday closings, or if permitted by rules of the SEC, during
periods when trading on the Exchange is restricted or during any
emergency which makes it impracticable for any Fund to dispose of
its securities or to determine fairly the value of its net assets
or during any other period permitted by order of the SEC for the
protection of investors. Furthermore, the Transfer Agent will
not mail redemption proceeds until checks received for shares
purchased have cleared, but payment will be forwarded immediately
upon the funds becoming available. Class B, Class C and Class T
shareholders will be subject to the applicable deferred sales
charge, if any, for their shares at the time of redemption.
Except for Class T shares, the Funds have procedures in
place to accept telephone redemptions. See the current
Prospectus for more information.
Each shareholder account in any Fund which has been in
existence for at least one year and has a value of less than $500
may be redeemed upon the giving of not less than 60 days written
notice to the shareholder mailed to the address of record.
During the 60 day period the shareholder has the right to add to
the account to bring its value to $500 or more. In addition,
each Fund reserves the right to close a shareholder account if
the shareholder has failed to provide a social security number or
other taxpayer identification number and certification (if
required) that such number is correct. See the Funds' current
Prospectus for more information.
Shareholders who may have overlooked features of their
investment at the time they redeemed have a one-time privilege of
reinstating their investment subject to the terms of exchange at
the net asset value next determined after the request for
reinstatement is made. See the Funds' Prospectus for more
information and conditions attached to the privilege.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to qualify each year as a regulated
investment company under Subchapter M of the Code. In order to
so qualify, the Fund must, among other things, (i) derive at
least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, gains from the sale of
securities or foreign currencies, or other income (including but
not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in stock,
securities or currencies; (ii) derive less than 30% of its gross
income from gains from the sale or other disposition of
securities held for less than three months; (iii) distribute at
least 90% of its dividend, interest and certain other taxable
income each year; and (iv) at the end of each fiscal quarter
maintain at least 50% of the value of its total assets in cash,
government securities, securities of other regulated investment
companies, and other securities of issuers which represent, with
respect to each issuer, no more than 5% the value of the Fund's
total assets and 10% of the outstanding voting securities of such
issuer, and with no more than 25% of its assets invested in the
securities (other than those of the U.S. Government or other
regulated investment companies) of any one issuer or of two or
more issuers which the Fund controls and which are engaged in the
same, similar or related trades and businesses. To the extent it
qualifies for treatment as a regulated investment company, a Fund
will not be subject to federal income tax on income paid to its
shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the
excess, if any, of a Fund's "required distribution" over actual
distributions in any calendar year. Generally, the "required
distribution" is 98% of a Fund's ordinary income for the calendar
year plus 98% of its capital gain net income recognized during
the one-year period ending on October 31 plus undistributed
amounts from prior years. Each Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
For a distribution to qualify as such with respect to a calendar
year under the foregoing rules, it must be declared by the Fund
during October, November or December and paid by the Fund before
the following February 1. Such distributions will be taxable as
if received on December 31 in the year they are declared by the
Fund, rather than the year in which they are received.
Under current federal tax law, each Fund will receive net
investment income in the form of interest by virtue of holding
Treasury bills, notes and bonds, and will recognize interest
attributable to it from holding zero coupon Treasury securities.
Current Federal tax law requires that a holder of a zero coupon
security accrue a portion of the discount at which the security
was purchased as income each year even though the Fund receives
no interest payment in cash on the security during the year. As
an investment company, each Fund must pay out substantially all
of its net investment income each year. Accordingly, each Fund
may be required to pay out as an income distribution each year an
amount which is greater than the total amount of cash interest
the Fund actually received. Such distributions will be made from
the cash assets of a Fund or by liquidation of portfolio
securities, if necessary. If a distribution of cash necessitates
the liquidation of portfolio securities, the Adviser will select
which securities to sell. A Fund may realize a gain or loss from
such sales. In the event a Fund realizes net capital gains from
such transactions, shareholders may receive a larger capital gain
distribution, if any, than they would in the absence of such
transactions.
Certain options, futures contracts, and options on futures
contracts are "section 1256 contracts." Any gains or losses on
section 1256 contracts are generally considered 60% long-term and
40% short-term capital gains or losses ("60/40 gains or losses").
Also, section 1256 contracts held by a Fund at the end of each
taxable year are treated for federal income tax purposes as being
sold on such date for their fair market value. The resultant
gains or losses are treated as 60/40 gains or losses. When the
section 1256 contract is subsequently disposed of, the actual
gain or loss will be adjusted by the amount of the year-end gain
or loss. The use of section 1256 contracts may increase the
amount of short-term capital gain realized by a Fund and taxed as
ordinary income when distributed to shareholders.
Hedging transactions in options, futures contracts and
straddles or other similar transactions will subject a Fund to
special tax rules (including mark-to-market, straddle, wash sale
and short sale rules). The effect of these rules may be to
accelerate income to a Fund, defer losses to a Fund, cause
adjustments in the holding periods of a Fund's securities or
convert short-term capital losses into long-term capital losses.
Hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income
when distributed to shareholders. A Fund may make one or more of
the various elections available under the Code with respect to
hedging transactions. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or
losses from the affected positions will be determined under rules
that vary according to the elections made. A Fund will use its
best efforts to make any available elections pertaining to the
foregoing transactions in a manner believed to be in the best
interests of the Fund. The 30% limit on gains from the sale of
securities held for less than three months and the
diversification requirements applicable to a Fund's assets may
limit the extent to which a Fund will be able to engage in
transactions in options, futures contracts, or options on futures
contracts.
Shareholders of a Fund will be subject to federal income
taxes on distributions made by the Fund whether received in cash
or additional shares of the Fund. Distributions by a Fund of net
income and short-term capital gains, if any, will be taxable to
shareholders as ordinary income. Distributions of long-term
capital gains, if any, will be taxable to the shareholders as
long-term capital gains, without regard to how long a shareholder
has held shares of the Fund. A loss on the sale of shares held
for 6 months or less will be treated as a long-term capital loss
to the extent of any long-term capital gain dividend paid to the
shareholder with respect to such shares. Corporate shareholders
should not anticipate that dividends and distributions by a Fund
will necessarily qualify for the dividends received deduction,
since dividends paid by a Fund may often not be derived from
dividend income.
There may be differences between federal income tax rules
and the accounting principles adopted by a Fund. To the extent
that current net realized capital gains are distributed during
the course of a fiscal year, the subsequent realization of
capital losses at or before the end of the fiscal year could
offset such gains for federal income tax purposes. If the amount
of distributions paid by a Fund for any fiscal year exceeds its
investment company taxable income plus net realized capital gains
for the year, the excess is treated as a return of capital. Each
distribution paid for that year could be treated, in the same
proportion, in part as a distribution of taxable income and in
part as a return of capital. Shareholders are not subject to
current federal income tax on the part which is treated as a
return of capital, but their basis in shares of the Fund would be
reduced by that amount. This reduction of basis would operate to
increase capital gain (or decrease capital loss) upon subsequent
sale of shares.
A Fund's investment in securities issued at a discount and
certain other obligations will (and investments in securities
purchased at a discount may) require the Fund to accrue and
distribute income not yet received. In order to generate
sufficient cash to make the requisite distributions, the Fund may
be required to sell securities in its portfolio that it otherwise
would have continued to hold.
A Fund's transactions in foreign currency-denominated debt
securities, certain foreign currency options, futures contracts,
and forward contracts may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.
If more than 50% of a Fund's assets at year end consist of
the debt and equity securities of foreign corporations, the Fund
may elect to permit shareholders to claim a credit or deduction
on their income tax returns for their pro rata portion of
qualified taxes paid by a Fund to foreign countries. In such a
case, shareholders will include in gross income from foreign
sources their pro rata shares of such taxes. A shareholder's
ability to claim a foreign tax credit or deduction in respect of
foreign taxes paid by the Fund may be subject to certain
limitations imposed by the Code, as a result of which a
shareholder may not get a full credit or deduction for the amount
of such taxes. Shareholders who do not itemize on their federal
income tax returns may claim a credit (but no deduction) for such
foreign taxes.
Investment by a Fund in certain "passive foreign investment
companies" could subject the Fund to a U.S. Federal income tax or
other charge on the proceeds from the sale of its investment in
such a company; however, this tax can be avoided by the Fund's
making an election to mark such investments to market annually or
to treat the passive foreign investment company as a "qualified
electing fund."
Each Fund will notify shareholders each year of the amount
of dividends and distributions representing long-term capital
gains or return of capital.
Redemptions and exchanges of Fund shares are taxable events
and, accordingly, shareholders may realize gains and losses on
these transactions. If shares have been held for more than one
year, gain or loss realized will be long-term capital gain or
loss unless the shareholder is a dealer in securities. However,
if a shareholder sells Fund shares at a loss within six months
after purchasing the shares, the loss will be treated as a long-
term capital loss to the extent of any long-term capital gain
distributions received by the shareholder. Furthermore, no loss
will be allowed on the sale of Fund shares to the extent the
shareholder acquired other shares of that Fund within 30 days
prior to the sale of the shares or 30 days after such sale.
As discussed above, there may be a difference between a
Fund's book income and its taxable income. This difference may
cause a portion of the Fund's income distributions to constitute
return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated
investment company.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury regulations
currently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and regulations.
The Code and regulations are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to state and
local taxes. Dividends paid by a Fund from income attributable
to interest on obligations of the U.S. Government and certain of
its agencies and instrumentalities may be exempt from state and
local taxes in certain states. A Fund will advise shareholders
of the proportion of its dividends consisting of such
governmental interest. Shareholders should consult their tax
advisers regarding the possible exclusion of this portion of
their dividends for state and local tax purposes.
The foregoing discussion relates solely to U.S. Federal
income tax law. Non-U.S. investors should consult their tax
advisers concerning the tax consequences of ownership of shares
of a Fund, including the possibility that distributions may be
subject to a 30% United States withholding tax (or a reduced rate
of withholding provided by treaty).
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS
REGARDING SPECIFIC QUESTIONS AS TO FEDERAL, FOREIGN, STATE OR
LOCAL TAXES.
UNDERWRITER AND DISTRIBUTION SERVICES
Pursuant to Underwriting Agreements, NWNL Northstar
Distributors, Inc. is the Underwriter for each Fund and as such
conducts a continuous offering pursuant to a "best efforts"
arrangement requiring it to take and pay for only such securities
as may be sold to the public. The Underwriter is an affiliate of
the Adviser and the Administrator.
Each Fund has adopted separate distribution plans under Rule
12b-1 of the 1940 Act for each class of shares of the Fund
(collectively the "Plans"). The Plans permit each Fund to
compensate the Underwriter in connection with activities intended
to promote the sale of shares of each class of shares of each
Fund.
Pursuant to the Plan for Class A shares, each Fund may
compensate the Underwriter up to 0.30% of average daily net
assets of such Fund's Class A shares. Under the Plans for
Class B and Class C shares, each Fund may compensate the
Underwriter up to 1.00% of the average daily net assets
attributable to the respective class of such Fund. Pursuant to
the Plan for Class T shares, each Fund compensates the
Underwriter in an amount equal to 0.95% (in the case of Growth
Fund, Special Fund and Strategic Income Fund), 0.75% (in the case
of Income Fund) and 0.65% (in the case of Government Securities
Fund and High Yield Fund) of annual average daily net assets of
such Fund's Class T shares. However, each of the Class T Plans
provide for compensation of up to 1.00% of annual average daily
net assets. Expenditures by the Underwriter under the Plans
shall consist of: (i) commissions to sales personnel for selling
shares of the Funds (including underwriting fees and financing
expenses incurred in connection with the sale of Class B and
Class C shares); (ii) compensation, sales incentives and payments
to sales, marketing and service personnel; (iii) payments to
broker-dealers and other financial institutions which have
entered into agreements with the Underwriter in the form of a
Dealer Agreement for Northstar Advantage Funds for services
rendered in connection with the sale and distribution of shares
of the Funds; (iv) payment of expenses incurred in sales and
promotional activities, including advertising expenditures
related to the Funds; (v) the costs of preparing and distributing
promotional materials; (vi) the cost of printing the Funds'
Prospectus and Statement of Additional Information for
distribution to potential investors; and (vii) other activities
that are reasonably calculated to result in the sale of shares of
the Funds. With respect to each Class T Plan, it is anticipated
that all of the payments received by the Underwriter under the
Plan will be paid to Advest as compensation for prior
distribution and shareholder servicing activities in connection
with the Class T Shares.
A portion of the fees paid to the Underwriter pursuant to
the 12b-1 plans not exceeding 0.25% annually of the average daily
net assets of each Fund's shares may be paid as compensation for
providing services to each Fund's shareholders, including
assistance in connection with inquiries related to shareholder
accounts (the "Service Fee"). In order to receive Service Fees
under the Plans, participants must meet such qualifications as
are established in the sole discretion of the Underwriter, such
as services to each Fund's shareholders; or services providing
each Fund with more efficient methods of offering shares to
coherent groups of clients, members or prospects of a
participant; or services permitting purchases or sales of shares,
or transmission of such purchases or sales by computerized tape
or other electronic equipment; or other processing.
Fees received by the Underwriter under the early years of
the Plans for new classes of shares are not likely to pay the
Underwriter for the total distribution expenses it will actually
incur as a result of each class having fewer assets and the
Underwriter incurring greater promotional expenses during the
start-up phase. During later years of a Plan, the Underwriter
may realize a profit.
If the Plans are terminated in accordance with their terms,
the obligations of a Fund to compensate the Underwriter for
distribution related services pursuant to the Plans will cease;
however, subject to approval by the Trustees, including a
majority of the independent Trustees, a Fund may continue to make
payments past the date on which each Plan terminates up to the
annual limits set forth in each Plan for the purpose of
compensating the Underwriter for services that were incurred
during the term of the Plan.
In addition to the amount paid to dealers pursuant to the
sales charge table in the Prospectus, the Underwriter from time
to time pays, from its own resources or pursuant to the Plans, a
bonus or other incentive to dealers (other than the Underwriter)
which employ a registered representative who sells a minimum
dollar amount of the shares of a Fund during a specific period of
time. Such bonuses or other incentives take the form of payment
for travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives and
members of their families to places within or without the United
States or other bonuses such as certificates for airline tickets,
dining establishments or the cash equivalent of such bonuses.
The Underwriter, from time to time, reallows all or a portion of
the sales charge on Class A shares which it normally retains to
individual selling dealers. However, such additional reallowance
generally will be made only when the selling dealer commits to
substantial marketing support such as internal wholesaling
through dedicated personnel, internal communications and mass
mailings. The Underwriter has also agreed to pay Advest, which
through June 2, 1995 acted as principal underwriter to the Funds,
certain additional contingent compensation until June 2, 1998
based upon a formula which takes into account both the sale by
Advest of shares of the Funds and other Northstar affiliated
investment companies, the length of times of investment and the
annual redemption rates of the Funds' shares sold by Advest.
Such incentive compensation is in addition to the dealers'
reallowance to which Advest would otherwise be entitled.
The Trustees have concluded that there is a reasonable
likelihood that the Plans will benefit each Fund and its
shareholders. On a quarterly basis, the Trustees will review a
report on expenditures under the Plans and the purposes for which
expenditures were made. The Trustees will conduct an additional,
more extensive review annually in determining whether the Plans
shall be continued. By their terms, continuation of the Plans
from year to year is contingent on annual approval by a majority
of the Trustees acting separately on behalf of each Fund and by a
majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plans or any related
agreements (the "Plan Trustees"). The Plans provide that they
may not be amended to increase materially the costs which a Fund
may bear pursuant to the applicable Plan without approval of the
shareholders of the affected Fund and that other material
amendments to the Plans must be approved by a majority of the
Plan Trustees acting separately on behalf of each Fund, by vote
cast in person at a meeting called for the purpose of considering
such amendments. The Plans further provide that while each plan
is in effect, the selection and nomination of Trustees who are
not "interested persons" shall be committed to the discretion of
the Trustees who are not "interested persons." A Plan may be
terminated at any time by vote of a majority of the Plan Trustees
or a majority of the outstanding Class of shares of the affected
Fund to which the Plan relates.
During the fiscal year ended December 31, 1994, expenses
incurred by Advest for certain distribution related activities
with respect to each of the Funds listed below were as follows:
Government High
Securities Yield Income
Expense Fund Fund Fund
Printing $ 22,906 $ 23,075 $ 5,061
Marketing Expenses 51,579 106,833 26,180
Selling Commissions
to sales personnel(1) 387,683 788,598 198,493
Trail Commissions
to sales personnel(2) 392,180 232,346 195,520
Interest(3) 370,144 284,445 57,389
Retail Branch Costs(4) 179,054 363,234 43,522
Allocated Overhead
Costs(5) 192,362 328,920 104,582
Strategic
Growth Special Income
Expense Fund Fund Fund
Printing $ 5,756 $ 9,909 $ 71,736
Marketing Expenses 27,960 37,033 101,379
Selling Commissions
to sales personnel(1) 208,268 271,408 437,631
Trail Commissions
to sales personnel(2) 210,688 62,663 735
Interest(3) 61,606 24,247
Retail Branch Costs(4) 95,681 124,831 212,414
Allocated Overhead
Costs(5) 93,739 103,729 80,941
(1) Represents 50% payout of gross commissions to Advest
account executives. Net payout to account executives varies
as a portion of gross commissions, but approximates 50%.
(2) Advest paid account executives continuing fees on a
gross basis of up to 0.95% annually of the average net asset
value of shares of each of the Funds. The amount stated
represents net payout to account executives on those gross
commissions.
(3) Interest is an assumed cost of money computed at the
brokers' call rate on the deficit amount of distribution
expenses incurred by Advest over amounts received by Advest
under the Funds' respective distribution and service plans.
(4) Retail branch costs: includes branch office and
regional operational center selling and transaction costs.
The 1994 rate represents 24.6% of gross commissions.
(5) Allocated Overhead Costs: includes costs for corporate
centers communication, operations, clearing and data
processing. Allocation based on the number of trade tickets
sold for a Fund to total trades for Advest.
The Underwriting Agreements may be terminated at any time on
not more than 60 days' written notice, without payment of a
penalty, by the Underwriter, by vote of a majority of the
outstanding class of voting securities of the affected Fund, or
by vote of a majority of the Trustees of such Fund, who are not
"interested persons" of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in
any agreements. The Underwriting Agreements will terminate
automatically in the event of their assignment.
TRUSTEES AND OFFICERS
The Trustees and principal Officers of each Fund and their
business affiliations for the past five years are set forth
below. Unless otherwise noted, the mailing address of the
Trustees and Officers of each Fund is c/o the particular Fund,
Two Pickwick Plaza, Greenwich, CT 06830. The current Trustees
were elected by shareholders of the Fund effective June 2, 1995.
Robert B. Goode, Jr., Trustee. 27 Rushleigh Road, West Hartford,
CT 06117 Retired. From 1990 to 1991, Chairman of The First
Reinsurance Company of Hartford. From 1987 to 1989, President
and Director of American Skandia Life Assurance Company. Since
October 1993, Trustee of the Northstar affiliated investment
companies.
Paul S. Doherty, Trustee. One Monarch Place, Springfield, MA
01144
President, Doherty, Wallace, Pillsbury and Murphy, P.C.,
Attorneys. Director, Tambrands, Inc. Since October 1993,
Trustee of the Northstar affiliated investment companies.
David W. Wallace, Trustee. 33 Midwood Road , Deer Park,
Greenwich, CT Chairman of Putnam Trust Company, Lone Star
Industries and FECO Engineered Systems, Inc. He is also
President and Trustee of Robert R. Young Foundation and Governor
of the New York Hospital. Director of UMC Electronics and Zurn
Industries, Inc. Former Chairman and Chief Executive Officer,
Todd Shipyards and Bangor Punta Corporation, and former Chairman
and Chief Executive Officer of National Securities & Research
Corporation. Since October 1993, Trustee of the Northstar
affiliated investment companies.
Marjory Williams, Trustee. 19875 Cottagewood Ave., Excelsior, MN
55331 Founder and Chief Executive Officer of Marjory Williams
Ltd., a marketing company. From 1979 to 1992, Founder,
President, and Chief Executive Officer of SHE, Inc. and Laura
Caspari Ltd. (fashion retailers). Since October 1993, Trustee of
the Northstar affiliated investment companies.
Alan L. Gosule, Trustee. 200 Park Avenue, New York, NY 10166
Partner, Rogers & Wells
David W.C. Putnam, Trustee. 10 Langeley Place, Newton Center, MA
02159 President, Clerk and Director of F.L. Putnam Securities
Company, Incorporated, F.L. Putnam Investment Management Company,
Incorporated, Interstate Power Company, Inc., Trust Realty Corp.
and Bow Ridge Mining Co.; Director of Anchor Investment
Management Corporation; President and Trustee of Anchor Capital
Accumulation Trust, Anchor International Bond Trust, Anchor Gold
and Currency Trust, Anchor Resources and Commodities Trust and
Anchor Strategic Assets Trust.
John R. Smith, Trustee. 67 Winsor Street, Sudbury, MA 01776
Financial Vice President of Boston College (1970-1991); President
(since 1991) of New England Fiduciary Company (financial
planning); Chairman (since 1987) of Massachusetts Educational
Financing Authority; Vice Chairman of Massachusetts Health and
Education Authority.
Mark L. Lipson, President and Trustee. Director, Chairman and
Chief Executive Officer of Northstar and NWNL Northstar Inc.
Director and President of Northstar Administrators Corporation
and Director and Chairman of NWNL Northstar Distributors, Inc.,
President and Trustee of the Northstar affiliated investment
companies since October 1993. Prior to August, 1993, Director,
President and Chief Executive Officer of National Securities &
Research Corporation and President and Director/Trustee of the
National Affiliated Investment Companies and certain of
National's subsidiaries.
John G. Turner, Chairman and Trustee. 20 Washington Avenue,
Minneapolis, MN 5544056. Since May 1991, Chairman and CEO of
ReliaStar. Since October 1993, Director of Northstar and
affiliates and Chairman and Trustee of the Northstar affiliated
investment companies. Prior to May 1991, President and CEO of
the NWNL Companies, Inc.
Ernest N. Mysogland, Vice President. (Growth Fund, Income Fund,
Special Fund). Executive Vice President and Chief Investment
Officer-Equities of Northstar Investment Management Corporation.
From 1992 to August 1993, Senior Vice President and Chief
Investment Officer-Equities of National Securities & Research
Corporation and Vice President of National Affiliated Investment
Companies. Prior to joining National in 1992, Mr. Mysogland was
the President & Chief Investment Officer of Reinoso Asset
Management. From 1988 to 1991, Mr. Mysogland was Executive Vice
President and Chief Investment Officer of Gintel Equity
Management.
Thomas Ole Dial, Vice President. (Income Fund, Strategic Income
Fund, High Yield Fund, Government Securities Fund). Executive
Vice President and Chief Investment Officer-Fixed Income of
Northstar Investment Management Corporation and Principal, T.D. &
Associates, Inc. From 1989 to August 1993, Executive Vice
President and Chief Investment Officer-Fixed Income of National
Securities & Research Corporation, Vice President of National
Affiliated Investment Companies, and Vice President of NSR Asset
Management Corp. From 1988 to 1989, President, Dial Capital
Management.
Robert L. Thomas, Vice President. (Government Securities Fund,
Income Fund, Strategic Income Fund, High Yield Fund). President
of BSC (since 1989); Executive Vice President of Advest; Director
of Advest Group, Inc. and Advest; President and Trustee of each
of The Advantage Funds, The Scottish Widows International Fund
and the Advantage Municipal Bond Fund.
Margaret D. Patel, Vice President. (Government Securities Fund,
Income Fund, Strategic Income Fund, High Yield Fund). Senior
Vice President of Boston Security Counsellors, Inc. (since 1988);
President and Portfolio Manager at Fixed Income Asset Management,
Inc. (1986 to 1988); Portfolio Manager at American Capital and
Dreyfus Corporation (prior to 1988).
Prescott B. Crocker, C.F.A., Vice President. (Government
Securities Fund, Income Fund, Strategic Income Fund, High Yield
Fund). Senior Vice President and Director, Fixed Income
Investments of Boston Security Counsellors, Inc. (since November
1993); Senior Portfolio Manager at Colonial Management
Associates, Inc. (1975-1993); prior to 1993, Mr. Crocker served
in various senior investment management positions at Colonial
Management Associates, Inc.
Agnes Mullady, Vice President and Treasurer. Senior Vice
President and Chief Financial Officer of Northstar Investment
Management Corporation, Senior Vice President and Treasurer of
Northstar Administrators Corporation, and Vice President and
Treasurer of NWNL Northstar Distributors, Inc. From 1987 to 1993
Treasurer and Vice President of National Securities & Research
Corporation.
Lisa M. Hurley, Vice President and Secretary. Senior Vice
President, General Counsel of Northstar Investment Management
Corporation. Executive Vice President and Secretary of Northstar
Administrators Corporation, and Vice President and Secretary of
NWNL Northstar Distributors, Inc. Former Vice President and
General Counsel of National Securities & Research Corporation.
* Messrs. Turner and Lipson are each deemed to be an "interested
person" within the meaning of the 1940 Act.
Mone Anathan, III, Dr. Loring E. Hart, Reverend Bartley
MacPhaidin and Edward T. Sullivan, each of whom were previously
Trustees of the Funds, serve on an Advisory Board. The Advisory
Board is expected to provide advice to the Board of Trustees in
order to facilitate a smooth management transition regarding the
advisory services to be provided by Northstar and to provide such
other advice as the Board of Trustees may request from time to
time. The Advisory Board will have no authority or control over
the Funds. It is expected that Advisory Board members will
receive the same fees they received as Trustees (see table
below). Northstar has agreed to reimburse the Funds for the
expenses associated with the Advisory Board for up to three
years.
Trustee Compensation
For the Year Ended December 31, 1994
Pension
Aggregate or Retirement
Compensation Accrued
Complex From Each Benefits From
Director Fund(a) the Funds
Mone Anathan, III $1,900 $0
Alan L. Gonsule, Esq. $1,900 $0
Dr. Loring E. Hart $1,900 $0
Rev. Bartley
MacPhaidin C.S.C. $1,250 $0
John R. Smith, Ph.D. $2,100 $0
Edward T. Sullivan $1,500 $0
David W.C. Putnam $30,002(c) $0
Allen Weintraub $0 $0
Robert L. Thomas $0 $0
Compensation
From the
Estimated Funds in the
Annual Northstar
Complex Benefits Upon Advantage Fund
Director Retirement Paid to
Trustees
Mone Anathan, III $0 $10,100
Alan L. Gonsule, Esq. $0 $10,100
Dr. Loring E. Hart $0 $10,100
Rev. Bartley
MacPhaidin C.S.C. $0 $ 6,750
John R. Smith, Ph.D. $0 $11,100
Edward T. Sullivan $0 $ 8,000
David W.C. Putnam $0 $30,002
Allen Weintraub $0 $ 0
Robert L. Thomas $0 $ 0
(a) Trustees and officers who were affiliated with the Adviser
or Underwriter or their affiliates ("interested persons" as
defined under the Investment Company Act of 1940) did not
receive any compensation for services rendered to the Funds
in addition to their compensation for services rendered to
the Adviser or affiliated companies. The Trustees who were
not the Distributor or interested persons were paid a per
fund fee of $500 for each full calendar year during which
services were rendered to the Funds. In addition, they were
paid a per fund fee of $250 for attending each of the
Trustees' meetings, $100 per fund for attending each audit
committee meeting, $100 audit committee retainer per fund
and are reimbursed for out-of-pocket expenses. The current
Trustees receive an annual retainer fee of $6,000 for their
combined services as Trustee to the Funds and of other
retail funds sponsored or advised by the Adviser, and a per
meeting fee of $1,500 for attendance at each joint meeting
of the Funds and the other Northstar retail funds sponsored
or advised by the Adviser.
(b) Complex is comprised of six Advantage Fund trusts.
(c) As Chairman, David Putnam received the amount listed above
from the Complex, which included compensation as a Trustee
and for additional services. Each Fund is allocated a
proportionate share of the amount paid for additional
services based on net assets. Mr. Putnam resigned as
Chairman effective June 2, 1995.
On December 31, 1994, no Officer or Trustee of the Funds,
owned beneficially or of record 1 percent or more of any class of
the outstanding securities of any Fund.
OTHER INFORMATION
Independent Accountants. Price Waterhouse LLP has been
selected as the independent accountants of the Funds. Price
Waterhouse LLP audits each Fund's annual financial statements and
expresses an opinion thereon.
Custodian. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, acts as custodian
of each Fund's assets (the "Custodian").
Transfer Agent. The Shareholder Services Group, Inc.,
Boston, Massachusetts, acts as the Transfer Agent for the Funds
(the "Transfer Agent"). Advest Transfer Services Inc. ("ATS")
serves as the sub-transfer agent for Class T shares of the Funds.
Prior to June 5, 1995, ATS acted as transfer agent to the Funds.
For calendar year 1994, fees and out-of-pocket costs payable to
ATS under such transfer agency agreements by each of the Funds
were as follows:
Fund Fees Costs
Government Fund $95,636 $2,526
High Yield Fund 87,663 2,762
Income Fund 55,748 1,866
Growth Fund 68,258 1,001
Special Fund 36,611 310
Strategic Income Fund 6,508 225
Reports to Shareholders. The fiscal year of each Fund ends
on December 31. Each Fund will send financial statements to its
shareholders at least semi-annually. An annual report containing
financial statements audited by the independent accountants will
be sent to shareholders each year.
PERFORMANCE INFORMATION
Total Return. Each Fund may, from time to time, include its
total return in advertisements, sales literature or reports to
shareholders or prospective investors. Standardized quotations
of average annual total return for each class of shares will be
expressed in terms of the average annual compounded rate of
return for a hypothetical investment in such class of shares over
periods of 1, 5 and 10 years or up to the life of the class of
shares, calculated for each class separately pursuant to the
following formula: P(1+T)n = ERV (where P = a hypothetical
initial payment of $1,000, T = the average annual total return, n
= the number of years, and ERV = the ending redeemable value of a
hypothetical $ 1,000 payment made at the beginning of the
period). All total return figures reflect the deduction of a
proportional share of each Class's expenses (on an annual basis),
the deduction of the maximum initial sales load in the case of
Class A shares and the maximum contingent deferred sales charge
applicable to a complete redemption of the investment in the case
of Class B, Class C and Class T shares, and assume that all
dividends and distributions on are reinvested when paid.
Performance information for the Funds may be compared in
reports and promotional literature to (1) the Standard & Poor's
500 Stock Index ("S&P 500"), Dow Jones Industrial Average
("DIJA"), or other unmanaged indices so that investors may
compare each Fund's results to those of a group of unmanaged
securities widely regarded by investors as representative of the
securities markets in general; (ii) other groups of mutual funds
tracked by Lipper Analytical Services, Inc., a widely used
independent research firm which ranks mutual funds by overall
performance, investment objectives, and assets, or tracked by
other services, companies, publications or persons who rank
mutual funds on overall performance or other criteria; and (iii)
the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in a Fund; (iv) well known
monitoring sources of CD performance rates such as Solomon
Brothers, Federal Reserve Bulletin, American Bankers, Tower
Data/The Wall Street Journal. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Each Fund may also compute aggregate total return for
specified periods based on a hypothetical investment in the
respective class with an assumed initial investment of $10,000.
The aggregate total return is determined by dividing the net
asset value for this account at the end of the specified period
by the value of the initial investment and is expressed as a
percentage. Calculation of aggregate total return reflects
payment of the maximum sales charge of each class and assumes
reinvestment of all income dividends and capital gain
distributions during the period. The Funds also may quote
annual, average annual and annualized total return and aggregate
total return performance data, for each class of each Fund, both
as a percentage and as a dollar amount based on a hypothetical
$10,000 investment for various periods other than those noted
below. Such data will be computed as described above, except
that (l) the rates of return calculated will not be average
annual rates, but rather, actual annual, annualized or aggregate
rates of return and (2) the maximum applicable sales charge will
not be included with respect to annual, annualized or aggregate
rates of return calculations.
Total return of a hypothetical $10,000 investment in each
class of shares of each Fund is set forth below. This
performance information for the Funds is stated for the one and
five year periods ended December 31, 1994 and for the period from
commencement of each Fund's operations to the fiscal year end
December 31, 1994, reflects payment of the maximum sales charge
for each class and assumes reinvestment of all income dividends
and capital gain distributions. No Class A, Class B or Class C
shares were outstanding during such periods.
Life of
Fund One Year Five Year Fund(A)
Government Fund -13.21% 7.88% 6.39%
High Yield Fund -5.74 13.17 9.89
Income Fund -8.89 7.34 8.05
Growth Fund -11.30 7.58 9.67
Special Fund -8.64 13.43 9.20
Strategic Income Fund -- -- -1.76
(A) February 1, 1986 for Government Securities, Income,
Growth and Special Funds; June 5, 1989 for High Yield
Fund and July 1, 1994 for Strategic Income Fund.
Yield. The yield for the Government Securities Fund, the
High Yield Fund and the Income Fund for the month ended
February 28, 1995 was as follows:
Fund Yield
Government Fund 7.16%
High Yield Fund 10.05%
Income Fund 5.52%
Strategic Income Fund 8.72%
Yield is computed by dividing the net investment income per
share earned during the month by the maximum offering price per
share on the last day of the month, according to the following
formula:
Yield = 2[(a-b + 1)6 -1]
cd
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
To calculate interest earned (for the purpose of "a" above)
on debt obligations, each of the listed Funds computes the yield
to maturity of each obligation held by the Fund based on the
market value of the obligation (including actual accrued
interest) at the close of the last business day of the month or,
with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest). The yield to
maturity is then divided by 360 and the quotient is multiplied by
the market value of the obligation (including actual accrued
interest) to determine the interest income on the obligation for
each day of the subsequent month that the obligation is in the
portfolio.
Solely for the purpose of computing yield, the Funds
recognize dividend income by accruing 1/360 of the stated
dividend rate of a security each day that a security is in the
portfolio.
Undeclared earned income, computed in accordance with
generally accepted accounting principles, may be subtracted from
the maximum offering price. Undeclared earned income is the net
investment income which, at the end of the base period, has not
been declared as a dividend, but is reasonably expected to be
declared as a dividend shortly thereafter. The maximum offering
price includes a maximum contingent deferred sales load of 4%.
All accrued expenses are taken to account as follows.
Accrued expenses include all recurring expenses that are charged
to all shareholder accounts in proportion to the length of the
base period, including but not limited to expenses under the
Funds' distribution plans. Except as noted, the performance
results take the contingent deferred sales load into account.
Non-Standardized Total Return. In addition to the
performance information described above, the Funds may provide
total return information for designated periods, such as for the
most recent rolling six months or most recent rolling twelve
months. A Fund may quote unaveraged or cumulative total returns
reflecting the simple change in value of an investment over a
stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments,
and/or a series of redemptions over any time period. Total
returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in
order to illustrate the relationship of these factors and their
contributions to total return. Total returns may be quoted with
or without taking a Fund's contingent deferred sales load into
account. Excluding a Fund's contingent deferred sales load from
a total return calculation produces a higher total return figure.
Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration. Total
returns for each Fund for the fiscal year ended December 31,
1994, for the five years ended December 31, 1994 and for the
period from the commencement of the Fund's operations to
December 31, 1994, without giving effect to the contingent
deferred sales load, are as follows:
Year 5 Years Inception
Ended Ended to
Fund 12/31/94 12/31/94 12/31/94
Government Fund -9.82% 7.88% 6.39%
High Yield Fund -2.18 13.17 9.89
Income Fund -5.33 7.34 8.05
Growth Fund -7.66 7.58 9.67
Special Fund -4.86 13.43 9.20
Strategic Income Fund 2.14
Other Information Concerning Fund Performance
A Fund may quote its performance in various ways, using
various types of comparisons to market indices, other funds or
investment alternatives, or to general increases in the cost of
living. All performance information supplied by the Funds in
advertising is historical and is not intended to indicate future
returns. Each Fund's share prices and total returns fluctuate in
response to market conditions and other factors, and the value of
the Fund's shares when redeemed may be more or less than their
original cost.
A Fund may quote a distribution rate calculated by
annualizing the latest dividend paid and dividing by the net
asset value per share as of the applicable date. A distribution
rate reflects only dividends paid out of net investment income --
except as indicated, it does not reflect realized long or short
term capital gains or losses, or unrealized gains or losses.
The Funds may compare their performance over various periods
to various indices or benchmarks, including the performance
record of the Standard & Poor's 500 Composite Stock Price Index
(S&P), the Dow Jones Industrial Average (DJIA), the NASDAQ
Industrial Index, the Ten Year Treasury Benchmark and the cost of
living (measured by the Consumer Price Index, or CPI) over the
same period. Comparisons may also be made to yields on
certificates of deposit, treasury instruments or money market
instruments. The comparisons to the S&P and DJIA show how such
Fund's total return compared to the record of a broad average of
common stock prices (S&P) and a narrower set of stocks of major
industrial companies (DJIA). Each Fund has the ability to invest
in securities not included in either index, and its investment
portfolio may or may not be similar in composition to the
indices. Figures for the S&P and DJIA are based on the prices of
unmanaged groups of stocks, and unlike the Funds' returns, their
returns do not include the effect of paying brokerage commissions
and other costs of investing.
Government Securities, High Yield, Income, Growth and
Special Funds. The years since the Funds' inception dates have
been a period of widely fluctuating stock prices and should not
necessarily be considered a representation of the dividend income
or capital gain or loss that could be realized from an investment
in a Fund today. Such comparisons may be made on the basis of a
hypothetical initial investment in one of the Funds (such as
$10,000), and reflect the aggregate cost of reinvested dividends
and capital gain distributions for the period covered (that is,
their cash value at the time they were reinvested). Such
comparisons may also reflect the change in value of such an
investment assuming distributions are not reinvested. Tax
consequences of different investments may not be factored into
the figures presented.
A Fund's performance may be compared in advertising to the
performance of other mutual funds in general or to the
performance of particular types of mutual funds, especially those
with similar objectives.
The Morningstar U.S. Government Bond General Average can be
used to show how the Government Securities Fund's performance
compared to a set of U.S. Government funds. This index includes
funds that invest at least 65% of assets in U.S. Treasury or
Agency issues.
The Morningstar Corporate Bonds-High Yield Average can be
used to show how the High Yield Fund's performance compared to a
set of high current yield funds. This index includes funds that
aim at high (relative) current yield from fixed income
securities. These funds face no quality or maturity
restrictions, and tend to invest in lower grade debt issues.
The Morningstar Income Funds Average can be used to show how
the Income Fund's performance compared to a set of flexible
income funds. This index includes funds that emphasize income
generation by investing in bonds, preferred, convertibles, and/or
common stocks and warrants with no more than 25% in common
stocks.
The Morningstar Growth Funds Average can be used to show how
the Growth Fund's performance compared to a set of equity mutual
funds. This index includes funds that normally invest in
companies whose long-term earnings are expected to grow
significantly faster than the earnings of the stocks represented
in the major unmanaged stock indices.
The Morningstar Small Company Growth Funds Average can be
used to show how the Special Fund's performance compared to a set
of small company growth funds. This index includes funds that by
prospectus or portfolio practice limit investments to companies
on the basis of size of the company.
Other groupings of Funds prepared by Morningstar, Inc.,
Lipper Analytic Services, Inc., an independent service located in
Summit, New Jersey, and other organizations may also be used for
comparison to one or more of the Funds. Although Morningstar,
Inc. and other organizations include funds within various
classifications based upon similarities in their investment
objectives and policies, investors should be aware that these may
differ significantly among funds within a grouping.
Ibbotson Associates of Chicago (Ibbotson), IL and others
provide historical returns of the capital markets in the United
States. A Fund may compare its performance to the long-term
performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios.
Performance comparisons could also include the value of a
hypothetical investment in common stocks, long-term bonds or
treasuries. A Fund may discuss the performance of financial
markets and indices over various time periods.
The capital markets tracked by Ibbotson are common stocks,
small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds,
Treasury Bills, and the U.S. rate of inflation. These capital
markets are based on the returns of several different indices.
For common stocks the S&P is used.
Unlike an investment in a common stock mutual fund, an
investment in bonds that are held to maturity provides a fixed
and stated rate of return. Bonds have a senior priority in
liquidation or bankruptcy to common stocks and interest on bonds
is generally paid from assets of the corporation before any
distributions to common shareholders. Bonds rated in the two
highest rating categories are considered high quality and present
minimal risks of default. See the Appendix to the Prospectus for
a more complete explanation of ratings of corporate bonds. An
additional advantage of investing in government bonds is that
they are securities backed by the credit and taxing power of the
United States government and, therefore, present virtually no
risk of default. Although government securities fluctuate in
price, they are highly liquid and may be purchased and sold with
relatively small transaction costs (direct purchase of Treasury
securities can be made with no transaction costs). Long-term
corporate bond returns are based on the performance of the
Salomon Brothers Long-Term-High-Grade Corporate Bond Index which
includes nearly all Aaa- and Aa-rated bonds. Returns on
intermediate-term government bonds are based on a one-bond
portfolio constructed each year, containing a bond which is the
shortest noncallable bond available with a maturity not less than
5 years. This bond is held for the calendar year and returns are
recorded. Returns on long-term government bonds are based on a
one-bond portfolio constructed each year, containing a bond that
meets several criteria, including having a term of approximately
20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury Bills are based on a one-bill
portfolio constructed each month, containing the shortest-term
bill having not less than one month to maturity. The total
return on the bill is the month-end price divided by the previous
month-end price, minus one. Data up to 1976 is from the U.S.
Government Bond file at the University of Chicago's Center for
Research in Security Prices; the Wall Street Journal is the
source thereafter. Inflation rates are based on the CPI.
Ibbotson calculates total returns in the same method as the
Funds.
Other widely used indices that a Fund may use for comparison
purposes include the Shearson Lehman Bond Index, the Shearson
Lehman GNMA Single Family Index and the Shearson Lehman
Government/Corporate Bond Index.
A Fund may also discuss in advertising the relative
performance of various types of investment instruments, such as
stocks, treasury securities and bonds, over various time periods
and covering various holding periods. Such comparisons may
compare these investment categories to each other or to changes
in the CPI.
These comparisons tend to show that historically, over
longer holding periods, equity investments have outperformed the
returns on short and long term debt investments.
A Fund may also discuss in advertising the highest, lowest
and median or average returns of various types of investments
over various holding periods. These comparisons tend to show
that while certain types of investments may exhibit a wide range
of returns over short periods of time and subject the short-term
investor to the risk of substantial loss, the range of returns
over longer holding periods narrows and returns tend to be more
stable and positive.
A Fund may advertise examples of the effects of periodic
investment plans, including the principle of dollar cost
averaging. In such a program, the investor invests a fixed
dollar amount in a fund at periodic intervals, thereby purchasing
fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost
per share can be lower than if fixed numbers of shares had been
purchased at those intervals. Such a program may help avoid the
pitfalls associated with short-term trading. In evaluating such
a plan, investors should consider their ability to continue
purchasing shares through periods of low price levels.
The Funds may describe the benefits of a ShareBuilder
Account in dollar cost averaging investments in the Funds. The
ShareBuilder Account may provide investors an easy way to save
for college educations, a vacation home or to take care of
retirement needs and other future goals. The ShareBuilder
Account may provide a regular, disciplined savings program, which
is a big step in the right direction toward achieving future
financial goals.
The Funds may be available for purchase through retirement
plans or other programs offering deferral of or exemption from
income taxes, which may produce superior after-tax returns over
time. For example, a $1,000 investment earning a taxable return
of 10% annually, compounded monthly, would have an after-tax
value of $2,009 after ten years, assuming tax was deducted from
the return each year at a 31% rate. An equivalent tax-deferred
investment would have an after-tax value of $2,178 after ten
years, assuming tax was deducted at a 31% rate from the deferred
earnings at the end of the ten year period.
Strategic Income Fund. Comparisons may be made on the basis
of a hypothetical initial investment in the Strategic Income Fund
(such as $10,000), and reflect the aggregate cost of reinvested
dividends and capital gain distributions for the period covered
(that is, their cash value at the time they were reinvested).
Such comparisons may also reflect the change in value of such an
investment assuming distributions are not reinvested. Tax
consequences of different investments may not be factored into
the figures presented.
The Strategic Income Fund's performance may be compared in
advertising to the performance of other mutual funds in general
or to the performance of particular types of mutual funds,
especially those with similar objectives.
Other groupings of funds prepared by Lipper and other
organizations may also be used for comparison to the Strategic
Income Fund. Although Lipper Analytical Services, Inc.
("Lipper") and other organizations such as Investment Company
Data, Inc. ("ICD"), CDA Investment Technologies, Inc. ("CDA") and
Morningstar Investors, Inc. ("Morningstar"), include funds within
various classifications based upon similarities in their
investment objectives and policies, investors should be aware
that these may differ significantly among funds within a
grouping.
From time to time the Strategic Income Fund may publish the
ranking of the performance of its shares by Morningstar, an
independent mutual fund monitoring service that ranks mutual
funds, including the Strategic Income Fund in broad investment
categories (equity, taxable bond, tax-exempt and other) monthly,
based upon each fund's three, five and ten-year average annual
total returns (when available) and a risk adjustment factor that
reflects Fund performance relative to three-month U.S. Treasury
bill monthly returns. Such returns are adjusted for fees and
sales loads. There are five ranking categories with a
corresponding number of stars: highest (5), above average (4),
neutral (3), below average (2) and lowest (1). Ten percent of
the funds, series or classes in an investment category receive 5
stars, 22.5% receive 4 stars, 35% receive 3 stars, 22.5% receive
2 stars, and the bottom 10% receive one star. Morningstar ranks
the shares of the Fund in relation to other taxable bond funds.
From time to time, in reports and promotional literature,
the Strategic Income Fund's yield and total return will be
compared to indices of mutual funds and bank deposit vehicles
such as Lipper Analytical Services, Inc.'s "Lipper - Fixed Income
Fund Performance Analysis," a monthly publication which tracks
net assets, total return, and yield on approximately 1,700 fixed
income mutual funds in the United States. Ibbotson and
Associates, CDA Weisenberger and F.C. Towers are also used for
comparison purposes as well as the Russell and Wilshire Indices.
Comparisons may also be made to Bank Certificates of Deposit,
which differ from mutual funds, such as the Fund, in several
ways. The interest rate established by the sponsoring bank is
fixed for the term of a CD, there are penalties for early
withdrawal from CDs, and the principal on a CD is insured.
Comparisons may also be made to the 10 year Treasury Benchmark.
Performance rankings and ratings reported periodically in
national financial publications such as Money Magazine, Forbes,
Business Week, The Wall Street Journal, Micropal, Inc.,
Morningstar, Barron's. etc. will also be utilized.
Ibbotson Associates of Chicago (Ibbotson), IL and others
provide historical returns of the capital markets in the United
States. The Strategic Income Fund may compare its performance to
the long-term performance of the U.S. capital markets in order to
demonstrate general long-term risk versus reward investment
scenarios. Performance comparisons could also include the value
of a hypothetical investment in common stocks, long-term bonds or
treasuries. The Fund may discuss the performance of financial
markets and indices over various time periods.
The capital markets tracked by Ibbotson are common stocks,
small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds,
Treasury Bills, and the U.S. rate of inflation. These capital
markets are based on the returns of several different indices.
For common stocks the S&P is used. For small capitalized stocks,
return is based on the return achieved by Dimensional Fund
Advisors (DFA) Small Company Fund. This fund is a market-value-
weighted index of the ninth and tenth decimals of the New York
Stock Exchange (NYSE), plus stocks listed on the American Stock
Exchange (AMEX) and over-the-counter (OTC) with the same or less
capitalization as the upper bound of the NYSE ninth decile. As
of year-end 1991, DFA contained approximately 2,003 stocks, with
an average capitalization of about $81.1 million. Unlike an
investment in a common stock mutual fund, an investment in bonds
that are held to maturity provides a fixed and stated rate of
return. Bonds have a senior priority in liquidation or
bankruptcy to common stocks and interest on bonds is generally
paid from assets of the corporation before any distributions to
common shareholders. Bonds rated in the two highest rating
categories are considered high quality and present minimal risks
of default. An additional advantage of investing in government
bonds is that they are securities backed by the credit and taxing
power of the U.S. Government and, therefore, present virtually no
risk of default. Although government securities fluctuate in
price, they are highly liquid and may be purchased and sold with
relatively small transaction costs (direct purchase of Treasury
securities can be made with no transaction costs). Long-term
corporate bond returns are based on the performance of the
Salomon Brothers Long-Term-High-Grade Corporate Bond Index which
includes nearly all Aaa- and Aa-rated bonds. Returns on
intermediate-term government bonds are based on a one-bond
portfolio constructed each year, containing a bond which is the
shortest noncallable bond available with a maturity not less than
5 years. This bond is held for the calendar year and returns are
recorded. Returns on long-term government bonds are based on a
one-bond portfolio constructed each year, containing a bond that
meets several criteria, including having a term of approximately
20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury Bills are based on a one-bill
portfolio constructed each month, containing the shortest-term
bill having not less than one month to maturity. The total
return on the bill is the month-end price divided by the previous
month-end price, minus one. Data up to 1976 is from the U.S.
Government Bond file at the University of Chicago's Center for
Research in Security Prices; the Wall Street Journal is the
source thereafter. Inflation rates are based on the CPI.
Ibbotson calculates total returns in the same method as the
Strategic Income Fund.
Other widely used indices that the Strategic Income Fund may
use for comparison purposes include the Lehman Bond Index, the
Lehman Aggregate Bond Index, The Lehman GNMA Single Family Index,
the Lehman Government/Corporate Bond Index, the Salomon Brothers
Long-Term High Yield Index, the Salomon Brothers Non-Government
Bond Index, the Salomon Brothers Non-U.S. Government Bond Index,
The Salomon Brothers Non-U.S. Government Bond Index, the Salomon
Brothers World Government Bond Index and the J.P. Morgan
Government Bond Index. The Salomon Brothers World Government
Bond Index generally represents the performance of government
debt securities of various markets throughout the world,
including the United States. Lehman Government/Corporate Bond
Index generally represents the performance of intermediate and
long-term government and investment grade corporate debt
securities. The Lehman Aggregate Bond Index measures the
performance of U.S. corporate bond issues, U.S. Government
Securities and mortgage-backed securities. The J.P. Morgan
Government Bond Index generally represents the performance of
government bonds issued by various countries including the United
States. The foregoing bond indices are unmanaged indices of
securities that do not reflect reinvestment of capital gains or
take investment costs into consideration, as these items are not
applicable to indices.
The Strategic Income Fund may also discuss in advertising
the relative performance of various types of investment
instruments, such as stocks, treasury securities and bonds, over
various time periods and covering various holding periods. Such
comparisons may compare these investment categories to each
other or to changes in the CPI.
The Strategic Income Fund may also discuss in advertising
the highest, lowest and median or average returns of various
types of investments over various holding periods. These
comparisons tend to show that while certain types of investments
may exhibit a wide range of returns over short periods of time
and subject the short-term investor to the risk of substantial
loss, the range of returns over longer holding periods narrows
and returns tend to be more stable and positive.
The Strategic Income Fund may advertise the benefits of the
flexibility and diversification of the Fund's three Sector
investment strategy. For example, the Fund may advertise that
each Sector reacts differently to major economic events.
The Fund may also advertise that its three Sector strategy
helps reduce volatility. For example, the Fund may advertise
single market performance compared to a hypothetical investment
containing equal portions of unmanaged indices of U.S. Government
Securities, Foreign Government Securities and High Yield, High
Risk U.S. and Foreign Corporate Securities over certain periods
of time.
The Strategic Income Fund may advertise examples of the
effects of periodic investment plans, including the principle of
dollar cost averaging. In such a program, the investor invests a
fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit
or guard against loss in a declining market, the investor's
average cost per share can be lower than if fixed numbers of
shares had been purchased at those intervals. In evaluating such
a plan, investors should consider their ability to continue
purchasing shares through periods of low price levels.
The Strategic Income Fund may be available for purchase
through retirement plans or other programs offering deferral of
or exemption from income taxes, which may produce superior after-
tax returns over time. For example, a $1,000 investment earning
a taxable return of 10% annually, compounded monthly, would have
an after-tax value of $2,009 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of 52,178
after ten years, assuming tax was deducted at a 31% rate from the
deferred earnings at the end of the ten year period.
Evaluations of Fund performance made by independent sources
may also be used in advertisements concerning the Strategic
Income Fund and its Portfolios, including reprints of, or
selections from, editorials or articles about the Fund. These
editorials or articles may include quotations of performance from
other sources such as Lipper or Morningstar. Sources for Fund
performance information and articles about the Fund may include
the following.
Banxquote, an on-line source of national averages for
leading money market and bank CD interest rates, published on a
weekly basis by Masterfund, Inc. of Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and
financial weekly that periodically reviews mutual fund
performance data.
Business Week, a national business weekly that periodically
reports the performance rankings and ratings of a variety of
mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which
provides performance and ranking information through examining
the dollar results of hypothetical mutual fund investments and
comparing these results against appropriate market indices.
Changing Times. The Kiplinger Magazine, a monthly
investment advisory publication that periodically features the
performance of a variety of securities.
Consumer Digest, a monthly business/financial magazine that
includes a "Money Watch" section featuring financial news.
Financial World, a general business/financial magazine that
include a "Market Watch" department reporting on activities in
the mutual fund industry.
Forbes, a national business publication that from time to
time reports the performance of specific investment companies in
the mutual fund industry.
Fortune, a national business publication that periodically
rates the performance of a variety of mutual funds.
IBC/Donoghues's Money Fund Report, a weekly publication of
the Donoghue Organization, Inc. of Holliston, Massachusetts,
reporting on the performance of the nation's money market funds,
summarizing money market fund activity, and including certain
averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund
Average."
Ibbotson Associates, Inc., a company specializing in
investment research and data.
Investment Company Data, Inc., an independent organization
which provides performance ranking information for broad classes
of mutual funds.
Investor's Daily, a daily newspaper that features financial,
economic, and business news.
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, a weekly publication of industry-wide mutual fund
averages by type of fund.
Money, a monthly magazine that from time to time features
both specific funds and the mutual fund industry as a whole.
Mutual Fund Values, a biweekly Morningstar, Inc. publication
that provides ratings of mutual funds based on fund performance,
risk and portfolio characteristics.
The New York Times, a nationally distributed newspaper which
regularly covers financial news.
Personal Investing News, a monthly news publication that
often reports on investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication
that includes a "Mutual Funds Outlook" section reporting on
mutual fund performance measures, yields, indices and portfolio
holdings.
Success, a monthly magazine targeted to the world of
entrepreneurs and growing business, often featuring mutual fund
performance data.
USA Today, a large daily newspaper.
U.S. News and World Report, a national business weekly that
periodically reports mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper
which regularly covers financial news.
Wiesenberger Investment Companies Services, an annual
compendium of information about mutual funds and other investment
companies, including comparative data on funds' background,
management policies, salient features, management results, income
and dividend records, and price ranges.
Working Woman, a monthly publication that features a
"Financial Workshop" section reporting on the mutual
fund/financial industry.
When comparing yield, total return and investment risk of
shares of the Strategic Income Fund with other investments,
investors should understand that certain other investments have
different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed
rates of return and may be insured as to principal and interest
by the FDIC, while the Fund's returns will fluctuate and its
share values and returns are not guaranteed. Money market
accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are
guaranteed as to principal and interest by the full faith and
credit of the U.S. government. Money market mutual funds may
seek to offer a fixed price per share.
The performance of the Strategic Income Fund is not fixed or
guaranteed. Performance quotations should not be considered to
be representative of performance of the Fund for any period in
the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of
outstanding shares. Fluctuating market conditions; purchases,
sales and maturities of portfolio securities; sales and
redemptions of shares of beneficial interest, and changes in
operating expenses are all examples of items that can increase or
decrease the Fund's performance.
FINANCIAL STATEMENTS
The audited financial statements of Government Securities
Fund, High Yield Fund, Income Fund, Growth Fund, Special Fund and
Strategic Income Fund as of and for the fiscal period ended
December 31, 1994 and the report of the independent accountants,
Price Waterhouse LLP, with respect to such financial statements
are hereby incorporated by reference to the Annual Report to
Shareholders of The Advantage Family of Funds for the fiscal year
ended December 31, 1994.
PRO FORMA STATEMENT OF INVESTMENTS
June 30, 1995
PRO FORMA COMBINED
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS - 47.06%
Aerospace - 0.57%
Sabreliner Corp.
12.50%, Sr. Notes, 4/15/03(1) $500,000 $427,500
BANKING - 1.25%
Coastal Bancorp
10.00%, Sr. Notes, 6/30/02 425,000 426,594
Electronic Trans Master Trust
9.35%, Sr. Notes, 5/03/99 500,000 512,500
TOTAL 939,094
BROADCASTING/CABLE - 7.54%
Adelphia Communications Corp.
9/50%, Sr. Notes, 2/15/04(2) 785,625 663,853
Cablevision Systems Corp.
10.75%, Sr. Subordinated
Debentures, 4/01/04 500,000 524,375
Chancellor Broadcasting
12.50% Sr, Subordinated Notes,
10/01/04 500,000 502,500
Granite Broadcasting Crop.
10.375%, Sr. Subordinated Notes,
5/15/05(1) 250,000 250,625
Jones Intercable, Inc.
9.625%, Sr, Notes 3/15/02 500,000 522,500
SCI Television, Inc.
11.00%, Sr. Notes, 6/30/05 550,000 576,125
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Notes, 12/15/03 1,250,000 1,262,500
Spanish Broadcasting System, Inc.
7.50%, Sr. Notes, 6/15/02 500,000 477,500
Turner Broadcasting Systems, Inc.
8.40%, Sr. Notes, 2/01/24 1,000,000 878,250
TOTAL 5,658,228
CAPITAL GOODS - 0.60%
Terex Corp.
13.75%, Sr. Secured Notes, 5/15/02 500,000 450,000
PRINCIPAL
AMOUNT VALUE
CHEMICALS - 0.69%
Pioneer Americas Acquisition Corp.
13.375%, Sr. Notes, 4/01/05(1) 500,000 515,000
CONSUMER NONDURABLES - 0.50%
Roadmaster Industries, Inc.
11.75%, Sr. Subordinated Notes,
7/15/02 400,000 380,000
CONSUMER PRODUCTS - 1.03%
Thermoscan, Inc.
13.4375%, Units,
8/15/01(1)(3)(4) 700 777,000
CONSUMER SERVICES - 0.40%
Envirotest Systems Corp.
9.625%, Sr. Subordinated Notes,
4/01/03 400,000 299,000
CONTAINER - 0.74%
Owens-Illinois
11.00%, Sr. Debentures, 12/01/03 500,000 553,125
DEFENSE - 0.71%
Alliant Techsystems, Inc.
11.75%, Sr. Subordinated
Notes, 3/01/03 500,000 536,250
ENTERTAINMENT - 0.66%
Time Warner Entertainment LP
8.375%, Sr. Debentures, 3/15/23 500,000 496,820
FINANCE - 1.14%
GPA Delaware, Inc.
8.75%, Sr. Notes, 12/15/98 1,000,000 855,000
FINANCIAL SERVICES - 0.65%
Reliance Group Holdings, Inc.
9.75%, Sr. Subordinated Notes,
11/15/03 500,000 488,750
FOOD & BEVERAGE - 0.71%
Curtice-Burns Foods, Inc.
12.75%, Sr. Subordinated
Notes, 02/01/05 500,000 532,500
FOOD SERVICE - 1.1%
American Restaurant Group, Inc.
12.00%, Sr. Notes, 9/15/98 1,000,000 835,000
PRINCIPAL
AMOUNT VALUE
GAMING - 0.63%
Ballys Park Place Funding, Inc.
9.25%, 1st Mortgage Notes, 3/15/04 500,000 473,750
GROCERY - 1.45%
Dairy Mart Convenience Stores, Inc.
10.25%, Sr. Subordinated Notes,
3/15/04 750,000 615,000
Farm Fresh, Inc.
12.25%, Sr. Notes, 10/01/00 500,000 472,500
TOTAL 1,087,500
HEALTHCARE - 2.43%
Abbey Healthcare
9.50%, Sr. Subordinated Notes
11/01/02 1,200,000 1,245,000
Healthtrust Inc.
10.25%, Sr. Notes, 4/15/04 500,000 582,165
TOTAL 1,827,165
HOME BUILDING - 0.61%
NVR, Inc.
11.00%, Sr. Notes, 4/15/03 500,000 458,750
HOTEL & GAMING - 1.91%
Capital Gaming International, Inc.
11.50%, Sr. Notes, 2/01/01 750,000 348,750
GB Property
10.875%, 1st Mortgage Notes,
1/15/04 750,000 652,500
Hemmeter Enterprises, Inc.
11.50%, Sr. Notes, 12/15/00(2) 912,384 433,383
TOTAL 1,434,633
INSURANCE - 2.91%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes,
6/01/05 1,000,000 925,000
Leucadia National Corp.
10.375%, Sr. Subordinated
Notes, 6/15/02 1,150,000 1,257,813
TOTAL 2,182,813
LODGING & RESTAURANTS - 0.64%
John Q. Hammons Hotels
8.875%, 1st Mortgage Notes,
2/15/04 500,000 480,000
OIL & GAS - 0.68%
TransTexas Gas Corp.
11.50%, Sr. Secured Notes, 6/15/02 500,000 513,750
PRINCIPAL
AMOUNT VALUE
PACKAGING - O.50%
Gaylord Container Corp.
11.50%, Sr. Notes, 5/15/01 350,000 372,750
PAPER & FOREST PRODUCTS - 2.73%
Domtar, Inc.
11.25%, Sr. Notes, 9/15/17 555,000 593,850
Malette, Inc.
12.25%, Sr. Notes, 7/15/04 500,000 556,250
Stone Consolidated Corp.
10.25%, Sr. Secured Notes,
12/15/00 350,000 364,875
Stone Container Corp.
10.75%, 1st Mortgage Notes,
10/01/01 500,000 530,000
TOTAL 2,044,975
PRINTING/PUBLISHING - 0.68%
News America Holdings, Inc.
8.25%, Sr. Debentures, 8/10/18 500,000 510,210
RAIL & SHIPPING - O.66%
American President Cos.
7.125%, Sr. Notes, 11/15/03 500,000 492,150
REAL ESTATE INVESTMENT TRUST - 1.18%
Meditrust
7.50%, Debenture, 3/01/01 900,000 886,500
RETAIL - 3.08%
Central Rents
12.875%, Sr. Notes, 12/15/03 500,000 498,750
Federated Department Stores, Inc.
10.00%, Sr. Notes, 2/15/01 900,000 974,250
Pathmark Stores, Inc.
9.625%, Sr. Subordinated Notes,
5/01/03 500,000 490,625
Wherehouse Entertainment, Inc.
13.00%, Sr. Subordinated Notes,
8/01/02 1,000,000 345,000
TOTAL 2,308,625
STEEL - 1.94%
AK Steel Corp.
10.75%, Sr. Notes, 4/01/04 500,000 526,250
Algoma Steel, Inc.
12.375%, 1st Mortgage Notes,
7/15/05 500,000 450,770
PRINCIPAL
AMOUNT VALUE
Sheffield Steel corp.
12.00%, Sr. Secured Notes,
11/01/01 500,000 477,500
TOTAL 1,454,520
TELECOMMUNICATIONS - 2.72%
Dial Call Communications
0/10.25%, Sr. Discount Notes,
12/15/05(5) 1,000,000 465,000
Mobile Telecommunications
Technologies Corp.
13.50%, Sr. Notes, 12/15/02 1,000,000 1,067,500
ProNet, Inc.
11.875%, Sr. Subordinated Notes,
6/15/05(1) 500,000 505,000
TOTAL 2,037,500
TEXTILES - 0.67%
Synthetic Industries, Inc.
12.75%, Debentures, 12/01.02 500,000 501,875
TRANSPORTATION - 1.74%
Delta Air Lines, Inc.
9.45%, Equipment Trust Certificates,
12/01/97 851,000 853,774
Moran Transportation Co.
11.75%, Sr. Secured Notes,
7/15/04 500,000 452,500
TOTAL 1,306,274
UTILITY - 1.60%
California Energy
01/10.25%, Sr. Discount Notes,
1/15/04(5) 1,400,000 1,200,500
TOTAL CORPORATE BONDS
(cost $35,994,365) 35,317,507
PRINCIPAL
AMOUNT VALUE
FOREIGN CORPORATE BONDS - 10.64%
BANKING - 1.68%
Banco Rio de La Plata,
8.75%, Notes, 12/15/03 $250,000 $181,250
BNCE - Global Bond
7.25%, Debenture, 2/02/04 1,500,000 1,080,000
TOTAL 1,261,250
BROADCASTING/CABLE - 1.46%
Rogers Cablesystems, Ltd. (Canada)
9.65%, Debentures, 1/15/04 1,750,000 1,095,758
PAPER - 2.60%
Grupo Industrial Durango SA
12.00%, Sr. Notes, 7/15/01 1,000,000 755,000
Empaques Ponderosa SA
8.75% 12/06/96(6) 750,000 687,187
PT Indah Kiat International
Finance
12.50%, 6/15/06(7) 500,000 507,500
TOTAL 1,949,687
OIL & GAS - 4.53%
Oleoducto Central
9.35%, Sr. Subordinated Debentures,
9/01/05 1,000,000 1,000,000
Petroleos Mexicanos
6.9375%, 3/08/99(8) 750,000 618,750
Sodigas Pampeana & Sur
10.50%, Notes, 7/06/99 1,000,000 895,000
Transportadora de Gas del
Sur SA
7.75%, Medium Term Notes,
12/23/98(1)(9) 1,000,000 885,000
TOTAL 3,398,750
TRANSPORTATION - 0.37%
MCTTR - TRIPS
11.00%, Debentures, 5/19/02(1) 483,142 277,807
TOTAL FOREIGN CORPORATE BONDS
(cost $8,431,709) 7,983,252
PRINCIPAL
AMOUNT VALUE
EMERGING MARKET OBLIGATIONS - 0.66%
Federal Republic of Brazil
Capitalization Bonds
8.25% due 4/15/14(3) 1,000,000 497,500
TOTAL EMERGING MARKET OBLIGATIONS
(cost $542,406) 497,500
FOREIGN GOVERNMENT BONDS - 12.01%
Argentina (Rep)
7.3125%, FRB, 3/31/05 1,000,000 618,750
Australia Government Bonds,
10.00% due 10/15/07 1,000,000 747,306
Australia Government Bonds,
12.00% due 7/15/99 1,600,000 1,273,541
British Columbia (Province),
9.00% due 8/23/24 1,500,000 1,142,077
Canadian Government Note,
6.50%, 6/01/04 1,500,000 993,302
Canadian Government Bond,
9.50% due 10/01/98 2,100,000 1,621,168
Columbia (Rep),
7.25%, 2/23/04 1,250,000 1,161,325
Spanish Government Bond,
10.90% due 8/30.03 60,000,000 479,010
U.K. Treasury Gilts,
8.50% due 12/07/05 350,000 558,270
U.K. Treasury Gilts,
9.50% due 1/15/99 250,000 414,421
TOTAL FOREIGN GOVERNMENT BONDS
(cost $9,019,245) 9,009,170
U.S. GOVERNMENT & AGENCIES - 19.22%
GNMA Pool #200723,
8.50% due 1/15/17 $255,934 $267,367
GNMA Pool #394167,
8.50% due 7/15/24 506,543 526,004
GNMA Pool #211398,
9.00% due 1/15/20 446,955 471,113
GNMA Pool #376113,
9.00% due 11/15/24 488,817 513,405
GNMA 11 ARM #8359,
5.50% due 1/20/24 1,843,578 1,862,309
Resolution Trust Corp.,
8% due 6/25/26 437,794 431,385
U.S. Treasury Notes,
6.75% due 5/31/99 5,000,000 5,132,150
U.S. Treasury Bonds,
8.00% due 11/15/21 1,500,000 1,732,950
U.S. Treasury Notes,
9.125% due 5/15/99 1,850,000 2,049,263
PRINCIPAL
AMOUNT VALUE
U.S. Treasury Notes,
9.375% due 4/15/96 1,400,000 1,437,968
TOTAL U.S. GOVERNMENT & AGENCIES
(cost $13,996,643) 14,423,914
SHARES
COMMON STOCK - 0.01%
Hotel & Gaming - 0.01%
Capital Gaming International 14,702 10,107
TOTAL COMMON STOCK
(cost $103,128) 10,107
PREFERRED STOCK - 1.96%
Banking - 1.01%
First Nationwide Bank $11.50 7,000 756,000
INSURANCE - 0.33%
ARM Financial Group $2.38 10,000 248,750
OIL & GAS - 0.62%
Enron Capital Resources,
Series A, 9.00% 18,000 463,500
TOTAL PREFERRED STOCK
(cost $1,376,375) 1,468,250
WARRANTS - 0.04%(10)
AEROSPACE - 0.01%
Sabreliner Corp.
(expires 12/15/00)(1) 500 5,000
CONSUMER PRODUCTS - 0.00%
Chattem, Inc. (expires 6/17/99)(1) 500 2,250
HOTEL & GAMING - 0.00%
Capital Gaming International, Inc.
(expires 2/01/99) 11,137 2,784
RETAIL - 0.01%
Central Rents (expires 12/15/03) 500 12,500
STEEL - 0.02%
Sheffield Steel Corp.
(expires 11/01/01) 2,500 15,625
PRINCIPAL
AMOUNT VALUE
SHARES
TRANSPORTATION - 0.00%
CHC Helicopter (expires 10/29/98) 4,000 4,000
TOTAL WARRANTS
(cost $28,246) 42,159
TOTAL INVESTMENT SECURITIES - 91.60%
(cost $69,492,117) 68,751,859
REPURCHASE AGREEMENT - 7.11%
Agreement with State Street Bank
and Trust bearing interest at
5.80% dated 6/30/95 to be
repurchased 7/03/95 at $753,364 and
collateralized by $760,000 U.S.
Treasury Notes, 7.50% due 1/31/97
(cost $753,000) 753,000 753,000
Agreement with State Street Bank
and Trust bearing interest at 6.025%
dated 6/30/95 to be repurchased 7/03/95
at $4,583,210 and collateralized by
$945,000 U.S. Treasury Notes, 8.50% due
5/15/97 and $2,090,000 U.S. Treasury Notes,
8.875% due 11/15/98
(cost $4,580,910) 4,580,910 4,580,910
TOTAL REPURCHASE AGREEMENTS
(cost $5,333,910) 5,333,910
OTHER ASSETS LESS LIABILITIES - 1.29% 971,296
NET ASSETS - 100.00% $75,057,065
(1) Sale restricted to qualified institutional investors.
(2) Payment-in-Kind Security.
(3) Adjustable rate security.
(4) A unit consists of 1,000 par value Adjustable Rate, Sr.
Subordinated Notes, 8/15/01 and 13 shares Class B common
stock.
(5) Step Bond.
(6) Guaranteed by Cartones Ponderosa SA.
(7) Guaranteed by Indah Kiat Pulp and Paper Corp.
(8) Guaranteed by Pemex.
(9) Private Placement.
(10)Non-income producting securities.
(11) Foreign currency denominated. Par value reported in foreign
currency; market value translated at current exchange rate.
PRO FORMA STATEMENT OF INVESTMENTS
June 30, 1995
MULTI-SECTOR BOND
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS - 47.06%
Aerospace - 0.57%
Sabreliner Corp.
12.50%, Sr. Notes, 4/15/03(1) $500,000 $427,500
BANKING - 1.25%
Coastal Bancorp
10.00%, Sr. Notes, 6/30/02 425,000 426,594
Electronic Trans Master Trust
9.35%, Sr. Notes, 5/03/99 500,000 512,500
TOTAL 939,094
BROADCASTING/CABLE - 7.54%
Adelphia Communications Corp.
9/50%, Sr. Notes, 2/15/04(2) 785,625 663,853
Cablevision Systems Corp.
10.75%, Sr. Subordinated
Debentures, 4/01/04
Chancellor Broadcasting
12.50%, Sr, Subordinated Notes,
10/01/04 500,500 502,500
Granite Broadcasting Crop.
10.375%, Sr. Subordinated Notes,
5/15/05(1)
Joanes Intercable, Inc.
9.625%, Sr, Notes 3/15/02
SCI Television, Inc.
11.00%, Sr. Notes, 6/30/05
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Notes, 12/15/03 750,000 757,500
Spanish Broadcasting System, Inc.
7.50%, Sr. Notes, 6/15/02
Turner Broadcasting Systems, Inc.
8.40%, Sr. Notes, 2/01/24 1,000,000 878,250
TOTAL 2,802,103
CAPITAL GOODS - 0.60%
Terex Corp.
13.75%, Sr. Secured Notes, 5/15/02
PRINCIPAL
AMOUNT VALUE
CHEMICALS - 0.69%
Pioneer Americas Acquisition Corp.
13.375%, Sr. Notes, 4/01/05(1)
CONSUMER NONDURABLES - 0.50%
Roadmaster Industries, Inc.
11.75%, Sr. Subordinated Notes,
7/15/02
CONSUMER PRODUCTS - 1.03%
Thermoscan, Inc.
13.4375%, Units,
8/15/01(1)(3)(4) 700 777,000
CONSUMER SERVICES - 0.40%
Envirotest Systems Corp.
9.625%, Sr. Subordinated Notes,
4/01/03
CONTAINER - 0.74%
Owens-Illinois, Inc.
11.00%, Sr. Debentures, 12/01/03 500,000 553,125
DEFENSE - 0.71%
Alliant Techsystems, Inc.
11.75%, Sr. Subordinated
Notes, 3/01/03
ENTERTAINMENT - 0.66%
Time Warner Entertainment LP
8.375%, Sr. Debentures, 3/15/23 500,000 496,820
FINANCE - 1.14%
GPA Delaware, Inc.
8.75%, Sr. Notes, 12/15/98 1,000,000 855,000
FINANCIAL SERVICES - 0.65%
Reliance Group Holdings, Inc.
9.75%, Sr. Subordinated Notes,
11/15/03
FOOD & BEVERAGE - 0.71%
Curtice-Burns Foods, Inc.
12.25%, Sr. Subordinated
Notes, 02/01/05
FOOD SERVICE - 1.11%
American Restaurant Group, Inc.
12.00%, Sr. Notes, 9/15/98 1,000,000 835,000
PRINCIPAL
AMOUNT VALUE
GAMING - 0.63%
Ballys Park Place Funding, Inc.
9.25%, 1st Mortgage Notes, 3/15/04
GROCERY - 1.45%
Dairy Mart Convenience Stores, Inc.
10.25%, Sr. Subordinated Notes,
3/15/04 750,000 615,000
Farm Fresh, Inc.
12.25%, Sr. Notes, 10/01/00 500,000 472,500
TOTAL 1,087,500
HEALTHCARE - 2.43%
Abbey Healthcare
9.50%, Sr. Subordinated Notes,
11/01/02 1,200,000 1,245,000
Healthtrust Inc.
10.25%, Sr. Notes, 4/15/04 500,000 582,165
TOTAL 1,827,165
HOME BUILDING - 0.61%
NVR, Inc.
11.00%, Sr. Notes, 4/15/03
HOTEL & GAMING - 1.91%
Capital Gaming International, Inc.
11.50%, Sr. Notes, 2/01/01 750,000 348,750
GP Property
10.875%, 1st Mortgage Notes,
1/15/04 750,000 652,500
Hemmeter Enterprises, Inc.
11.50%, Sr. Notes, 12/15/00(2) 912,384 433,383
TOTAL 1,434,633
INSURANCE - 2.91%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes,
6/01/05 1,000,000 925,000
Leucadia National Corp.
10.375%, Sr. Subordinated
Notes, 6/15/02 1,150,000 1,257,813
TOTAL 2,182,813
LODGING & RESTAURANTS - 0.64%
John Q. Hammons Hotels
8.875%, 1st Mortgage Notes,
2/15/04
OIL & GAS - 0.68%
TransTexas Gas Corp.
11.50%, Sr. Secured Notes, 6/15/02
PRINCIPAL
AMOUNT VALUE
PACKAGING - O.50%
Gaylord Container Corp.
11.50%, Sr. Notes, 5/15/01
PAPER & FOREST PRODUCTS - 2.73%
Domtar, Inc.
11.25%, Sr. Notes, 9/15/17
Malette, Inc.
12.25%, Sr. Notes, 7/15/04
Stone Consolidated Corp.
10.25%, Sr. Secured Notes,
12/15/00
Stone Container Corp.
10.75%, 1st Mortgage Notes,
10/01/01
PRINTING/PUBLISHING - 0.68%
News America Holdings, Inc.
8.25%, Sr. Debentures, 8/10/18 500,000 510,210
RAIL & SHIPPING - O.66%
American President Cos.
7.125%, Sr. Notes, 11/15/03 500,000 492,150
REAL ESTATE INVESTMENT TRUST - 1.18%
Meditrust
7.50%, Debenture, 3/10/01 900,000 886,500
RETAIL - 3.08%
Central Rents
12.875%, Sr. Notes, 12/15/03 500,000 498,750
Federated Department Stores, Inc.
10.00%, Sr. Notes, 2/15/01 900,000 974,250
Pathmark Stores, Inc.
9.625%, Sr. Subordinated Notes,
5/01/03
Wherehouse Entertainment, Inc.
13.00%, Sr. Subordinated Notes,
8/01/02 1,000,000 345,000
TOTAL 1,818,000
STEEL - 1.94%
AK Steel Corp.
10.75%, Sr. Notes, 4/01/04
Algoma Steel, Inc.
12.375%, 1st Mortgage Notes,
7/15/05
PRINCIPAL
AMOUNT VALUE
Sheffield Steel corp.
12.00%, Sr. Secured Notes,
11/01/01 500,000 477,500
TOTAL 477,500
TELECOMMUNICATIONS - 2.72%
Dial Call Communications
0/10.25%, Sr. Discount Notes,
12/15/05(5) 1,000,000 465,000
Mobile Telecommunications
Technologies Corp.
13.50%, Sr. Notes, 12/15/02 1,000,000 1,067,500
ProNet, Inc.
11.875%, Sr. Subordinated Notes,
6/15/05(1)
TOTAL 1,532,500
TEXTILES - 0.67%
Synthetic Industries, Inc.
12.75%, Debentures, 12/01/02
TRANSPORTATION - 1.74%
Delta Air Lines, Inc.
9.45%, Equipment Trust Certificates,
12/01/97 851,000 853,774
Moran Transportation Co.
11.75%, Sr. Secured Notes,
7/15/04
TOTAL 853,774
UTILITY - 1.60%
California Energy
01/10.25%, Sr. Discount Notes,
1/15/04(5) 1,400,000 1,200,500
TOTAL CORPORATE BONDS
(cost $35,994,365) 21,988,887
PRINCIPAL
AMOUNT VALUE
FOREIGN CORPORATE BONDS - 10.64%
BANKING - 1.68%
Banco Rio de La Plata,
8.75%, Notes, 12/15/03 $250,000 $181,250
BNCE - Global Bond
7.25%, Debenture, 2/02/04 1,500,000 1,080,000
TOTAL 1,261,250
BROADCASTING/CABLE - 1.46%
Rogers Cablesystems, Ltd. (Canada)
9.65%, Debentures, 1/15/04 750,000 469,620
PAPER - 2.60%
Grupo Industrial Durango SA
12.00%, Sr. Notes, 7/15/01 600,000 453,000
Empaques Ponderosa SA
8.75% 12/06/96(6) 750,000 687,187
PT Indah Kiat International
Finance
12.50%, 6/15/06(7)
TOTAL 1,140,187
OIL & GAS - 4.53%
Oleoducto Central
9.35%, Sr. Subordinated Debentures,
9/01/05 1,000,000 1,000,000
Petroleos Mexicanos
6.9375%, 3/08/99(8) 750,000 618,750
Sodigas Pampeana & Sur
10.50%, Notes, 7/06/99 1,000,000 895,000
Transportadora de Gas del
Sur SA
7.75%, Medium Term Notes,
12/23/98(1)(9) 1,000,000 885,000
TOTAL 3,398,750
TRANSPORTATION - 0.37%
MCTTR - TRIPS
11.00%, Debentures, 5/19/02(1) 483,142 277,807
TOTAL FOREIGN CORPORATE BONDS
(cost $8,431,709) 6,547,614
PRINCIPAL
AMOUNT VALUE
EMERGING MARKET OBLIGATIONS - 0.66%
Federal Republic of Brazil
Capitalization Bonds
8.25% due 4/15/14(3)
FOREIGN GOVERNMENT BONDS - 12.01%(11)
Argentina (Rep)
7.3125%, FRB, 3/31/05 1,000,000 618,750
Australia Government Bonds,
10.00% due 10/15/07
Australia Government Bonds,
12.00% due 7/15/99
British Columbia (Province),
9.00% due 8/23/24
Canadian Government Note,
6.50%, 6/01/04 1,500,000 993,302
Canadian Government Bond,
9.50% due 10/01/98
Columbia (Rep),
7.25%, 2/23/04 1,250,000 1,161,325
Spanish Government Bond,
10.90% due 8/30/03
U.K. Treasury Gilts,
8.50% due 12/07/05
U.K. Treasury Gilts,
9.50% due 1/15/99
TOTAL FOREIGN GOVERNMENT BONDS
(cost $9,019,245) 2,773,377
U.S. GOVERNMENT & AGENCIES - 19.22%
GNMA Pool #200723,
8.50% due 1/15/17
GNMA Pool #394167,
8.50% due 7/15/24
GNMA Pool #211398,
9.00% due 1/15/20
GNMA Pool #376113,
9.00% due 11/15/24
GNMA II ARM #8359,
5.50% due 1/20/24 1,843,578 1,862,309
Resolution Trust Corp.,
8% due 6/25/26 437,794 431,385
U.S. Treasury Notes,
6.75% due 5/31/99 5,000,000 5,132,150
U.S. Treasury Bonds,
8.00% due 11/15/21
U.S. Treasury Notes,
9.125% due 5/15/99
PRINCIPAL
AMOUNT VALUE
U.S. Treasury Notes,
9.375% due 4/15/96
TOTAL U.S. GOVERNMENT & AGENCIES
(cost $13,996,643) 7,425,844
SHARES
COMMON STOCK - 0.01%
Hotel & Gaming - 0.01%
Capital Gaming International 14,702 10,107
TOTAL COMMON STOCK
(cost $103,128) 10,107
PREFERRED STOCK - 1.96%
Banking - 1.01%
First Nationwide Bank $11.50 7,000 756,000
INSURANCE - 0.33%
ARM Financial Group $2.38 10,000 248,750
OIL & GAS - 0.62%
Enron Capital Resources,
Series A, 9.00% 18,000 463,500
TOTAL PREFERRED STOCK
(cost $1,376,375) 1,468,250
WARRANTS - 0.04%(10)
AEROSPACE - 0.01%
Sabreliner Corp.
(expires 12/15/00)(1) 500 5,000
CONSUMER PRODUCTS - 0.00%
Chattem, Inc. (expires 6/17/99)(1) 500 2,250
HOTEL & GAMING - 0.00%
Capital Gaming International, Inc.
(expires 2/01/99) 11,137 2,784
RETAIL - 0.01%
Central Rents (expires 12/15/03) 500 12,500
STEEL - 0.02%
Sheffield Steel Corp.
(expires 11/01/01) 2,500 15,625
PRINCIPAL
AMOUNT VALUE
SHARES
TRANSPORTATION - 0.00%
CHC Helicopter (expires 10/29/98) 4,000 4,000
TOTAL WARRANTS
(cost $28,246) 42,159
TOTAL INVESTMENT SECURITIES - 91.60%
(cost $69,492,117) 40,256,238
REPURCHASE AGREEMENT - 7.11%
Agreement with State Street Bank
and Trust bearing interest at
5.80% dated 6/30/95 to be
repurchased 7/03/95 at $753,364 and
collateralized by $760,000 U.S.
Treasury Notes, 7.50% due 1/31/97
(cost $753,000)
Agreement with State Street Bank
and Trust bearing interest at 6.025%
dated 6/30/95 to be repurchased 7/03/95
at $4,583,210 and collateralized by
$945,000 U.S. Treasury Notes, 8.50% due
5/15/97 and $2,090,000 U.S. Treasury Notes,
8.875% due 11/15/98
(cost $4,580,910) 4,580,910 4,580,910
TOTAL REPURCHASE AGREEMENTS
(cost $5,333,910) 4,580,910
OTHER ASSETS LESS LIABILITIES - 1.29% (834,307)
NET ASSETS - 100.00% $44,002,841
(1) Sale restricted to qualified institutional investors.
(2) Payment-in-Kind Security.
(3) Adjustable rate security.
(4) A unit consists of 1,000 par value Adjustable Rate, Sr.
Subordinated Notes, 8/15/01 and 13 shares Class B common
stock.
(5) Step Bond.
(6) Guaranteed by Cartones Ponderosa SA.
(7) Guaranteed by Indah Kiat Pulp and Paper Corp.
(8) Guaranteed by Pemex.
(9) Private Placement.
(10)Non-income producting securities.
(11)Foreign currency denominated. Par value reported in foreign
currency; market value translated at current exchange rate.
PRO FORMA STATEMENT OF INVESTMENTS
June 30, 1995
STRATEGIC INCOME
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS - 47.06%
Aerospace - 0.57%
Sabreliner Corp.
12.50%, Sr. Notes, 4/15/03(1)
BANKING - 1.25%
Coastal Bancorp
10.00%, Sr. Notes, 6/30/02
Electronic Trans Master Trust
9.35%, Sr. Notes, 5/03/99
BROADCASTING/CABLE - 7.54%
Adelphia Communications Corp.
9/50%, Sr. Notes, 2/15/04(2)
Cablevision Systems Corp.
10.75%, Sr. Subordinated
Debentures, 4/01/04 500,000 524,375
Chancellor Broadcasting
12.50% Sr, Subordinated Notes,
10/01/04
Granite Broadcasting Crop.
10.375%, Sr. Subordinated Notes,
5/15/05(1) 250,000 250,625
Jones Intercable, Inc.
9.625%, Sr, Notes 3/15/02 500,000 522,500
SCI Television, Inc.
11.00%, Sr. Notes, 6/30/05 550,000 576,125
Sinclair Broadcasting Group, Inc.
10.00%, Sr. Notes, 12/15/03 500,000 505,000
Spanish Broadcasting System, Inc.
7.50%, Sr. Notes, 6/15/02 500,000 477,500
Turner Broadcasting Systems, Inc.
8.40%, Sr. Notes, 2/01/24
TOTAL 2,856,125
CAPITAL GOODS - 0.60%
Terex Corp.
13.75%, Sr. Secured Notes, 5/15/02 500,000 450,000
PRINCIPAL
AMOUNT VALUE
CHEMICALS - 0.69%
Pioneer Americas Acquisition Corp.
13.75%, Sr. Notes, 4/01/05(1) 500,000 515,000
CONSUMER NONDURABLES - 0.50%
Roadmaster Industries, Inc.
11.75%, Sr. Subordinated Notes,
7/15/02 400,000 380,000
CONSUMER PRODUCTS - 1.03%
Thermoscan, Inc.
13.4375%, Units,
8/15/01(1)(3)(4)
CONSUMER SERVICES - 0.40%
Envirotest Systems Corp.
9.625%, Sr. Subordinated Notes,
4/01/03 400,000 299,000
CONTAINER - 0.74%
Owens-Illinois
11.00%, Sr. Debentures, 12/01/03
DEFENSE - 0.71%
Alliant Techsystems, Inc.
11.75%, Sr. Subordinated
Notes, 3/01/03 500,000 536,250
ENTERTAINMENT 0 0.66%
Time Warner Entertainment LP
8.375%, Sr. Debentures, 3/15/23
FINANCE - 1.14%
GPA Delaware, Inc.
8.75%, Sr. Notes, 12/15/98
FINANCIAL SERVICES - 0.65%
Reliance Group Holdings, Inc.
9.75%, Sr. Subordinated Notes,
11/15/03 500,000 488,750
FOOD & BEVERAGE - 0.71%
Curtice-Burns Foods, Inc.
12.75%, Sr. Subordinated
Notes, 02/01/05 500,000 532,500
FOOD SERVICE - 1.1%
American Restaurant Group, Inc.
12.00%, Sr. Notes, 9/15/98
PRINCIPAL
AMOUNT VALUE
GAMING - 0.63%
Ballys Park Place Funding, Inc.
9.25%, 1st Mortgage Notes, 3/15/04 500,000 473,750
GROCERY - 1.45%
Dairy Mart Convenience Stores, Inc.
10.25%, Sr. Subordinated Notes,
3/15/04
Farm Fresh, Inc.
12.25%, Sr. Notes, 10/01/00
HEALTHCARE - 2.43%
Abbey Healthcare
9.50%, Sr. Subordinated Notes
11/01/02
Healthtrust Inc.
10.25%, Sr. Notes, 4/15/04
HOME BUILDING - 0.61%
NVR, Inc.
11.00%, Sr. Notes, 4/15/03 500,000 458,750
HOTEL & GAMING - 1.91%
Capital Gaming International, Inc.
11.50%, Sr. Notes, 2/01/01
GP Property
10.875%, 1st Mortgage Notes,
1/15/04
Hemmeter Enterprises, Inc.
11.50%, Sr. Notes, 12/15/00(2)
INSURANCE - 2.91%
Americo Life, Inc.
9.25%, Sr. Subordinated Notes,
6/01/05
Leucadia National Corp.
10.375%, Sr. Subordinated
Notes, 6/15/02
LODGING & RESTAURANTS - 0.64%
John Q. Hammons Hotels
8.875%, 1st Mortgage Notes,
2/15/04 500,000 480,000
OIL & GAS - 0.68%
TransTexas Gas Corp.
11.50%, Sr. Secured Notes, 6/15/02 500,000 513,750
PRINCIPAL
AMOUNT VALUE
PACKAGING - O.50%
Gaylord Container Corp.
11.50%, Sr. Notes, 5/15/01 350,000 372,750
PAPER & FOREST PRODUCTS - 2.73%
Domtar, Inc.
11.25%, Sr. Notes, 9/15/17 555,000 593,850
Malette, Inc.
12.25%, Sr. Notes, 7/15/04 500,000 556,250
Stone Consolidated Corp.
10.25%, Sr. Secured Notes,
12/15/00 350,000 364,875
Stone Container Corp.
10.75%, 1st Mortgage Notes,
10/01/01 500,000 530,000
TOTAL 2,044,975
PRINTING/PUBLISHING - 0.68%
News America Holdings, Inc.
8.25%, Sr. Debentures, 8/10/18
RAIL & SHIPPING - O.66%
American President Cos.
7.125%, Sr. Notes, 11/15/03
REAL ESTATE INVESTMENT TRUST - 1.18%
Meditrust
7.50%, Debenture, 3/01/01
RETAIL - 3.08%
Central Rents
12.875%, Sr. Notes, 12/15/03
Federated Department Stores, Inc.
10.00%, Sr. Notes, 2/15/01
Pathmark Stores, Inc.
9.625%, Sr. Subordinated Notes,
5/01/03 500,000 490,625
Wherehouse Entertainment, Inc.
13.00%, Sr. Subordinated Notes,
8/01/02
TOTAL 490,625
STEEL - 1.94%
AK Steel Corp.
10.75%, Sr. Notes, 4/01/04 500,000 526,250
Algoma Steel, Inc.
12.375%, 1st Mortgage Notes,
7/15/05 500,000 450,770
PRINCIPAL
AMOUNT VALUE
Sheffield Steel corp.
12.00%, Sr. Secured Notes,
11/01/01
TOTAL 977,020
TELECOMMUNICATIONS - 2.72%
Dial Call Communications
0/10.25%, Sr. Discount Notes,
12/15/05(5)
Mobile Telecommunications
Technologies Corp.
13.50%, Sr. Notes, 12/15/02
ProNet, Inc.
11.875%, Sr. Subordinated Notes,
6/15/05(1) 500,000 505,000
TOTAL 505,000
TEXTILES - 0.67%
Synthetic Industries, Inc.
12.75%, Debentures, 12/01.02 500,000 501,875
TRANSPORTATION - 1.74%
Delta Air Lines, Inc.
9.45%, Equipment Trust Certificates,
12/01/97
Moran Transportation Co.
11.75%, Sr. Secured Notes,
7/15/04 500,000 452,500
TOTAL 452,500
UTILITY - 1.60%
California Energy
01/10.25%, Sr. Discount Notes,
1/15/04(5)
TOTAL CORPORATE BONDS
(cost $35,994,365) 13,328,620
PRINCIPAL
AMOUNT VALUE
FOREIGN CORPORATE BONDS - 10.64%
BANKING - 1.68%
Banco Rio de La Plata,
8.75%, Notes, 12/15/03
BNCE - Global Bond
7.25%, Debenture, 2/02/04
BROADCASTING/CABLE - 1.46%
Rogers Cablesystems, Ltd. (Canada)
9.65%, Debentures, 1/15/04 1,000,000 626,138
PAPER - 2.60%
Grupo Industrial Durango SA
12.00%, Sr. Notes, 7/15/01 400,000 302,000
Empaques Ponderosa SA
8.75% 12/06/96(6)
PT Indah Kiat International
Finance
12.50%, 6/15/06(7) 500,000 507,500
TOTAL 809,500
OIL & GAS - 4.53%
Oleoducto Central
9.35%, Sr. Subordinated Debentures,
9/01/05
Petroleos Mexicanos
6.9375%, 3/08/99(8)
Sodigas Pampeana & Sur
10.50%, Notes, 7/06/99
Transportadora de Gas del
Sur SA
7.75%, Medium Term Notes,
12/23/98(1)(9)
TRANSPORTATION - 0.37%
MCTTR - TRIPS
11.00%, Debentures, 5/19/02(1)
TOTAL FOREIGN CORPORATE BONDS
(cost $8,431,709) 1,435,638
PRINCIPAL
AMOUNT VALUE
EMERGING MARKET OBLIGATIONS - 0.66%
Federal Republic of Brazil
Capitalization Bonds
8.25% due 4/15/14(3) 1,000,000 497,500
TOTAL EMERGING MARKET OBLIGATIONS
(cost $542,406) 497,500
FOREIGN GOVERNMENT BONDS - 12.01% (11)
Argentina (Rep)
7.3125%, FRB, 3/31/05
Australia Government Bonds,
10.00% due 10/15/07 1,000,000 747,306
Australia Government Bonds,
12.00% due 7/15/99 1,600,000 1,273,541
British Columbia (Province),
9.00% due 8/23/24 1,500,000 1,142,077
Canadian Government Note,
6.50%, 6/01/04
Canadian Government Bond,
9.50% due 10/01/98 2,100,000 1,621,168
Columbia (Rep),
7.25%, 2/23/04
Spanish Government Bond,
10.90% due 8/30.03 60,000,000 479,010
U.K. Treasury Gilts,
8.50% due 12/07/05 350,000 558,270
U.K. Treasury Gilts,
9.50% due 1/15/99 250,000 414,421
TOTAL FOREIGN GOVERNMENT BONDS
(cost $9,019,245) 6,235,793
U.S. GOVERNMENT & AGENCIES - 19.22%
GNMA Pool #200723,
8.50% due 1/15/17 $255,934 $267,367
GNMA Pool #394167,
8.50% due 7/15/24 506,543 526,004
GNMA Pool #211398,
9.00% due 1/15/20 446,955 471,113
GNMA Pool #376113,
9.00% due 11/15/24 488,817 513,405
GNMA 11 ARM #8359,
5.50% due 1/20/24
Resolution Trust Corp.,
8% due 6/25/26
U.S. Treasury Notes,
6.75% due 5/31/99
U.S. Treasury Bonds,
8.00% due 11/15/21 1,500,000 1,732,950
U.S. Treasury Notes,
9.125% due 5/15/99 1,850,000 2,049,263
PRINCIPAL
AMOUNT VALUE
SHARES
U.S. Treasury Notes,
9.375% due 4/15/96
TOTAL U.S. GOVERNMENT & AGENCIES
(cost $13,996,643)
COMMON STOCK - 0.01%
Hotel & Gaming - 0.01%
Capital Gaming International
TOTAL COMMON STOCK
(cost $103,128)
PREFERRED STOCK - 1.96%
Banking - 1.01%
First Nationwide Bank $11.50
INSURANCE - 0.33%
ARM Financial Group $2.38
OIL & GAS - 0.62%
Enron Capital Resources,
Series A, 9.00%
TOTAL PREFERRED STOCK
(cost $1,376,375)0
WARRANTS - 0.04%(10)
AEROSPACE - 0.01%
Sabreliner Corp.
(expires 12/15/00)(1)
CONSUMER PRODUCTS - 0.00%
Chattem, Inc. (expires 6/17/99)(1)
HOTEL & GAMING - 0.00%
Capital Gaming International, Inc.
(expires 2/01/99)
RETAIL - 0.01%
Central Rents (expires 12/15/03)
STEEL - 0.02%
Sheffield Steel Corp.
(expires 11/01/01)
PRINCIPAL
AMOUNT VALUE
SHARES
TRANSPORTATION - 0.00%
CHC Helicopter (expires 10/29/98)
TOTAL WARRANTS
(cost $28,246)
TOTAL INVESTMENT SECURITIES - 91.60%
(cost $69,492,117) 28,495,621
REPURCHASE AGREEMENT - 7.11%
Agreement with State Street Bank
and Trust bearing interest at
5.80% dated 6/30/95 to be
repurchased 7/03/95 at $753,364 and
collateralized by $760,000 U.S.
Treasury Notes, 7.50% due 1/31/97
(cost $753,000) 753,000 753,000
Agreement with State Street Bank
and Trust bearing interest at 6.025%
dated 6/30/95 to be repurchased 7/03/95
at $4,583,210 and collateralized by
$945,000 U.S. Treasury Notes, 8.50% due
5/15/97 and $2,090,000 U.S. Treasury Notes,
8.875% due 11/15/98
(cost $4,580,910)
TOTAL REPURCHASE AGREEMENTS
(cost $5,333,910) 753,000
OTHER ASSETS LESS LIABILITIES - 1.29% 1,805,603
NET ASSETS - 100.00% $31,054,224
(1) Sale restricted to qualified institutional investors.
(2) Payment-in-Kind Security.
(3) Adjustable rate security.
(4) A unit consists of 1,000 par value Adjustable Rate, Sr.
Subordinated Notes, 8/15/01 and 13 shares Class B common
stock.
(5) Step Bond.
(6) Guaranteed by Cartones Ponderosa SA.
(7) Guaranteed by Indah Kiat Pulp and Paper Corp.
(8) Guaranteed by Pemex.
(9) Private Placement.
(10)Non-income producting securities.
(11) Foreign currency denominated. Par value reported in foreign
currency; market value translated at current exchange rate.
PRO FORMA STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
Pro Forma
Combined
(Unaudited)
INVESTMENT INCOME:
Dividends $72,375
Interest 3,390,277
Total investment income 3,462,652
EXPENSES:
Investment advisory and
management fees 218,045
Distribution fees
Class A 37,826
Class B 66,924
Class C 2,745
Class T 132,716
Transfer agent fees and
expenses
Class A 17,652
Class B 11,150
Class C 2,077
Class T 8,793
Administrative fees 0
Printing and postage
expenses 10,910
Registration fees 16,143
Accounting and Custodian
fees 34,416
Audit fees 8,147
Directors 11,336
Legal Fees 4,522
Insurance 5,776
Organization 10,127
Miscellaneous expenses 3,395
602,700
Less expenses reimbursed
by management company 0
Total expenses 602,700
Net investment income $2,859,952
PRO FORMA STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
Pro Forma
Combined
(Unaudited)
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on
investments $1,215,989
Net realized loss on
foreign currency (49,294)
Net change in unrealized
appreciation of investments 6,399,414
Net change in unrealized
appreciation of foreign
currency 21,008
Net realized and unrealized
loss on investments 7,587,117
Increase in net assets
resulting from operations $10,447,069
PRO FORMA STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
Pro Forma
Adjustments*
INVESTMENT INCOME:
Dividends
Interest
Total investment income
EXPENSES:
Investment advisory and
management fees (19,558)
Distribution fees
Class A
Class B
Class C
Class T
Transfer agent fees and
expenses
Class A
Class B
Class C
Class T
Administrative fees (19,558)
Printing and postage
expenses (10,000)
Registration fees (25,000)
Accounting and Custodian
fees (5,000)
Audit fees (4,000)
Directors (4,000)
Legal Fees
Insurance
Organization (4,770)
Miscellaneous expenses
(91,886)
Less expenses reimbursed
by management company (82,312)
Total expenses (9,574)
Net investment income $9,574
* Advisory fees and Administrative fees were reduced 10 bps
due to the reduction of Advisory fees by 10 bps and the
elimination of Administrative fees.
PRO FORMA STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
Pro Forma
Adjustments
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on
investments
Net realized loss on
foreign currency
Net change in unrealized
appreciation of investments
Net change in unrealized
appreciation of foreign
currency
Net realized and unrealized
loss on investments
Increase in net assets
resulting from operations $9,574
* Advisory fees and Administrative fees were reduced 10 bps
due to the reduction of Advisory fees by 10 bps and the
elimination of Administrative fees.
PRO FORMA STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
Multi-Sector
Bond
(Unaudited)
INVESTMENT INCOME:
Dividends $72,375
Interest 1,981,167
Total investment income 2,053,542
EXPENSES:
Investment advisory and
management fees 146,685
Distribution fees
Class A 37,818
Class B 66,778
Class C 2,743
Class T 0
Transfer agent fees and
expenses
Class A 17,648
Class B 11,128
Class C 2,077
Class T 0
Administrative fees 19,558
Printing and postage
expenses 18,050
Registration fees 25,949
Accounting and Custodian
fees 15,646
Audit fees 5,867
Directors 5,460
Legal Fees 558
Insurance 1,628
Organization 4,770
Miscellaneous expenses 455
382,818
Less expenses reimbursed
by management company 37,613
Total expenses 345,205
Net investment income $1,708,337
PRO FORMA STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
Multi-Sector
Bond
(Unaudited)
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on
investments $1,099,941
Net realized loss on
foreign currency
Net change in unrealized
appreciation of investments 5,503,362
Net change in unrealized
appreciation of foreign
currency
Net realized and unrealized
loss on investments 6,603,303
Increase in net assets
resulting from operations $8,311,640
PRO FORMA STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
Strategic
Income
(Unaudited)**
INVESTMENT INCOME:
Dividends $0
Interest 1,409,110
Total investment income 1,409,110
EXPENSES:
Investment advisory and
management fees 90,918
Distribution fees
Class A 8
Class B 146
Class C 2
Class T 132,716
Transfer agent fees and
expenses
Class A 4
Class B 22
Class C 0
Class T 8,793
Administrative fees 0
Printing and postage
expenses 2,860
Registration fees 15,194
Accounting and Custodian
fees 23,770
Audit fees 6,280
Directors 9,876
Legal Fees 3,964
Insurance 4,148
Organization 10,127
Miscellaneous expenses 2,940
311,768
Less expenses reimbursed
by management company 44,699
Total expenses 267,069
Net investment income $1,142,041
**The Strategic Income Fund commenced operations July 1, 1994.
PRO FORMA STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
Strategic
Income
(Unaudited)**
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on
investments 116,048
Net realized loss on
foreign currency (49,294)
Net change in unrealized
appreciation of investments 896,052
Net change in unrealized
appreciation of foreign
currency 21,008
Net realized and unrealized
loss on investments 983,814
Increase in net assets
resulting from operations $2,125,855
**The Strategic Income Fund commenced operations July 1, 1994.
PRO FORMA STATEMENT OF NET ASSETS
June 30, 1995 - (Unaudited)
PRO FORMA COMBINED
VALUE
Pro Forma Class A
Net asset value and
redemption price per
share ($27,249,512/2,242,761) $12.15
Maximum offering price per share $12.76
Pro Forma Class B
Net asset value and redemption price
per share ($16,340,608/1,344,913) $12.15
Pro Forma Class C
Net asset value and redemption price
per share ($1,010,646/83,249) $12.14
Pro Forma Class T
Net asset value and redemption price
per share ($30,456,300/2,507,317) $12.15
PRO FORMA STATEMENT OF NET ASSETS
June 30, 1995 - (Unaudited)
MULTI-SECTOR BOND
VALUE
Class A
Net asset value and redemption price
per share ($159,807/13,156)
Net asset value and redemption price
per share ($27,089,705/6,052,931) $4.48
Maximum offering price per share $4.70
Class B
Net asset value and redemption price
per share ($435,420/35,844)
Net asset value and redemption price
per share ($15,905,188/3,555,536) $4.47
Class C
Net asset value and redemption price
per share ($2,696/222)
Net asset value and redemption price
per share ($1,007,950/224,963) $4.48
Class T
Net asset value and redemption
price per share
($30,456,300/2,507,317)
PRO FORMA STATEMENT OF NET ASSETS
June 30, 1995 - (Unaudited)
STRATEGIC INCOME
VALUE
Class A
Net asset value and redemption price
per share ($159,807/13,156) $12.15
Net asset value and redemption price
per share ($27,089,705/6,052,931)
Maximum offering price per share $12.76
Class B
Net asset value and redemption price
per share ($435,420/35,844) $12.15
Net asset value and redemption price
per share ($15,905,188/3,555,536)
Class C
Net asset value and redemption price
per share ($2,696/222) $12.14
Net asset value and redemption price
per share ($1,007,950/224,963)
Class T
Net asset value and redemption
price per share
($30,456,300/2,507,317) $12.15
PART C
OTHER INFORMATION
Item 15. Indemnification
Under the Registrant's Declaration of Trust and Bylaws, any past
or present Trustee or Officer of the Registrant is indemnified to
the fullest extent permitted by law against liability and all
expenses reasonably incurred by him in connection with any
action, suit or proceeding to which he may be a party or is
otherwise involved by reason of his being or having been a
Trustee or Officer of the Registrant. The Amended and Restated
Declaration of Trust and Bylaws of the Registrant do not
authorize indemnification where it is determined, in the manner
specified in the Amended and Restated Declaration of Trust and
the Bylaws of the Registrant, that such Trustee or Officer has
not acted in good faith in the reasonable belief that his actions
were in the best interests of the Registrant. Moreover, the
Amended and Restated Declaration of Trust and the Bylaws of the
Registrant do not authorize indemnification where such Trustee or
Officer is liable to the Registrant or its shareholders by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of this duties.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted
to Trustees, Officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification
is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant in the successful defense of any action, suit
or proceeding) is asserted by such Trustee, Officer or
controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its
counsel, the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant, its Trustees and Officers, its investment
adviser, and persons affiliated with them are insured under a
policy of insurance maintained by the Registrant and its
investment adviser, within the limits and subject to the
limitations of the policy, against certain expenses in connection
with the defense of actions, suits or proceedings, and certain
liabilities that might be imposed as a result of such actions,
suits or proceedings, to which they are parties by reason of
being or having been such Trustees or Officers. The policy
expressly excludes coverage for any Trustee or Officer whose
personal dishonesty, fraudulent breach of trust, lack of good
faith, or intention to deceive or defraud has been adjudicated or
may be established or who willfully fail to act prudently.
Registrant is a named insured on a joint insured bond established
pursuant to Rule 17g-1 of the Investment Company Act of 1940, as
amended. Other insured parties include Registrant's adviser, its
underwriter, and other registered investment companies sponsored
by its adviser.
Item 16. Exhibits
Exhibit
Number Description
(1) Amended and Restated Declaration of Trust of
Registrant(2)
(2) By-laws of Registrant (2)
(3) Not Applicable
(4) Agreement and Plan of Reorganization, dated as of June
2, 1995, between Northstar Advantage Multi-Sector Bond
Fund (the "Fund") and Registrant. (1)
(5) Specimen copy of certificate for Registrant's shares of
beneficial interest (2)
(6) (A) Investment Advisory Agreement between Registrant
and Northstar Investment Management Corporation
("Northstar") (2)
(7) (A) Underwriting Agreements between Registrant and
NWNL Northstar Distributors, Inc. (2)
(B) Form of Dealer Agreement for the Northstar
Advantage Affiliated Investment Companies (2)
(C) Special Dealer Agreement between NWNL Northstar
Distributors and Advest, Inc. (2)
(8) Not Applicable
(9) Custody Agreement between Registrant and State Street
Bank and Trust Company (2)
(10) Distribution Plan of Registrant (2)
(11) Opinion and consent of Lisa Hurley, Esq., legal counsel
to Northstar Investment Management Corporation (adviser
to Northstar Advantage Strategic Income Fund), as to
legality of Securities being offered
(12) Opinion of Dechert Price & Rhoads as to tax
consequences
(13) (A) Transfer Agency Agreement between Registrant and
The Shareholder Services Group (2)
(B) Sub-Transfer Agency Agreement between Registrant
and Advest Transfer Services, Inc. (2)
(14) (a) Consent and Opinion of Price Waterhouse LLP (with
respect to Northstar Advantage Strategic Income
Fund)
(b) Consent and opinion of Coopers & Lybrand L.L.P.
(with respect to Northstar Advantage Multi-Sector
Bond Fund)
(15) Not Applicable
(16) (A) Powers of Attorney of Trustees of Registrant
(B) Certified Resolution of Trustees Pursuant to Rule
483(b) under the Securities Act of 1933, as
amended
(17) (A) Declaration of Registrant pursuant to Rule 24f-2.
(B) Form of Proxy relating to Special Meeting of
Shareholders of the Fund
(C) Prospectus, dated June 5, 1995, and Statement of
Additional Information, dated June 5, 1995 of
Registrant (3)
(D) Prospectus, dated January 17, 1995 and Statement
of Additional Information, dated January 17, 1995
of the Fund (4)
(E) (1) Annual Report of Multi-Sector for the fiscal
year ended October 31, 1994 (incorporated
herein by reference to the filing thereof
with the SEC on January 10, 1995).
(2) Semi-Annual Report of Multi-Sector for the
six-month period ended April 30, 1995
(incorporated herein by reference to the
filing thereof with the SEC on July 11,
1995).
(3) Annual Report of Strategic for the fiscal
year ended December 31, 1994 (incorporated
herein by reference to the filing thereof
with the SEC on March 2, 1995).
(4) Semi-Annual Report of Strategic for the six-
month period ended June 30, 1995
(incorporated herein by reference to the
filing thereof with the SEC on or before
September 8, 1995).
(1) Filed herewith as Exhibit "A" to the Proxy Statement/
Prospectus.
(2) Incorporated herein by reference to the Exhibits filed
with Registrant's Post-Effective Amendment No. 4 to
Registration Statement No. 33-76574).
(3) Incorporated herein by reference to the Prospectus and
Statement of Additional Information filed with Post
Effective No. 4 to Registration Statement No. 33-76574.
(4) Incorporated herein by reference to Northstar Advantage
Trust's (formerly NWNL Northstar Series Trust's)
Prospectus and Statement of Additional Information
filed with Multi-Sector's Post-Effective Amendment No.
5 to Registration Statement 33-76574 (January 17,
1995).
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by
any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of
1933, as amended, the reoffering prospectus will contain the
information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items
of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part
of an amendment to the registration statement and will not
be used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933,
as amended, each post-effective amendment shall be deemed to
be a new registration statement for the securities offered
therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of
them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and
the Commonwealth of Massachusetts on the 16th day of August,
1995.
NORTHSTAR ADVANTAGE STRATEGIC INCOME
FUND
(REGISTRANT)
By:____________________________________
Lisa Hurley,* Vice President
As required by the Securities Act of 1933, as amended, this
Registration Statement on Form N-14 has been signed by the
following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
JOHN G. TURNER Trustee August 16, 1995
John G. Turner*
MARK L. LIPSON President August 16, 1995
Mark L. Lipson* and Trustee
JOHN R. SMITH Trustee August 16, 1995
John R. Smith*
PAUL S. DOHERTY Trustee August 16, 1995
Paul S. Doherty*
DAVID W. WALLACE Trustee August 16, 1995
David W. Wallace*
ROBERT B. GOODE, JR. Trustee August 16, 1995
Robert B. Goode, Jr.*
SIGNATURES TITLE DATE
ALAN L. GOSULE Trustee August 16, 1995
Alan L. Gosule*
DAVID W.S. PUTNAM Trustee August 16, 1995
David W.S. Putnam*
MARJORIE WILLIAMS Trustee August 16, 1995
Marjorie Williams*
____________________ Vice President and August 16, 1995
Agnes Mullady Treasurer
*By: ____________________________ August 16, 1995
Lisa Hurley
Attorney-in-fact
* Executed pursuant to powers of attorney filed herewith.
INDEX TO EXHIBITS
Exhibit No. Name of Exhibit Filed Herein
(11) Opinion and consent of
Lisa Hurley, Esq., legal
counsel to Northstar
Investment Management
Corporation (adviser to
Northstar Advantage Strategic
Income Fund), as to legality
of securities being offered
(12) Opinion and Consent of
Dechert Price & Rhoads
as to tax matters
(14)
(A) Consent and Opinion of Price
Waterhouse LLP (with respect
to Northstar Advantage
Strategic Income Fund)
(B) Consent and Opinion of Coopers
& Lybrand L.L.P. (with respect
to Northstar Advantage Multi-
Sector Bond Fund
(16) (A) Powers of Attorney of Trustees
of Registrant
(B) Certified Resolution of
Trustees Pursuant to Rule
483(b) under the Securities
Act of 1933, as amended
(17)
(A) Declaration of Registrant
pursuant to Rule 24f-2
(B) Form of Proxy relating to
Special Meeting of Share-
holders of Northstar Advantage
Multi-Sector Bond Fund.
August 16, 1995
Northstar Advantage Strategic Income Fund
Two Pickwick Plaza
Greenwich, CT 06830
Gentlemen:
I am furnishing the following opinion regarding the issuance of
Class A, Class B and Class C shares of beneficial interest by
Northstar Advantage Strategic Income Fund ("Strategic") to
Northstar Advantage Multi-Sector Bond Fund (the "Fund") in
connection with the reorganization of the Fund, pursuant to which
Strategic will acquire all of the assets, subject to liabilities,
of the Fund in exchange for such Class A, Class B and Class C
shares (the "Reorganization"). The Class A, Class B and Class C
shares of Strategic being issued in connection with the
Reorganization are being registered with the Securities and
Exchange Commission (the "Commission") on a Form N-14
Registration Statement (the "Registration Statement"). This
opinion is being furnished in my capacity as legal counsel for
Northstar Investment Management Corporation ("Northstar"),
investment adviser to Strategic.
As legal counsel for Northstar, I am familiar with the
proceedings taken by Strategic in connection with the
authorization, issuance and sale of Class A, Class B and Class C
shares of beneficial interest. In addition, I have examined the
Amended and Restated Declaration of Trust and By-Laws, of
Strategic, resolutions adopted by the Trustees of Strategic, and
such other documents as I have deemed necessary or advisable.
Based on the foregoing, I am of the opinion that the Class A,
Class B and Class C shares of beneficial interest of Strategic
that are being registered in the Registration Statement and being
issued to the Fund in the Reorganization, will be, when sold,
legally issued, fully paid and non-assessable.
Very truly yours,
Lisa M. Hurley
General Counsel
August 16, 1995
Northstar Advantage Series Trust
in respect of
Northstar Advantage Multi-Sector Bond Fund
Two Pickwick Plaza
Greenwich, Connecticut 06830
Northstar Advantage Strategic Income Fund
Two Pickwick Plaza
Greenwich, Connecticut 06830
Gentlemen:
You have requested our opinion regarding certain federal
income tax consequences to Northstar Advantage Multi-Sector Bond
Fund ("Target"), a separate series of Northstar Advantage Series
Trust ("Northstar"), to the holders of the shares of beneficial
interest (the "shares") of Target (the "Target shareholders"),
and to Northstar Advantage Strategic Income Fund ("Acquiring
Fund"), in connection with the proposed transfer of substantially
all of the assets of Target to Acquiring Fund in exchange solely
for voting shares of beneficial interest of Acquiring Fund
("Acquiring Fund shares") and the assumption by Acquiring Fund of
certain liabilities of Target, followed by the distribution of
such Acquiring Fund shares received by Target in complete
liquidation, all pursuant to the Agreement and Plan of
Reorganization (the "Plan") dated June 2, 1995 (the
"Reorganization").
For purposes of this opinion, we have examined and rely upon
(1) the Plan, (2) the Form N-14, filed by Acquiring Fund on
August 16, 1995, with the Securities and Exchange Commission, (3)
the facts and representations contained in the letter dated
August 16, 1995, addressed to us from Northstar, (4) the facts
and representations contained in the letter dated August 16,
1995, addressed to us from Acquiring Fund, and (5) such other
documents and instruments as we have deemed necessary or
appropriate for purposes of rendering this opinion.
This opinion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), United States Treasury
regulations, judicial decisions and administrative rulings and
pronouncements of the Internal Revenue Service, all as in effect
on the date hereof. This opinion is conditioned upon (a) the
Reorganization taking place in the manner described in the Plan
and the Form N-14 referred to above, (b) the facts and
representations contained in the letters dated August 16, 1995,
addressed to us from Northstar and Acquiring Fund, respectively,
being true and accurate as of the closing date of the
Reorganization, and (c) there being no change in the Code, United
States Treasury regulations, judicial decisions, or
administrative rulings and pronouncements of the Internal Revenue
Service between the date hereof and the closing date of the
Reorganization.
Based upon the foregoing, it is our opinion that:
(1) The acquisition by Acquiring Fund of substantially all
of the assets of Target in exchange solely for
Acquiring Fund shares and the assumption by Acquiring
Fund of certain liabilities of Target, followed by the
distribution of such Acquiring Fund shares to the
Target shareholders in exchange for their Target shares
in complete liquidation of Target, will constitute a
reorganization within the meaning of Section 368(a) of
the Code. Acquiring Fund and Target will each be "a
party to a reorganization" within the meaning of
Section 368(b) of the Code.
(2) No gain or loss will be recognized to Target upon the
transfer of substantially all of its assets to
Acquiring Fund in exchange solely for Acquiring Fund
shares and the assumption by Acquiring Fund of certain
liabilities of Target, or upon the distribution to the
Target shareholders of the Acquiring Fund shares.
(3) No gain or loss will be recognized by Acquiring Fund
upon the receipt of Target's assets in exchange for
Acquiring Fund shares.
(4) The basis of the assets of Target in the hands of
Acquiring Fund will be, in each instance, the same as
the basis of those assets in the hands of Target
immediately prior to the Reorganization exchange.
(5) The holding period of Target's assets in the hands of
Acquiring Fund will include the period during which the
assets were held by Target.
(6) No gain or loss will be recognized to the Target
shareholders upon the receipt of Acquiring Fund shares
solely in exchange for Target shares.
(7) The basis of the Acquiring Fund shares received by the
Target shareholders will be the same as the basis of
the Target shares surrendered in exchange therefor.
(8) The holding period of the Acquiring Fund shares
received by the Target shareholders will include the
holding period of the Target shares surrendered in
exchange therefor, provided that such Target shares
were held as capital assets in the hands of the Target
shareholders upon the date of the exchange.
We express no opinion as to the federal income tax
consequences of the Reorganization except as expressly set forth
above, or as to any transaction except those consummated in
accordance with the Plan.
This opinion must be confirmed by us in writing on the
closing date of the Reorganization or will be deemed to have been
withdrawn.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement on Form N-14 filed by
Acquiring Fund with the Securities and Exchange Commission.
Very truly yours,
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Statement of Additional Information constituting part of this
registration statement on Form N-14 (the "Registration
Statement") of our report dated February 15, 1995, relating to
the financial statements and financial highlights of the
Advantage Strategic Income Fund appearing in the December 31,
1994 Annual Report to Shareholders of the Advantage Family of
Funds which appears in such Statement of Additional Information,
and to the incorporation by reference of our report into the
Proxy Statement and Prospectus which constitutes part of this
Registration Statement.
Price Waterhouse LLP
Boston, Massachusetts
August 15, 1995
Report of Independent Accountants
To the Trustees and Shareholders of The Advantage Strategic
Income Fund, The Advantage Government Securities Fund, The
Advantage Income Fund, The Advantage High Yield Bond Fund, The
Advantage Growth Fund and The Advantage Special Fund:
In our opinion, the accompanying statements of assets and
liabilities, including the statements 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 Advantage Strategic
Income Fund, The Advantage Government Securities Fund, The
Advantage High Yield Bond Fund, The Advantage Income Fund, The
Advantage Growth Fund and The Advantage Special Fund at December
31, 1994, and the results of each of their operations, the
changes in each of their net assets and the financial highlights
for the periods indicated in conformity with generally accepted
accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' 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, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 15, 1995
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration
Statement of Northstar Advantage Strategic Income Fund on Form N-
14 and the Statement of Additional Information of the Northstar
Advantage Trust (formerly NWNL Northstar Series Trust) dated
January 17, 1995 (the "SAI") which has been incorporated by
reference in the Form N-14, of our report dated December 30, 1994
on our audit of the financial statements of Northstar Advantage
Trust which report is included in its Annual Report to
Shareholders which is also incorporated by reference in the
Registration Statement and SAI.
We also consent to the reference to our firm in the Prospectus
under the caption "Financial Statements."
COOPERS & LYBRAND L.L.P.
New York, New York
August 15, 1995
NWNL NORTHSTAR SERIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
NWNL Northstar Series Trust
We have audited the accompanying statement of assets and
liabilities of the NWNL Northstar Series Trust, (comprising the
NWNL Northstar Income and Growth Fund, the NWNL Multi-Sector Bond
Fund and the NWNL Northstar High Yield Bond Fund (the "Funds")),
as of October 31, 1994 and the related statements of operations,
the statement of changes in net assets for the period then ended,
and the financial highlights for the period November 8, 1993
(commencement of operations) through October 31, 1994. These
financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of October 31, 1994 by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of each of the respective Funds
constituting the NWNL Northstar Series Trust as of October 31,
1994, the results of their operations, the changes in their net
assets, and the financial highlights for the period November 8,
1993 (commencement of operations) to October 31, 1994, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
December 30, 1994
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Mark L. Lipson, Joseph Flemming and Lisa
Hurley, and each of them his true and lawful attorney-in-fact as
agent with full power of substitution and resubstitution for him
in his name, place, and stead, to sign any and all registration
statements applicable to Northstar Advantage Special Fund,
Northstar Advantage Strategic Income Fund, Northstar Advantage
Income Fund, Northstar Advantage High Yield Fund, Northstar
Advantage Government Securities Fund, Northstar Advantage Growth
Fund and any amendment or supplements thereto, and to file the
same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitutes, may
lawfully do or cause to be done by virtue hereof.
________________________
John G. Turner
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Mark L. Lipson, Joseph Flemming and Lisa
Hurley, and each of them his true and lawful attorney-in-fact as
agent with full power of substitution and resubstitution for him
in his name, place, and stead, to sign any and all registration
statements applicable to Northstar Advantage Special Fund,
Northstar Advantage Strategic Income Fund, Northstar Advantage
Income Fund, Northstar Advantage High Yield Fund, Northstar
Advantage Government Securities Fund, Northstar Advantage Growth
Fund and any amendment or supplements thereto, and to file the
same with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue
hereof.
________________________
David W. Wallace
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Mark L. Lipson, Joseph Flemming and Lisa
Hurley, and each of them his true and lawful attorney-in-fact as
agent with full power of substitution and resubstitution for him
in his name, place, and stead, to sign any and all registration
statements applicable to Northstar Advantage Special Fund,
Northstar Advantage Strategic Income Fund, Northstar Advantage
Income Fund, Northstar Advantage High Yield Fund, Northstar
Advantage Government Securities Fund, Northstar Advantage Growth
Fund and any amendment or supplements thereto, and to file the
same with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue
hereof.
________________________
David W.C. Putnam
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Mark L. Lipson, Joseph Flemming and Lisa
Hurley, and each of them his true and lawful attorney-in-fact as
agent with full power of substitution and resubstitution for him
in his name, place, and stead, to sign any and all registration
statements applicable to Northstar Advantage Special Fund,
Northstar Advantage Strategic Income Fund, Northstar Advantage
Income Fund, Northstar Advantage High Yield Fund, Northstar
Advantage Government Securities Fund, Northstar Advantage Growth
Fund and any amendment or supplements thereto, and to file the
same with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue
hereof.
________________________
Alan L. Gosule
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Mark L. Lipson, Joseph Flemming and Lisa
Hurley, and each of them his true and lawful attorney-in-fact as
agent with full power of substitution and resubstitution for him
in his name, place, and stead, to sign any and all registration
statements applicable to Northstar Advantage Special Fund,
Northstar Advantage Strategic Income Fund, Northstar Advantage
Income Fund, Northstar Advantage High Yield Fund, Northstar
Advantage Government Securities Fund, Northstar Advantage Growth
Fund and any amendment or supplements thereto, and to file the
same with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue
hereof.
________________________
John R. Smith
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Mark L. Lipson, Joseph Flemming and Lisa
Hurley, and each of them his true and lawful attorney-in-fact as
agent with full power of substitution and resubstitution for him
in his name, place, and stead, to sign any and all registration
statements applicable to Northstar Advantage Special Fund,
Northstar Advantage Strategic Income Fund, Northstar Advantage
Income Fund, Northstar Advantage High Yield Fund, Northstar
Advantage Government Securities Fund, Northstar Advantage Growth
Fund and any amendment or supplements thereto, and to file the
same with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue
hereof.
________________________
Robert B. Goode
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Mark L. Lipson, Joseph Flemming and Lisa
Hurley, and each of them his true and lawful attorney-in-fact as
agent with full power of substitution and resubstitution for him
in his name, place, and stead, to sign any and all registration
statements applicable to Northstar Advantage Special Fund,
Northstar Advantage Strategic Income Fund, Northstar Advantage
Income Fund, Northstar Advantage High Yield Fund, Northstar
Advantage Government Securities Fund, Northstar Advantage Growth
Fund and any amendment or supplements thereto, and to file the
same with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents
and purposes as she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or her
substitutes, may lawfully do or cause to be done by virtue
hereof.
________________________
Marjory Williams
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Mark L. Lipson, Joseph Flemming and Lisa
Hurley, and each of them his true and lawful attorney-in-fact as
agent with full power of substitution and resubstitution for him
in his name, place, and stead, to sign any and all registration
statements applicable to Northstar Advantage Special Fund,
Northstar Advantage Strategic Income Fund, Northstar Advantage
Income Fund, Northstar Advantage High Yield Fund, Northstar
Advantage Government Securities Fund, Northstar Advantage Growth
Fund and any amendment or supplements thereto, and to file the
same with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue
hereof.
________________________
Mark L. Lipson
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Mark L. Lipson, Joseph Flemming and Lisa
Hurley, and each of them his true and lawful attorney-in-fact as
agent with full power of substitution and resubstitution for him
in his name, place, and stead, to sign any and all registration
statements applicable to Northstar Advantage Special Fund,
Northstar Advantage Strategic Income Fund, Northstar Advantage
Income Fund, Northstar Advantage High Yield Fund, Northstar
Advantage Government Securities Fund, Northstar Advantage Growth
Fund and any amendment or supplements thereto, and to file the
same with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue
hereof.
________________________
Paul S. Doherty
OFFICER'S CERTIFICATE
I, Lisa Hurley, Vice President of Northstar Advantage
Strategic Income Fund, a Massachusetts business trust, do hereby
certify that the following resolution is a true and complete copy
of a resolution duly adopted at a meeting of the Trustees of
Northstar Advantage Strategic Income Fund on June 2, 1995; that
the passage of said resolution was in all respects legal; and
that said resolution is in full force and effect:
RESOLVED, that the officers of the Fund be, and hereby are,
authorized to file with the Securities and Exchange
Commission, and as necessary, any state authorities on
behalf of the Fund, a Registration Statement on Form N-14 to
register shares of the Fund to be issued in the
Reorganization.
IN WITNESS WHEREOF, I have set my hand as of the 16th day of
August, 1995.
________________________
Lisa Hurley,
Vice President
Registration No. 33-76574
As filed with the
Securities and Exchange Commission on July 1, 1994
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [x]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 2 [x]
(Check appropriate box or boxes)
The Advantage Strategic Income Fund
(Exact Name of Registrant as Specified in Charter)
100 Federal Street
Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:(617)348-3100
ROBERT L. THOMAS, President
The Advantage Strategic Income Fund
100 Federal Street
Boston, Massachusetts 02110
(Name and Address of Agent for Service)
Copies of all correspondence to:
DAVID A. HOROWITZ, ESQ. JOHN HAND, ESQ.
Assistant General Counsel Sullivan & Worcester
The Advest Group, Inc. One Post Office Square
280 Trumbull Street Boston, MA 02109
Hartford, CT 06103
------------------------------------
It is proposed that this filing will become effective
(check appropriate box)
[x] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on [date] pursuant to paragraph (a) of Rule 485
Approximate Date of Proposed Public Offering: July 1, 1994
----------------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
-----------------------------------------------------------------
Title of Securities Amount Proposed Maximum Amount of
Being Registered Being Offering Price Registration
Registered Per Unit Fee
----------------------------------------------------------------
Shares of Beneficial
Interest Indefinite* $12.00 $500
----------------------------------------------------------------
* Pursuant to the provisions of Rule 24f-2 under the
Investment Company Act of 1940, as amended, Registrant
hereby elects to register an indefinite number of shares.
The $500 registration fee has previously been paid.
-------------------
NORTHSTAR ADVANTAGE MULTI-SECTOR BOND FUND
SPECIAL MEETING OF SHAREHOLDERS -- October 27, 1995
PROXY SOLICITED ON BEHALF OF THE TRUSTEES
The undersigned shareholder of NORTHSTAR ADVANTAGE
MULTI-SECTOR BOND FUND (the "Fund"), a series of Northstar
Advantage Trust, a Massachusetts business trust, hereby appoints
Mark L. Lipson and Lisa Hurley, and each of them, with full power
of substitution and revocation, as proxies to represent the
undersigned at the Special Meeting of Shareholders of the Fund,
which shall be held on October 27, 1995, at 10:30 a.m., New York
City time, at the offices of the Fund, Two Pickwick Plaza,
Greenwich, Connecticut, and at any and all adjournments thereof,
and thereat to vote all shares of the Fund which the undersigned
would be entitled to vote, with all powers the undersigned would
possess if personally present, in accordance with the following
instructions:
1. FOR __________ AGAINST __________ ABSTAIN __________ as
to the proposal to approve the Agreement and Plan of
Reorganization, dated June 2, 1995, between the Fund and
Northstar Advantage Strategic Income Fund ("Strategic"), and the
proposed transaction whereby all of the assets of the Fund will
be transferred to, and certain identified liabilities of the Fund
assumed by, Strategic in exchange for Strategic's Class A, Class
B and Class C shares; immediately thereafter, the Class A, Class
B and Class C shares of Strategic will be distributed to the
Fund's Class A, Class B and Class C shareholders in total
liquidation of the Fund, which will thereafter be dissolved, all
as more fully described in the Proxy Statement/Prospectus dated
_________, 1995;
and, in their discretion, upon such other business as may
properly come before the meeting or any adjournments thereof.
If more than one of the proxies, or their substitutes, are
present at the meeting or at any adjournment thereof, they
jointly (or, if only one is present and voting, then that one)
shall have authority and may exercise all the powers granted
hereby. This proxy, when properly executed, will be voted in
accordance with the instructions marked hereon by the
undersigned. In the absence of contrary instructions, this proxy
will be voted FOR the proposal.
The undersigned hereby acknowledges receipt of the
accompanying Notice of Meeting and Proxy Statement/Prospectus,
dated _______, 1995, and Strategic's prospectus dated June 5,
1995.
IMPORTANT: PLEASE INSERT DATE OF SIGNING.
Dated: _____________________, 1992
___________________________________
Signature of Shareholder
___________________________________
Signature of Shareholder
(if held jointly)
This Proxy shall be signed exactly as your name(s) appear
hereon. If as attorney, executor, guardian or in some
representative capacity or as an officer of a corporation, please
add title as such.
PLEASE VOTE, SIGN, DATE AND PROMPTLY MAIL THIS PROXY IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE
UNITED STATES.
