SARATOGA ADVANTAGE TRUST, 497, 1995-10-11

SARATOGA ADVANTAGE TRUST
497, 1995-10-11

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<PAGE>
LOGO

PROSPECTUS DATED AUGUST 25, 1994 AS REVISED SEPTEMBER 29, 1995

T H E S A R A T O G A A D V A N T A G E T R U S T

The Saratoga Advantage Trust (the "Trust") is an open-end, management investment
company providing a convenient means of investing in a series of separate
investment portfolios (the "Portfolios") professionally managed by Saratoga
Capital Management (the "Manager"). Each of the Portfolios is diversified and is
provided with discretionary advisory services by a registered investment advisor
(the "Advisor") identified, retained, supervised and compensated by the Manager.
The Trust is a series company that currently consists of the following
Portfolios to which this Prospectus relates:

Income Portfolios:

(U.S. GOVERNMENT MONEY MARKET PORTFOLIO

(INVESTMENT QUALITY BOND PORTFOLIO

(MUNICIPAL BOND PORTFOLIO

Equity Portfolios:

(LARGE CAPITALIZATION VALUE PORTFOLIO

(LARGE CAPITALIZATION GROWTH PORTFOLIO

(SMALL CAPITALIZATION PORTFOLIO

(INTERNATIONAL EQUITY PORTFOLIO

SHARES OF THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO ARE NOT GUARANTEED OR
INSURED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE U.S.
GOVERNMENT MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE.

Shares of the Portfolios are offered to participants in investment advisory
programs that provide asset allocation recommendations to investors based on an
evaluation of the investor's investment objectives and risk tolerance. The
advisors in certain of these investment advisory programs may use an asset
allocation methodology developed by the Manager--the Saratoga Strategic Horizon
Asset Reallocation ProgramSM (the "Saratoga SharpSM Program")--to assist them in
translating investor needs, preferences and attitudes identified from an
investment questionnaire into suggested portfolio allocations. Shares of the
Portfolios are also available to other investors and investment advisory
services. Investors purchasing shares through an investment advisory service
will be subject to the payment of a separate fee imposed by the investment
advisor for such services. See "Purchase of Shares--General." The operating
expenses of the Portfolios, when combined with any investment advisory fees
separately paid, may involve greater fees and expenses than other investment
companies whose shares are purchased without the benefit of the professional
consulting and asset allocation services rendered by the investment advisors.

This Prospectus sets forth concisely certain information about the Trust,
including expenses, that prospective investors will find helpful in making an
investment decision. Investors are encouraged to read this Prospectus carefully
and retain it for future reference.

Additional information about the Trust is contained in a Statement of Additional
Information dated May 12, 1995, which is available upon request and without
charge by calling or writing the Trust or Saratoga Capital Management at 33
Maiden Lane, New York, New York 10038-4578, 800-807-FUND (800-807-3863). The
Statement of Additional Information, which has been filed with the Securities
and Exchange Commission, is incorporated by reference into this Prospectus in
its entirety.

SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK AND THE SHARES OF THE PORTFOLIOS ARE NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary........................................................... 2
Summary of Trust Expenses......................................... 5
Financial Highlights.............................................. 6
Objectives and Policies of the Portfolios......................... 8
Certain Securities and Investment Techniques...................... 12
Risk Factors...................................................... 19
Certain Investment Policies....................................... 20
Management of the Trust........................................... 21
Purchase of Shares................................................ 25
Redemption of Shares.............................................. 27
Net Asset Value................................................... 27
Exchange Privilege................................................ 28
Dividends, Distributions and Taxes................................ 29
Custodian and Transfer Agent...................................... 31
Performance of the Portfolios..................................... 31
Additional Information............................................ 32
</TABLE>

SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS.

THE TRUST. The Trust is a management investment company providing a convenient
means of investing in separate Portfolios professionally managed by the Manager.
The assets of each of the Portfolios are invested on a discretionary basis by a
separate Advisor. See "Management of the Trust." The Trust is a series company
currently consisting of the following 7 Portfolios:

Income Portfolios:

(U.S. GOVERNMENT MONEY MARKET PORTFOLIO, whose Advisor is Sterling Capital
Management Company.

(INVESTMENT QUALITY BOND PORTFOLIO, whose Advisor is Fox Asset Management, Inc.

(MUNICIPAL BOND PORTFOLIO, whose Advisor is Quest for Value Advisors.

Equity Portfolios:

(LARGE CAPITALIZATION VALUE PORTFOLIO, whose Advisor is Quest for Value
Advisors.

(LARGE CAPITALIZATION GROWTH PORTFOLIO, whose Advisor is Harris Bretall Sullivan
& Smith, Inc.

(SMALL CAPITALIZATION PORTFOLIO, whose Advisor is Axe-Houghton Associates, Inc.

(INTERNATIONAL EQUITY PORTFOLIO, whose Advisor is Ivory & Sime International,
Inc.

MANAGEMENT. Saratoga Capital Management is the Manager of the Portfolios. Each
of the Portfolios is provided with the discretionary advisory services of an
Advisor identified, retained,

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supervised and compensated by the Manager. Quest for Value Advisors, an
affiliate of the Manager, serves as the Portfolios' administrator and, in
connection therewith, provides administration to each Portfolio. See "Management
of the Trust."

INVESTMENT ADVISORY SERVICES. Shares of the Portfolios are offered to
participants in certain investment advisory programs and to other investors and
investment advisory services. Generally, the investment advisors for the
investment advisory programs provide asset allocation recommendations with
respect to the Portfolios based on an evaluation of an investor's investment
objectives and risk tolerance. Certain investment advisors offering asset
allocation programs may enter into agreements with the Manager pursuant to which
the Manager will make available its Saratoga SharpSM program and provide various
administrative services to the investment advisor ("Consulting Programs"). The
investment advisory fee for these Consulting Programs will be determined by the
investment advisors and their clients. The fee is paid to the client's
investment advisor either directly or by redeeming a sufficient number of
Portfolio shares. The Manager is paid a fee by the client's investment advisor
for services provided to the investment advisor in connection with the
investment advisory program. See "Purchase of Shares--General."

PURCHASE AND REDEMPTION OF SHARES. Shares of the Portfolios are offered for
purchase and redemption at their respective net asset values next determined,
WITHOUT IMPOSITION OF ANY SALES CHARGE. See "Purchase of Shares" and "Redemption
of Shares."

RISK FACTORS AND SPECIAL CONSIDERATIONS. No assurance can be given that the
Portfolios will achieve their investment objectives. Investing in an investment
company that invests in securities of companies and governments of foreign
countries, particularly developing countries, involves risks that go beyond the
usual risks inherent in an investment company limiting its holdings to domestic
investments. Certain Portfolios may also be subject to certain risks in using
investment techniques and strategies such as entering into forward currency
contracts, repurchase agreements, trading futures contracts and options on
futures contracts. In addition, the Investment Quality Bond Portfolio and the
Municipal Bond Portfolio may invest in zero coupon securities, which, due to
changes in interest rates, may be more speculative and subject to greater
fluctuations in value than securities that pay interest currently. See
"Objectives and Policies of the Portfolios," "Certain Securities and Investment
Techniques" and "Risk Factors."

Investors should be aware that the Manager receives a fee from the investment
advisor for each participant in a Consulting Program for services rendered to
the investment advisor in connection with the investment advisory program. This
fee does not vary based on the Portfolios recommended for the participant's
investments. The Manager also serves as the Trust's Manager with responsibility
for identifying, retaining, supervising and compensating each Portfolio's
Advisor and receives a fee from each Portfolio. The portion of each Portfolio's
management fee that is retained by the Manager does not vary based on the
Portfolio involved. However, Quest for Value Advisors, an affiliate of the
Manager, is the Advisor to two of the Portfolios. Consequently, to the extent
investors' funds are allocated to such Portfolios, the Manager's affiliates will
realize greater financial benefits than if the assets were allocated to
Portfolios not advised by Quest for Value Advisors. The Manager's decisions as
to the retention of particular Advisors and specific amount of the Manager's
compensation to be paid to the Advisor are subject to review and approval by a
majority of the Board of Trustees and separately by a majority of the Trustees
who are not affiliated with the Manager or any of its affiliates. These
decisions are also subject to approval of shareholders of the Portfolio
involved. See "Management of the Trust-- Investment Manager" and "Purchase of
Shares--General--Investment Advisory Programs."

The Portfolios are intended primarily as vehicles for the implementation of long
term asset allocation strategies rendered through investment advisory programs
that are based on an evaluation of an investor's investment objectives and risk
tolerance. Because these asset allocation strategies are designed to spread
investment risk across the various segments of the

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securities markets through investment in a number of Portfolios, each individual
Portfolio generally intends to be substantially fully invested in accordance
with its investment objectives and policies during most market conditions.
Although the Advisor of a Portfolio may, upon the concurrence of the Manager,
take a temporary defensive position during adverse market conditions, it can be
expected that a defensive posture will be adopted less frequently than would be
by other mutual funds. This policy may impede an Advisor's ability to protect a
Portfolio's capital during declines in the particular segment of the market to
which the Portfolio's assets are committed. Consequently, no single Portfolio
should be considered a complete investment program and an investment among the
Portfolios should be regarded as a long term commitment that should be held
through several market cycles. In addition, although the investment advisors for
the Consulting Programs may recommend adjustments in the allocation of assets
among the Portfolios based on, among other things, anticipated market trends,
there can be no assurance that these recommendations can be developed,
transmitted and acted upon in a manner sufficiently timely to avoid market
shifts, which can be sudden and substantial. Participants in Consulting Programs
should note that responsibility for investment recommendations rests solely with
the investment advisor for the program or the client itself and not with the
Trust or the Manager. Investors intending to purchase Portfolio shares through
investment advisory programs should evaluate carefully whether the service is
ongoing and continuous, as well as their investment advisors' ability to
anticipate and respond to market trends. See "Objectives and Policies of the
Portfolios," and "Certain Securities and Investment Techniques--Temporary
Investments."

DIVIDENDS AND DISTRIBUTIONS. Each Portfolio intends to distribute annually to
its shareholders substantially all of its net investment income and its net
realized long and short term capital gains. Dividends from the net investment
income of the U.S. Government Money Market Portfolio, the Investment Quality
Bond Portfolio, and the Municipal Bond Portfolio are declared daily and paid
monthly. Dividends from the net investment income of the remaining Portfolios
are declared and paid annually. Distributions of any net realized long term and
short term capital gains earned by a Portfolio will be made annually. See
"Dividends, Distributions and Taxes."

TAXATION. Each of the Portfolios intends to qualify as a regulated investment
company for U.S. federal income tax purposes. As such, the Trust anticipates
that no Portfolio will be subject to U.S. federal income tax on income and
gains, if any, that are distributed to shareholders. It is expected that certain
capital gains and certain dividends and interest earned by the International
Equity Portfolio will be subject to foreign withholding taxes. These taxes may
be deductible or creditable in whole or in part by shareholders of the Portfolio
for U.S. federal income tax purposes. See "Dividends, Distributions and Taxes."

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company ("State
Street") acts as the custodian of the Trust's U.S. and non-U.S. assets and may
employ sub-custodians outside the United States approved by the Trustees of the
Trust in accordance with regulations of the Securities and Exchange Commission
(the "SEC"). State Street also serves as the transfer agent for the Portfolios'
shares. See "Custodian and Transfer Agent."

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<PAGE>
SUMMARY OF TRUST EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES. THE FOLLOWING TABLE LISTS THE COSTS AND
EXPENSES THAT AN INVESTOR WILL INCUR AS A SHAREHOLDER OF EACH OF THE PORTFOLIOS
BASED ON THE PORTFOLIO'S PROJECTED ANNUAL OPERATING EXPENSES. THERE ARE NO
SHAREHOLDER TRANSACTION EXPENSES, SALES LOADS OR DISTRIBUTION FEES.

<TABLE>
<CAPTION>
U.S.
GOVERNMENT INVESTMENT LARGE LARGE
MONEY QUALITY MUNICIPAL CAPITALIZATION CAPITALIZATION SMALL INTERNATIONAL
MARKET BOND BOND VALUE GROWTH CAPITALIZATION EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES... NONE NONE NONE NONE NONE NONE NONE
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees.................. .475% .55% .55% .65% .65% .65% .75%
Distribution (Rule 12b-1)
Expenses........................ NONE NONE NONE NONE NONE NONE NONE
Other Expenses................... .65 % .59% .53% .50% .50% .50% .50%
------- ------ ------ ------ ------ ------ ------
Total Operating Expenses......... 1.125% 1.14% 1.08% 1.15% 1.15% 1.15% 1.25%
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Management Fees and Other Estimated Expenses. Each Portfolio pays the Manager a
fee for its services that is computed daily and paid monthly at an annual rate
ranging from .475% to .75% of the value of the average daily net assets of the
Portfolio. The fees of each Advisor are paid by the Manager. The nature of the
services provided to, and the aggregate management fees paid by, each Portfolio
are described under "Management of the Trust." The expenses set forth in the
above table reflect voluntary expense limitations currently in effect. During
the period September 2, 1994 (commencement of operations) to February 28, 1995,
the Manager waived its management fee and absorbed all operating expenses of
each Portfolio. Without such voluntary waivers and expense absorptions, the
Manager would have waived fees and expenses so that annual operating expenses as
a percentage of average daily net assets of each Portfolio would have been 2.50%
in order for each Portfolio to comply with state expense limitations. "Other
Expenses" include fees for shareholder services, administration, custodial fees,
legal and accounting fees, printing costs, registration fees, the costs of
regulatory compliance, a Portfolio's allocated portion of the costs associated
with maintaining the Trust's legal existence and the costs involved in the
Trust's communications with shareholders. The table does not reflect any fees
paid by investors pursuant to Consulting Programs.

Example. The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Portfolios. These amounts are based upon (i)
payment by the Portfolios of operating expenses at the levels set forth in the
table above and (ii) the specific assumptions stated below:

A shareholder would pay the following expenses on a $1,000 investment assuming
(i) a 5% annual return and (ii) redemption at the end of each time period:

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1 year $11.47 $11.62 $11.01 $11.72 $11.72 $11.72 $12.73
3 years $35.75 $36.22 $34.34 $36.53 $36.53 $36.53 $39.65
</TABLE>

The purpose of this example is to assist an investor in understanding various
costs and expenses that an investor in a Portfolio will bear. THIS EXAMPLE
SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE EXPENSES;
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover, although the
table assumes a 5% annual return, a Portfolio's actual performance will vary and
may result in an actual return greater
or less than 5%.

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<PAGE>

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) (UNAUDITED)

<TABLE>
<CAPTION>
INCOME FROM RATIOS
INVESTMENT OPERATIONS -----------------------------
----------------------------------- DIVIDENDS RATIO RATIO
NET ------ OF OF
REALIZED DIVIDENDS NET NET
NET AND TO OPERATING INVESTMENT
ASSET UNREALIZED SHAREHOLDERS NET NET EXPENSES INCOME
VALUE, GAIN TOTAL FROM ASSET ASSETS TO TO
BEGINNING NET (LOSS) FROM NET VALUE, END OF AVERAGE AVERAGE PORTFOLIO
OF INVESTMENT ON INVESTMENT INVESTMENT END OF TOTAL PERIOD NET NET TURNOVER
PERIOD INCOME INVESTMENTS OPERATIONS INCOME PERIOD RETURN* (000'S) ASSETS ASSETS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SEPTEMBER 2,
1994(2) TO
FEBRUARY 28,
1995 $1.000(3) $0.024 $0.000 $0.024 ($0.024) $1.000 2.47% $1,867 0.00%(1,4,5) 5.58%(1,4,5) --
</TABLE>

(1)DURING THE PERIOD PRESENTED ABOVE, SARATOGA CAPITAL MANAGEMENT HAS
VOLUNTARILY WAIVED ALL OF ITS FEES AND REIMBURSED THE PORTFOLIO FOR ALL OF
ITS OPERATING EXPENSES. IF SUCH WAIVERS AND REIMBURSEMENTS HAD NOT BEEN IN
EFFECT, THE ANNUALIZED RATIO OF NET OPERATING EXPENSES TO AVERAGE DAILY NET
ASSETS AND THE ANNUALIZED RATIO OF NET INVESTMENT LOSS TO AVERAGE DAILY NET
ASSETS WOULD HAVE BEEN 14.85% AND (9.27%), RESPECTIVELY.

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT QUALITY BOND PORTFOLIO
SEPTEMBER 2,
1994(2) TO
FEBRUARY 28,
1995 $10.00(3) $0.30 ($0.13) $0.17 ($0.30) $9.87 1.75% $1,104 0.00%(1,4,5) 6.19%(1,4,5) 26%
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MUNICIPAL BOND PORTFOLIO
SEPTEMBER 2,
1994(2) TO
FEBRUARY 28,
1995 $10.00(3) $0.27 ($0.22) $0.05 ($0.27) $9.78 0.61% $442 0.00%(1,4,5) 5.50%(1,4,5) 38%
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LARGE CAPITALIZATION VALUE PORTFOLIO
SEPTEMBER 2,
1994(2) TO
FEBRUARY 28,
1995 $10.00(3) $0.14 $0.41 $0.55 ($0.05) $10.50 5.51% $2,137 0.00%(1,4,5) 2.95%(1,4,5) 3%
</TABLE>

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FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) (CONTINUED)

<TABLE>
<CAPTION>
INCOME FROM RATIOS
INVESTMENT OPERATIONS -----------------------------
----------------------------------- DIVIDENDS RATIO RATIO
NET ------ OF OF
REALIZED DIVIDENDS NET NET
NET AND TO OPERATING INVESTMENT
ASSET UNREALIZED SHAREHOLDERS NET NET EXPENSES INCOME
VALUE, GAIN TOTAL FROM ASSET ASSETS TO TO
BEGINNING NET (LOSS) FROM NET VALUE, END OF AVERAGE AVERAGE PORTFOLIO
OF INVESTMENT ON INVESTMENT INVESTMENT END OF TOTAL PERIOD NET NET TURNOVER
PERIOD INCOME INVESTMENTS OPERATIONS INCOME PERIOD RETURN* (000'S) ASSETS ASSETS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LARGE CAPITALIZATION GROWTH PORTFOLIO
SEPTEMBER 2,
1994(2) TO
FEBRUARY 28,
1995 $10.00(3) $0.04 $0.54 $0.58 ($0.01) $10.57 5.84% $1,976 0.00%(1,4,5) 0.89%(1,4,5) 7%
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SMALL CAPITALIZATION PORTFOLIO
SEPTEMBER 2,
1994(2) TO
FEBRUARY 28,
1995 $10.00(3) $0.03 $0.08 $0.11 ($0.01) $10.10 1.14% $3,117 0.00%(1,4,5) 0.53%(1,4,5) 43%
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY PORTFOLIO
SEPTEMBER 2,
1994(2) TO
FEBRUARY 28,
1995 $10.00(3) $0.02 ($1.39) ($1.37) ($0.01) $8.62 (13.72%) $1.363 0.00%(1,4,5) 0.52%(1,4,5) 16%
</TABLE>

- ----------------------------------

(2)COMMENCEMENT OF OPERATIONS.

(3)OFFERING PRICE.

(4)AVERAGE DAILY NET ASSETS FOR THE PERIOD ENDED FEBRUARY 28, 1995 WERE
$800,530, $728,607, $279,695, $1,086,072, $1,040,838, $1,555,429 AND $838,426
FOR U.S. GOVERNMENT MONEY MARKET, INVESTMENT QUALITY BOND, MUNICIPAL BOND,
LARGE CAPITALIZATION VALUE, LARGE CAPITALIZATION GROWTH, SMALL CAPITALIZATION
AND INTERNATIONAL EQUITY, RESPECTIVELY.

(5)ANNUALIZED.

* ASSUMES REINVESTMENT OF ALL DIVIDENDS. AGGREGATE (NOT ANNUALIZED) TOTAL RETURN
IS SHOWN FOR ANY PERIOD SHORTER THAN ONE YEAR.

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<PAGE>
OBJECTIVES AND POLICIES OF THE PORTFOLIOS

Set forth below is a description of the investment objectives and policies of
each Portfolio. There can be no assurance that any Portfolio will achieve its
investment objectives. Further information about the investment policies of each
Portfolio, including a list of those restrictions on its investment activities
that cannot be changed without shareholder approval, appears in the Statement of
Additional Information.

U.S. GOVERNMENT MONEY MARKET PORTFOLIO is advised by Sterling Capital Management
Company. The Portfolio's investment objective is to provide maximum current
income to the extent consistent with the maintenance of liquidity and the
preservation of capital by investing exclusively in short term securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Securities") and repurchase agreements with respect to those
securities. The Portfolio may purchase securities on a when-issued or
delayed-delivery basis. See "Certain Securities and Investment Techniques." The
Portfolio will invest only in securities that are purchased with and payable in
U.S. dollars and that have remaining maturities of 397 days or less at the time
of purchase. The Portfolio maintains a dollar-weighted average portfolio
maturity of 90 days or less. All securities purchased by the Portfolio,
including repurchase agreements, will present minimal credit risks in the
opinion of the Advisor acting pursuant to criteria adopted by the Trust's Board
of Trustees. The Portfolio follows these policies in order to maintain a
constant net asset value of $1.00 per share, although there can be no assurance
it can do so on a continuing basis. The Portfolio is not insured or guaranteed
by the U.S. Government. The yield attained by the Portfolio may not be as high
as that of other funds that invest in lower quality or longer term securities.

INVESTMENT QUALITY BOND PORTFOLIO is advised by Fox Asset Management, Inc.
("Fox"). The Portfolio seeks, as its investment objectives, current income and
reasonable stability of principal. The Portfolio seeks to achieve its objectives
through investment in investment quality fixed income securities and the active
management of such securities. The average maturity of the securities held by
the Portfolio may be shortened, but not below three years, in order to preserve
capital if the Advisor anticipates a rise in interest rates. Conversely, the
average maturity may be lengthened, but not beyond ten years, to maximize
returns if interest rates are expected to decline.

Under normal conditions, the Portfolio will invest at least 65% of its assets in
debt instruments including U.S. Government Securities, corporate bonds,
debentures, Eurodollar bonds, Yankee bonds and foreign currency denominated
bonds. In addition, the Portfolio may invest in non-convertible fixed income
preferred stock and mortgage pass-through securities. The Portfolio limits its
investments to investment grade securities, which are securities rated within
the four highest categories established by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"), and unrated securities
determined by the Advisor to be of comparable quality. The Portfolio is not
obligated to dispose of securities that fall below such ratings due to changes
made by the rating agencies subsequent to the purchase of the securities but
will dispose of any such securities in order to limit its holdings of securities
rated below Baa by Moody's or BBB by S & P to no more than 5% of its net assets.
See the Appendix to the Statement of Additional Information for a description of
Moody's and S&P ratings and "Risk Factors--Medium and Lower Rated and Unrated
Securities" for a description of certain risks associated with securities in the
fourth highest rating category. Although the Portfolio is authorized to hedge
against unfavorable changes in interest rates by entering into interest rate
futures contracts and purchasing and writing put and call options thereon, its
Advisor has no present intention of using such techniques. The Portfolio also
may engage in repurchase agreements, purchase temporary investments, purchase
securities on a when-issued basis and lend its portfolio securities. See
"Certain Securities and Investment Techniques."

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<PAGE>
The Portfolio is managed by Paul Stach, Russell Tompkins and Thayer Potter. Mr.
Stach is a Managing Director and Director of Fixed Income Research at Fox where
he has worked for one year. He joined the firm from Kidder, Peabody & Co. where
he was a Managing Director in Investment Banking. Mr. Tompkins is a Managing
Director and also coordinates all compliance matters for the firm. He joined the
firm in 1988. Mr. Potter is a Vice President and Portfolio Manager of Fox. He
has been with the firm for one year, and was previously with Acorn Asset
Management, serving as Vice President and portfolio manager.

MUNICIPAL BOND PORTFOLIO is advised by Quest for Value Advisors. The Portfolio
seeks, as its investment objective, a high level of interest income that is
excluded from federal income taxation to the extent consistent with prudent
investment management and the preservation of capital. The Portfolio seeks to
achieve its objectives through investment in a diversified portfolio of general
obligation, revenue and private activity bonds, including lease obligations, and
notes that are issued by or on behalf of states, territories and possessions of
the United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities, or multi-state agencies or authorities, the
interest on which, in the opinion of counsel to the issuer of the instrument, is
excluded from gross income for federal income tax purposes ("Municipal
Obligations") See "Municipal Obligations" on page 14.

Portfolio composition generally covers a full range of maturities with broad
geographic and issuer diversification. The Portfolio may also invest in variable
rate Municipal Obligations, most of which permit the holder thereof to receive
the principal amount on demand upon seven days' notice. The Portfolio will
invest primarily in municipal bonds rated at the time of purchase within the
four highest ratings assigned by Moody's, S&P or by Fitch Municipal Division
("Fitch") or, if unrated, which are of comparable quality in the opinion of
Quest for Value Advisors. See the Appendix to the SAI for a description of such
ratings and "Risk Factors-- Medium and Lower Rated and Unrated Securities" for a
description of certain risks associated with securities in the fourth highest
rating category. The Portfolio is not obligated to dispose of securities that
fall below such ratings due to changes made by the rating agencies subsequent to
purchase of the securities but will dispose of any such securities in order to
limit its holdings of securities rated below Baa by Moody's or BBB by S & P or
Fitch to no more than 5% of its net assets.

It is a fundamental policy of the Portfolio that under normal circumstances at
least 80% of its assets will be invested in Municipal Obligations. Also, at
least 65% of its assets will be invested in bonds. The Portfolio will not invest
more than 25% of its total assets in Municipal Obligations whose issuers are
located in the same state. The Portfolio will also not invest more than 25% of
its assets in private activity bonds of similar projects. It is possible that
the Portfolio from time to time will invest more than 25% of its assets in a
particular segment of the municipal securities market, such as hospital revenue
bonds, housing agency bonds, industrial development bonds or airport bonds, or
in securities the interest on which is paid from revenues of a similar type of
project. In such circumstances, economic, business, political or other changes
affecting one bond (such as proposed legislation affecting the financing of a
project; shortages or price increases of needed materials; or declining markets
or needs for the projects) might also affect other bonds in the same segment,
thereby potentially increasing market risk.

The Portfolio may invest without limit in private activity bonds, although it
does not currently expect to invest more than 20% of its total assets in private
activity bonds. Dividends attributable to interest income on certain types of
private activity bonds issued after August 7, 1986 to finance nongovernmental
activities are a specific tax preference item for purposes of the federal
individual and corporate alternative minimum tax.

When the Portfolio is maintaining a temporary defensive position, it may invest
in short term investments, some of which may not be tax exempt. Securities
eligible for short term investment by the Portfolio are tax exempt notes of
municipal issuers having, at the time of purchase, a

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<PAGE>
rating within the two highest grades of Moody's or S&P or, if not rated, having
an issue of outstanding Municipal Obligations rated within the three highest
grades by Moody's or S&P, and taxable short term instruments having quality
characteristics comparable to those for Municipal Obligations. The Portfolio may
invest in temporary investments for defensive reasons in anticipation of a
market decline. At no time will more than 20% of the Portfolio's total assets be
invested in temporary investments unless the Portfolio has adopted a defensive
investment policy. The Portfolio will purchase tax exempt temporary investments
pending the investment of the proceeds from the sale of the securities held by
the Portfolio or from the purchase of the Portfolio's shares by investors or in
order to have highly liquid securities available to meet anticipated
redemptions. To the extent that the Portfolio holds temporary investments, it
may not achieve its investment objective. The Portfolio may purchase securities
on a when-issued basis, lend its portfolio securities and purchase stock index
futures contracts and write options thereon. See "Certain Securities and
Investment Techniques."

The Portfolio is managed by Matthew Greenwald, Vice President of Oppenheimer
Capital, the parent of Quest for Value Advisors. Mr. Greenwald has been a fixed
income portfolio manager and financial analyst for Oppenheimer Capital since
1989. From 1984-1989 he was a fixed income portfolio manager with Paine Webber's
Mitchell Hutchins Asset Management.

LARGE CAPITALIZATION VALUE PORTFOLIO is advised by Quest for Value Advisors. The
Portfolio seeks, as its investment objective, total return consisting of capital
appreciation and dividend income by investing primarily in a diversified
portfolio of highly liquid equity securities that, in the Advisor's opinion,
have above average price appreciation potential at the time of purchase. For
purposes of the Portfolio's investment policies, equity securities consist of
common and preferred stock and securities such as bonds, rights and warrants
that are convertible into common stock. In general, these securities are
characterized as having above average dividend yields and below average price
earnings ratios relative to the stock market in general, as measured by the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"). Other
factors, such as earnings, the ability of the issuer to generate cash flow in
excess of business needs and to sustain above average profitability, as well as
industry outlook and market share, also are considered. Under normal conditions,
at least 80% of the Portfolio's assets will be invested in common stocks. No
less than 65% of the Portfolio's assets will be invested in common stocks of
issuers with total market capitalization of $1 billion or greater at the time of
purchase. The Portfolio may purchase temporary investments and purchase stock
index futures contracts and purchase and write options thereon. The Portfolio
also may lend its portfolio securities. See "Certain Securities and Investment
Techniques."

The Portfolio is managed by Eileen Rominger, Senior Vice President of
Oppenheimer Capital, the parent of Quest for Value Advisors. Ms. Rominger has
been an analyst and portfolio manager at Oppenheimer Capital since 1981.

LARGE CAPITALIZATION GROWTH PORTFOLIO is advised by Harris Bretall Sullivan &
Smith, Inc. ("Harris Bretall"). The Portfolio seeks capital appreciation by
investing primarily in a diversified portfolio of common stocks that, in the
Advisor's opinion, are characterized by a growth of earnings at a rate faster
than that of the S&P 500. Dividend income is an incidental consideration in the
selection of investments. In selecting securities for the Portfolio, the Advisor
evaluates factors believed to be favorable to long-term capital appreciation
including specific financial characteristics of the issuer such as historical
earnings growth, sales growth, profitability and return on equity. The Advisor
also analyzes the issuer's position within its industry as well as the quality
and experience of the issuer's management. Under normal conditions, at least 80%
of the Portfolio's assets will be invested in common stocks and at least 65% of
the Portfolio's assets will be invested in common stocks of issuers with total
market capitalization of $1 billion or greater at the time of purchase. Although
the Portfolio is authorized to purchase temporary investments and purchase stock
index futures contracts and purchase and

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<PAGE>
write options thereon, its Advisor has no present intention of using such
techniques during the coming year. The Portfolio also may lend its portfolio
securities. See "Certain Securities and Investment Techniques."

Stock selections for the Portfolio will be made by the Strategy and Investment
Committees of Harris Bretall. The Portfolio will be managed by Jack Sullivan and
Gordon Ceresino. Mr. Sullivan is a partner of Harris Bretall and has been
associated with the firm since 1981. Mr. Ceresino is a Vice President of Harris
Bretall and has been associated with the firm since 1991. Prior thereto, he was
Senior Vice President of Capitol Associates and was responsible for sales and
marketing.

SMALL CAPITALIZATION PORTFOLIO is advised by Axe-Houghton Associates, Inc. The
Portfolio seeks, as its investment objective, maximum capital appreciation.
Under normal conditions at least 80% of the Portfolio's assets will be invested
in common stocks, at least 65% of the Portfolio's assets will be invested in
common stock of issuers with total market capitalization of less than $1 billion
and at least one third of the Portfolio's assets will be invested in common
stocks of companies with total market capitalization of $550 million or less at
the time of purchase. Dividend income is not a consideration in the selection of
investments. In selecting investments for the Portfolio, the Advisor seeks small
capitalization growth companies that it believes are undervalued in the
marketplace. These companies typically are under-followed by investment firms
and undervalued relative to their growth prospects. The Portfolio may also
invest in companies that offer the possibility of accelerating earnings growth
due to internal changes such as new product introductions, synergistic
acquisitions or distribution channels or external changes affecting the
marketplace for the company's products and services. External factors can be
demographics, regulatory, legislative, technological, social or economic.
Although the Portfolio is authorized to purchase temporary investments and
purchase stock index futures contracts and purchase and write options thereon,
its Advisor has no present intention of using such techniques during the coming
year. The Portfolio also may lend its portfolio securities. See "Certain
Securities and Investment Techniques."

The Portfolio will be managed by Ellen Adnopoz, Robin Kerr and Porter Sutro. Ms.
Adnopoz and Ms. Kerr are Vice Presidents of Axe-Houghton and have been
associated with the firm since 1988. Mr. Sutro is a Vice President of
Axe-Houghton and has been associated with the firm since 1984. Ms. Adnopoz, Ms.
Kerr and Mr. Sutro will consult with Seth M. Lynn, Jr., the President and Chief
Executive Officer of Axe-Houghton about the Portfolio. Mr. Lynn has been with
the firm since 1984.

INTERNATIONAL EQUITY PORTFOLIO is advised by Ivory & Sime International, Inc.
The investment objective of the Portfolio is long-term capital appreciation. The
Portfolio ordinarily invests at least 80% of its assets in equity securities of
companies domiciled outside the United States. For purposes of the Portfolio's
investment policies, equity securities consist of common and preferred stock and
securities such as bonds, rights and warrants that are convertible into common
stock. The Portfolio has no present intention of investing in bonds other than
bonds convertible into common stock.

Under normal market conditions, at least 65% of the Portfolio's assets will be
invested in securities of issuers domiciled in at least three foreign countries.
The Portfolio may invest 25% or more of its total assets in securities of
issuers domiciled in one country. The Portfolio presently intends to invest more
than 25% of its total assets in Japan. As of June 30, 1994 securities of issuers
domiciled in Japan represented 37.2% of the Europe, Australia, Far East Index.
Accordingly, the investment performance of the Portfolio will be subject to
social, political and economic events occurring in Japan to a greater extent
than those occurring in other foreign countries. Investments may be made in
companies in developed as well as developing countries. It is the present
intention of the Portfolio not to invest more than 20% of its total assets in
securities of issuers located in developing countries. Investing in the equity
markets of developing countries involves exposure to economies that are
generally less diverse and mature, and to

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<PAGE>
political systems that can be expected to have less stability, than those of
developed countries. The Advisor attempts to limit exposure to investments in
developing countries where both liquidity and sovereign risks are high. Although
there is no established definition, a developing country is generally considered
to be a country that is in the initial stages of its industrialization cycle
with per capita gross national product of less than $5,000. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries, although securities traded in
the former markets have provided higher rates of return to investors. For a
discussion of the risks associated with investing in foreign securities, see
"Risk Factors--Foreign Securities."

It is expected that the Portfolio will invest primarily in securities of foreign
issuers in the form of American Depositary Receipts ("ADRs") or Global
Depositary Receipts ("GDRs"), which are U.S. dollar-denominated receipts, which
represent and may be converted into the underlying foreign security, typically
issued by domestic banks or trust companies that represent the deposit with
those entities of securities of a foreign issuer. Issuers of the stock of ADRs
or GDRs sponsored by banks or trust companies are not obligated to disclose
material information in the United States and therefore, there may not be a
correlation between such information and the market value of such ADRs or GDRs.
ADRs or GDRs are publicly traded on exchanges or over-the-counter in the United
States. The Portfolio may purchase temporary investments, lend its portfolio
securities and purchase stock index futures contracts and purchase and write
options thereon. See "Certain Securities and Investment Techniques."

The Portfolio will be managed by Noland Carter with the assistance of the
Investment Committee of Ivory & Sime plc and Ivory & Sime plc's geographic
teams. The Investment Committee will assist the portfolio manager with country
allocations and the firm's geographic teams will provide individual stock
selections, which may be modified by the portfolio manager. Mr. Carter has been
Senior Investment Officer-International Investments of Portfolio Management and
a member of the Investment Committee of Ivory & Sime plc since 1993. From 1990
to 1993 he was Executive Director of Investments for Johnson Capital Management
Ltd. Prior thereto, he was Head of International Specialist Equities for Mercury
Asset Management.

Except as indicated, the Portfolios' limitations on investments and investment
policies are non-fundamental and can be changed without a vote of shareholders.

CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

TEMPORARY INVESTMENTS. For temporary defensive purposes during periods when the
Advisor of a Portfolio, other than the U.S. Government Money Market Portfolio,
believes, with the concurrence of the Manager, that pursuing the Portfolio's
basic investment strategy may be inconsistent with the best interests of its
shareholders, the Portfolio may invest up to 100% of its assets in the following
money market instruments: U.S. Government Securities (including those purchases
in the form of custodial receipts), repurchase agreements, certificates of
deposit and bankers' acceptances issued by banks or savings and loan
associations having assets of at least $500 million as of the end of their most
recent fiscal year and high quality commercial paper. In addition, for the same
purposes the Advisor of the International Equity Portfolio may invest in
obligations issued or guaranteed by foreign governments or by any of their
political subdivisions, authorities, agencies or instrumentalities that are
rated at least AA by S&P or Aa by Moody's or, if unrated, are determined by the
Advisor to be of equivalent quality. See "Foreign Securities" below. Each
Portfolio also may hold a portion of its assets in money market instruments or
cash in amounts designed to pay expenses, to meet anticipated redemptions or
pending investments in accordance with its objectives and policies. Any
temporary investments may be purchased on a when-issued basis. A Portfolio's
investment in any other short term debt instruments would be subject to the
Portfolio's investment objectives and policies, and to approval by the Trust's
Board of Trustees.

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<PAGE>
The Portfolios are intended primarily as vehicles for the implementation of a
long term investment program utilizing asset allocation strategies rendered
through investment advisory programs that are based on an evaluation of an
investor's investment objectives and risk tolerance. Because these asset
allocation strategies are designed to spread investment risk across the various
segments of the securities markets through investment in a number of Portfolios,
each individual Portfolio generally intends to be substantially fully invested
in accordance with its investment objectives and policies during most market
conditions. Although the Advisor of a Portfolio may, upon the concurrence of the
Manager, take a temporary defensive position during adverse market conditions,
it can be expected that a defensive posture will be adopted less frequently than
would be by other mutual funds. This policy may impede an Advisor's ability to
protect a Portfolio's capital during declines in the particular segment of the
market to which the Portfolio's assets are committed. Consequently, no single
Portfolio should be considered a complete investment program. An investment
among the Portfolios should be regarded as a long term commitment that should be
held through several market cycles. In addition, although the investment
advisors for the Consulting Programs may recommend adjustments in the allocation
of assets among the Portfolios based on, among other things, anticipated market
trends, there can be no assurance that these recommendations can be developed,
transmitted and acted upon in a manner sufficiently timely to avoid market
shifts, which can be sudden and substantial. Participants in Consulting Programs
should note that responsibility for investment recommendations rests solely with
the investment advisor for the program or the client itself and not with the
Trust or the Manager. Investors intending to purchase Portfolio shares through
investment advisory programs should evaluate carefully whether the service is
ongoing and continuous, as well as their investment advisors' ability to
anticipate and respond to market trends.

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Each of the Portfolios
may engage in repurchase agreement and (except for the U.S. Government Money
Market Portfolio) reverse repurchase agreement transactions. Under the terms of
a typical repurchase agreement, a Portfolio would acquire an underlying debt
obligation for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase, and the Portfolio to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Portfolio's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Portfolio's
holding period. A Portfolio may enter into repurchase agreements with respect to
U.S. Government Securities with member banks of the Federal Reserve System and
certain non-bank dealers approved by the Board of Trustees. The International
Equity Portfolio will not engage in repurchase agreements with foreign brokers
or dealers. Under each repurchase agreement, the selling institution is required
to maintain the value of the securities subject to the repurchase agreement at
not less than their repurchase price. The Portfolio's Advisor, acting under the
supervision of the Board of Trustees, reviews on an ongoing basis the value of
the collateral and the creditworthiness of those non-bank dealers with whom the
Portfolio enters into repurchase agreements. A Portfolio will not invest in a
repurchase agreement maturing in more than seven days if the investment,
together with illiquid securities held by the Portfolio, exceeds 15% (10% for
the U.S. Government Money Market Portfolio) of the Portfolio's total assets. See
"Certain Investment Policies." In entering into a repurchase agreement, a
Portfolio bears a risk of loss in the event that the other party to the
transaction defaults on its obligations and the Portfolio is delayed or
prevented from exercising its right to dispose of the underlying securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which the Portfolio seeks to assert its rights
to them, the risk of incurring expenses associated with asserting those rights
and the risk of losing all or a part of the income from the agreement. Under a
reverse repurchase agreement, a Portfolio sells securities and agrees to
repurchase them at a mutually agreed date and price. At the time the Portfolio
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing liquid high grade
securities having a

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<PAGE>
value not less than the repurchase price (including accrued interest). Reverse
repurchase agreements involve the risk that the market value of the securities
retained in lieu of sale by the Portfolio may decline more than or appreciate
less than the securities the Portfolio has sold but is obligated to repurchase.
In the event the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
obligation to repurchase the securities and the Portfolio's use of the proceeds
of the reverse repurchase agreements may effectively be restricted pending such
decisions. Reverse repurchase agreements create leverage, a speculative factor,
and will be considered borrowings for purposes of a Portfolio's limitation on
borrowing.

U.S. GOVERNMENT SECURITIES. Each Portfolio may invest in U.S. Government
Securities, which are obligations issued or guaranteed by the U.S. Government,
its agencies, authorities or instrumentalities. Some U.S. Government Securities,
such as U.S. Treasury bills, Treasury notes and Treasury bonds, which differ
only in their interest rates, maturities and time of issuance, are supported by
the full faith and credit of the United States. Others are supported by: (i) the
right of the issuer to borrow from the U.S. Treasury, such as securities of the
Federal Home Loan Bank, (ii) the discretionary authority of the U.S. Government
to purchase the agency's obligations, such as securities of the FNMA; or (iii)
only the credit of the issuer, such as securities of the Student Loan Marketing
Association. No assurance can be given that the U.S. Government will provide
financial support in the future to U.S. Government agencies, authorities or
instrumentalities that are not supported by the full faith and credit of the
United States.

Securities guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities include: (i) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government or any of its agencies, authorities or
instrumentalities; and (ii) participation in loans made to foreign governments
or other entities that are so guaranteed. The secondary market for certain of
these participations is limited and, therefore, may be regarded as illiquid.

U.S. Government Securities may include zero coupon securities that may be
purchased when yields are attractive and/or to enhance portfolio liquidity. Zero
coupon U.S. Government Securities are debt obligations that are issued or
purchased at a significant discount from face value. The discount approximates
the total amount of interest the security will accrue and compound over the
period until maturity or the particular interest payment date at a rate of
interest reflecting the market rate of the security at the time of issuance.
Zero coupon U.S. Government Securities do not require the periodic payment of
interest. These investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. Government Securities
that make regular payments of interest. A Portfolio accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations, in which case the Portfolio will forego the purchase
of additional income producing assets with these funds. Zero coupon U.S.
Government Securities include STRIPS and CUBES, which are issued by the U.S.
Treasury as component parts of U.S. Treasury bonds and represent scheduled
interest and principal payments on the bonds.

CUSTODIAL RECEIPTS. Each Portfolio other than the U.S. Government Money Market
Portfolio may acquire custodial receipts or certificates, such as CATS, TIGRs
and FICO Strips, underwritten by securities dealers or banks that evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government, its agencies, authorities or
instrumentalities. The underwriters of these certificates or receipts purchase a
U.S. Government Security and deposit the security in an irrevocable trust or
custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership

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<PAGE>
of the periodic unmatured coupon payments and the final principal payment on the
U.S. Government Security. Custodial receipts evidencing specific coupon or
principal payments have the same general attributes as zero coupon U.S.
Government Securities, described above. Although typically under the terms of a
custodial receipt a Portfolio is authorized to assert its rights directly
against the issuer of the underlying obligation, the Portfolio may be required
to assert through the custodian bank such rights as may exist against the
underlying issuer. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, a Portfolio may be subject to delays,
expenses and risks that are greater than those that would have been involved if
the Portfolio had purchased a direct obligation of the issuer. In addition, in
the event that the trust or custodial account in which the underlying security
has been deposited is determined to be an association taxable as a corporation,
instead of a non-taxable entity, the yield on the underlying security would be
reduced in respect of any taxes paid.

LENDING PORTFOLIO SECURITIES. To generate income for the purpose of helping to
meet its operating expenses, each Portfolio other than the U.S. Government Money
Market Portfolio may lend securities to brokers, dealers and other financial
organizations. These loans, if and when made, may not exceed 33 1/3% of a
Portfolio's assets taken at value. A Portfolio's loans of securities will be
collateralized by cash, letters of credit or U.S. Government Securities. The
cash or instruments collateralizing a Portfolio's loans of securities will be
maintained at all times in a segregated account with the Portfolio's custodian,
or with a designated sub-custodian, in an amount at least equal to the current
market value of the loaned securities. In lending securities to brokers, dealers
and other financial organizations, a Portfolio is subject to risks, which, like
those associated with other extensions of credit, include delays in recovery and
possible loss of rights in the collateral should the borrower fail financially.
State Street arranges for each Portfolio's securities loans and manages
collateral received in connection with these loans. See "Management of the
Trust--Administration."

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, each Portfolio may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment of or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. A Portfolio will enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Portfolio
may include securities purchased on a "when, as and if issued" basis under which
the issuance of the securities depends on the occurrence of a subsequent event,
such as approval of a merger, corporate reorganization or debt restructuring.
The Portfolio will establish with its custodian, or with a designated
sub-custodian, a segregated account consisting of cash, U.S. Government
Securities or other liquid high grade debt obligations in an amount equal to the
amount of its when-issued or delayed-delivery purchase commitments.

Securities purchased on a when-issued or delayed-delivery basis may expose a
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. The Portfolio does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.

FIXED INCOME SECURITIES. The market value of fixed income obligations of the
Portfolios will be affected by general changes in interest rates which will
result in increases or decreases in the value of the obligations held by the
Portfolios. The market value of the obligations held by a Portfolio can be
expected to vary inversely to changes in prevailing interest rates. Investors
also should recognize that, in periods of declining interest rates, a
Portfolio's yield will tend to be somewhat higher than prevailing market rates
and, in periods of rising interest rates, a Portfolio's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to a Portfolio from the continuous sale of its shares will tend to be
invested in

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<PAGE>
instruments producing lower yields than the balance of its portfolio, thereby
reducing the Portfolio's current yield. In periods of rising interest rates, the
opposite can be expected to occur. In addition, securities in which a Portfolio
may invest may not yield as high a level of current income as might be achieved
by investing in securities with less liquidity, less creditworthiness or longer
maturities.

Ratings made available by S&P and Moody's are relative and subjective and are
not absolute standards of quality. Although these ratings are initial criteria
for the selection of portfolio investments, a Portfolio also will make its own
evaluation of these securities. Among the factors that will be considered are
the long term ability of the issuers to pay principal and interest and general
economic trends.

MUNICIPAL OBLIGATIONS. The term "Municipal Obligations" generally is understood
to include debt obligations issued to obtain funds for various public purposes,
the interest on which is, in the opinion of bond counsel to the issuer, excluded
from gross income for federal income tax purposes. In addition, if the proceeds
from private activity bonds are used for the construction, equipment, repair or
improvement of privately operated industrial or commercial facilities, the
interest paid on such bonds may be excluded from gross income for federal income
tax purposes, although current federal tax laws place substantial limitations on
the size of these issues.

The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or the specific revenue source, but not from the
general taxing power. Sizable investments in these obligations could involve an
increased risk to the Portfolio should any of the related facilities experience
financial difficulties. Private activity bonds are in most cases revenue bonds
and do not generally carry the pledge of the credit of the issuing municipality.
Included within the revenue bonds category are participations in lease
obligations or installment purchase contracts (hereinafter collectively called
"lease obligations") of municipalities. States and local agencies or authorities
issue lease obligations to acquire equipment and facilities.

Lease obligations may have risks not normally associated with general obligation
or other revenue bonds. Lease obligations and conditional sale contracts (which
may provide for title to the leased asset to pass eventually to the issuer),
have developed as a means for government issuers to acquire property and
equipment without the necessity of complying with the constitutional and
statutory requirements generally applicable for the issuance of debt. Certain
lease obligations contain "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purposes by the appropriate
legislative body on an annual or other periodic basis. Consequently, continued
lease payments on those lease obligations containing "non-appropriation" clauses
are dependent on future legislative actions. If such legislative actions do not
occur, the holders of the lease obligation may experience difficulty in
exercising their rights, including disposition of the property.

In addition, lease obligations may not have the depth of marketability
associated with other municipal obligations, and as a result, certain of such
lease obligations may be considered illiquid securities. To determine whether or
not the Municipal Bond Portfolio will consider such securities to be illiquid
(the Portfolio may not invest more than 15% of its net assets in illiquid
securities), the following guidelines have been established to determine the
liquidity of a lease obligation. The factors to be considered in making the
determination include: (1) the frequency of trades and quoted prices for the
obligation; (2) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed

~ 16 ~
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to dispose of the security, the method of soliciting offers, and the mechanics
of the transfer. There are, of course, variations in the security of Municipal
Obligations, both within a particular classification and between
classifications.

MORTGAGE RELATED SECURITIES. The Investment Quality Bond Portfolio may invest in
mortgage related securities including modified pass-through certificates. There
are several risks associated with mortgage related securities generally. One is
that the monthly cash inflow from the underlying loans may not be sufficient to
meet the monthly payment requirements of the mortgage related security.

Prepayment of principal by mortgagors or mortgage foreclosures will shorten the
term of the underlying mortgage pool for a mortgage related security. Early
returns of principal will affect the average life of the mortgage related
securities remaining in the Portfolio. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. In periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the average life of a pool of
mortgage related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of the Portfolio. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that the Portfolio will have to reinvest the proceeds of prepayments
at lower interest rates than those at which the assets were previously invested.
If this occurs, the Portfolio's yield will correspondingly decline. Thus,
mortgage related securities may have less potential for capital appreciation in
periods of falling interest rates than other fixed income securities of
comparable maturity, although these securities may have a comparable risk of
decline in market value in periods of rising interest rates. To the extent that
the Portfolio purchases mortgage related securities at a premium, unscheduled
prepayments, which are made at par, will result in a loss equal to any
unamortized premium.

The Investment Quality Bond Portfolio may invest in a type of mortgage-backed
security known as modified pass-through certificates. Each certificate evidences
an interest in a specific pool of mortgages that have been grouped together for
sale and provides investors with payments of interest and principal. The issuer
of modified pass-through certificates guarantees the payment of the principal
and interest whether or not the issuer has collected such amounts on the
underlying mortgage.

The average life of these securities varies with the maturities of the
underlying mortgage instruments (generally up to 30 years) and with the extent
of prepayments or the mortgages themselves. Any such prepayments are passed
through to the certificate holder, reducing the stream of future payments.
Prepayments tend to rise in periods of falling interest rates, decreasing the
average life of the certificate and generating cash which must be invested in a
lower interest rate environment. This could also limit the appreciation
potential of the certificates when compared to similar debt obligations which
may not be paid down at will, and could cause losses on certificates purchased
at a premium or gains on certificates purchased at a discount. Government
National Mortgage Association ("Ginnie Mae") certificates represent pools of
mortgages insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veteran's Administration. The guarantee of
payments under these certificates is backed by the full faith and credit of the
United States. Federal National Mortgage Association ("Fannie Mae") is a
government-sponsored corporation owned entirely by private stockholders. The
guarantee of payments under these instruments is that of Fannie Mae only. They
are not backed by the full faith and credit of the United States but the U.S.
Treasury may extend credit to Fannie Mae through discretionary purchases of its
securities. The U.S. Government has no obligation to assume the liabilities of
Fannie Mae. Federal Home Loan Mortgage Corp. ("Freddie Mac") is a corporate
instrumentality of the United States government whose stock is owned by the
Federal Home Loan Banks. Certificates issued by Freddie Mac

~ 17 ~
<PAGE>
represent interest in mortgages from its portfolio. Freddie Mac guarantees
payments under its certificates but this guarantee is not backed by the full
faith and credit of the United States and Freddie Mac does not have authority to
borrow from the U.S. Treasury.

The coupon rate of these instruments is lower than the interest rate on the
underlying mortgages by the amount of fees paid to the issuing agencies, usually
approximately 1/2 of 1%. Mortgage-backed securities, due to the scheduled
periodic repayment of principal, and the possibility of accelerated repayment of
underlying mortgage obligations, fluctuate in value in a different manner than
other, non-redeemable debt securities.

CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage related securities. Although the Portfolio is authorized to invest in
CMOs, it has no present intention of doing so.

FUTURES CONTRACTS AND RELATED OPTIONS. Each Portfolio other than the U.S.
Government Money Market Portfolio may enter into futures contracts and purchase
and write (sell) options on these contracts, including but not limited to
interest rate, securities index and foreign currency futures contracts and put
and call options on these futures contracts. These contracts will be entered
into only upon the concurrence of the Manager that such contracts are necessary
or appropriate in the management of the Portfolio's assets. These contracts will
be entered into on exchanges designated by the Commodity Futures Trading
Commission ("CFTC") or, consistent with CFTC regulations, on foreign exchanges.
These transactions may be entered into for bona fide hedging and other
permissible risk management purposes including protecting against anticipated
changes in the value of securities a Portfolio intends to purchase.

So long as Commodities Futures Trading Commission rules so require, a Portfolio
will not enter into any financial futures or options contract unless such
transactions are for bona-fide hedging purposes or for other purposes only if
the aggregate initial margins and premiums required to establish such
non-hedging positions would not exceed 5% of the liquidation value of the
Portfolio's total assets. All futures and options on futures positions will be
covered by owning the underlying security or segregation of assets. With respect
to long positions in a futures contract or option (e.g., futures contracts to
purchase the underlying instrument and call options purchased or put options
written on these futures contracts or instruments), the underlying value of the
futures contract at all times will not exceed the sum of cash, short term U.S.
debt obligations or other high quality obligations set aside in a segregated
account with the Trust's Custodian for this purpose.

A Portfolio may lose the expected benefit of these futures or options
transactions and may incur losses if the prices of the underlying commodities
move in an unanticipated manner. In addition, changes in the value of the
Portfolio's futures and options positions may not prove to be perfectly or even
highly correlated with changes in the value of its portfolio securities.
Successful use of futures and related options is subject to an Advisor's ability
to predict correctly movements in the direction of the securities markets
generally, which ability may require different skills and techniques than
predicting changes in the prices of individual securities. Moreover, futures and
options contracts may only be closed out by entering into offsetting
transactions on the exchange where the position was entered into (or a linked
exchange), and as a result of daily price fluctuation limits there can be no
assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Portfolio may realize
a loss on a futures contract or option that is not offset by an increase in the
value of its portfolio securities that are being hedged or a Portfolio may not
be able to close a futures or options position without incurring a loss in the
event of adverse price movements.

GOVERNMENT STRIPPED MORTGAGE RELATED SECURITIES. Although the Investment Quality
Bond Portfolio may invest in certain government stripped mortgage related
securities issued and guaranteed by GNMA, FNMA or FHLMC, it has no present
intention of doing so.

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<PAGE>
RISK FACTORS

MEDIUM AND LOWER RATED AND UNRATED SECURITIES. Securities rated in the fourth
highest category by S&P or Moody's, although considered investment grade, have
speculative characteristics, and changes in economic or other conditions are
more likely to impair the ability of issuers of these securities to make
interest and principal payments than is the case with respect to issuers of
higher grade bonds.

Subsequent to its purchase by a Portfolio, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Portfolio. Neither event will require sale of these securities by the
Portfolio, but the Advisor will dispose of any such securities in order to limit
the holdings by a Portfolio of securities rated below Baa by Moody's or BBB by S
& P to no more than 5% of its net assets. It is the intention of the Portfolios
to invest no more than 5% of their respective net assets in debt securities
rated below Baa by Moody's or BBB by S & P (commonly known as "high yield" or
"junk bonds").

NON-PUBLICLY TRADED SECURITIES. Each Portfolio may invest in non-publicly traded
securities, which may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Portfolios. In addition, companies whose securities are not publicly traded are
not subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded.

SMALL CAPITALIZATION COMPANIES. Smaller capitalization companies may experience
higher growth rates and higher failure rates than do larger capitalization
companies. Companies in which the Small Capitalization Portfolio is likely to
invest may have limited product lines, markets or financial resources and may
lack management depth. The trading volume of securities of smaller
capitalization companies is normally less than that of larger capitalization
companies and, therefore, may disproportionately affect their market price,
tending to make them rise more in response to buying demand and fall more in
response to selling pressure than is the case with larger capitalization
companies.

FOREIGN SECURITIES. All the Portfolios except for the U.S. Government Money
Market Portfolio and the Municipal Bond Portfolio may invest in foreign
securities. The Investment Quality Bond Portfolio and the Large Capitalization
Value Portfolio do not intend to invest more than 20% of their respective total
assets in foreign securities. The Large Capitalization Growth Portfolio and the
Small Capitalization Portfolio do not intend to purchase foreign securities in
an amount more than 5% of each Portfolio's total assets. The International
Equity Portfolio expects to invest at least 80% of its assets in foreign
securities. Investing in securities issued by foreign companies and governments
involves considerations and potential risks not typically associated with
investing in obligations issued by the U.S. Government and domestic
corporations. Less information may be available about foreign companies than
about domestic companies and foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
companies. The values of foreign investments are affected by changes in currency
rates or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions and
custody fees are generally higher than those charged in the United States, and
foreign securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the

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<PAGE>
United States, including expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards and potential difficulties in enforcing
contractual obligations and could be subject to extended clearance settlement
periods.

CURRENCY EXCHANGE RATES. A Portfolio's share value may change significantly when
the currencies, other than the U.S. dollar, in which the Portfolio's investments
are denominated strengthen or weaken against the U.S. dollar. Currency exchange
rates generally are determined by the forces of supply and demand in the foreign
exchange markets of investments in different countries as seen from an
international perspective. Currency exchange rates can also be affected
unpredictably by intervention by U.S. or foreign governments or central banks or
by currency controls or political developments in the United States or abroad.

FORWARD CURRENCY CONTRACTS. Each Portfolio that may invest in foreign
currency-denominated securities may hold currencies to meet settlement
requirements for foreign securities and may engage in currency exchange
transactions in order to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which the Portfolio's securities are or may be
denominated. Forward currency contracts are agreements to exchange one currency
for another--for example, to exchange a certain amount of U.S. dollars for a
certain amount of French francs at a future date. The date (which may be any
agreed-upon fixed number of days in the future), the amount of currency to be
exchanged and the price at which the exchange will take place will be negotiated
with a currency trader and fixed for the term of the contract at the time that
the Portfolio enters into the contract. To assure that a Portfolio's forward
currency contracts are not used to achieve investment leverage, the Portfolio
will segregate cash or high grade securities with its custodian in an amount at
all times equal to or exceeding the Portfolio's commitment with respect to these
contracts.

In hedging specific portfolio positions, a Portfolio may enter into a forward
contract with respect to either the currency in which the positions are
denominated or another currency deemed appropriate by the Portfolio's Advisor.
The amount the Portfolio may invest in forward currency contracts is limited to
the amount of the Portfolio's aggregate investments in foreign currencies. Risks
associated with entering into forward currency contracts include the possibility
that the market for forward currency contracts may be limited with respect to
certain currencies and, upon a contract's maturity, the inability of a Portfolio
to negotiate with the dealer to enter into an offsetting transaction. Forward
currency contracts may be closed out only by the parties entering into an
offsetting contract. In addition, the correlation between movements in the
prices of those contracts and movements in the price of the currency hedged or
used for cover will not be perfect. There is no assurance that an active forward
currency contract market will always exist. These factors will restrict a
Portfolio's ability to hedge against the risk of devaluation of currencies in
which a Portfolio holds a substantial quantity of securities and are unrelated
to the qualitative rating that may be assigned to any particular security. See
the Statement of Additional Information for further information concerning
forward currency contracts. See also "Certain Securities and Investment
Techniques--Futures Contracts and Related Options" on page 17 and "Certain
Investment Policies--Portfolio Turnover" on page 20.

CERTAIN INVESTMENT POLICIES

The Trust on behalf of each Portfolio has adopted certain investment
restrictions that are enumerated in detail in the Statement of Additional
Information. Among other restrictions, each Portfolio may not, with respect to
75% of its total assets taken at market value, invest more than 5% of its total
assets in the securities of any one issuer, except U.S. Government Securities,
or acquire more than 10% of any class of the outstanding voting securities of
any one issuer. In addition, except as described above with respect to the
Municipal Bond Portfolio, each Portfolio may not invest 25% or more of its total
assets in securities of issuers in any one industry. The Trust on behalf of a
Portfolio may borrow money as a temporary measure from banks in an

~ 20 ~
<PAGE>
aggregate amount not exceeding one-third of the value of the Portfolio's total
assets to meet redemptions and for other temporary or emergency purposes not
involving leveraging. A Portfolio may not purchase securities while borrowings
exceed 5% of the value of the Portfolio's assets. A Portfolio will not invest
more than 15% (10% with respect to the U.S. Government Money Market Portfolio)
of the value of its net assets in securities that are illiquid, including
certain government stripped mortgage related securities, repurchase agreements
maturing in more than seven days and that cannot be liquidated prior to maturity
and securities that are illiquid by virtue of the absence of a readily available
market. Securities that have legal or contractual restrictions on resale but
have a readily available market are deemed not illiquid for this purpose. The
Portfolios each may purchase securities which are not registered under the
Securities Act of 1933 ("1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act. Any such
security will not be considered illiquid so long as it is determined by the
Board of Trustees or the Portfolio's Adviser, acting under guidelines approved
and monitored by the Board, which has the ultimate responsibility for any
determination regarding liquidity, that an adequate trading market exists for
that security. This investment practice could have the effect of increasing the
level of illiquidity in each of the Portfolios during any period that qualified
institutional buyers become uninterested in purchasing these restricted
securities. The ability to sell to qualified institutional buyers under Rule
144A is a recent development and it is not possible to predict how this market
will develop. The Board will carefully monitor any investments by each of the
Portfolios in these securities.

To comply with state securities laws, each Portfolio has agreed to limit its
investments in restricted securities (excluding 144A securities) to 10% of their
respective total assets, to limit its investments in the securities of
unseasoned issuers, which have been in operation for less than three years
(including their predecessors), to no more than 5% of their respective assets
and to limit their aggregate investment in restricted securities (including 144A
securities) and unseasoned issuers to no more than 15% of their respective total
assets.

The investment restrictions listed above as well as the Portfolios' investment
objectives are fundamental policies and accordingly may not be changed with
respect to any Portfolio without the approval of a majority of the outstanding
shares of that Portfolio, as defined in the Investment Company Act of 1940 (the
"1940 Act"). Unless otherwise specifically stated, however, the investment
policies and practices of each Portfolio are not fundamental and may be changed
by the Board of Trustees.

PORTFOLIO TURNOVER

Active trading will increase a Portfolio's rate of turnover, certain transaction
expenses and the incidence of short term capital gains taxable as ordinary
income. An annual turnover rate of 100% would occur when all the securities held
by the Portfolio are replaced one time during a period of one year. The Advisor
of the International Equity Portfolio anticipates that the annual turnover in
that Portfolio will not be in excess of 100% during its first year of
operations. The Advisor of the Small Capitalization Portfolio anticipates that
the turnover in that Portfolio will not be in excess of 150% during its first
year of operations. The Advisors of each of the other Portfolios anticipate that
the annual turnover in those Portfolios will not exceed 80% during their first
year of operations. The U.S. Government Money Market Portfolio's turnover is
expected to be zero for regulatory reporting purposes.

MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES

Overall responsibility for management and supervision of the Trust and the
Portfolios rests with the Trust's Board of Trustees. The Trustees approve all
significant agreements between the Trust and the persons and companies that
furnish services to the Trust and the Portfolios,

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<PAGE>
including agreements with the Trust's distributor, custodian, transfer agent,
the Manager, Advisors and administrator. Two of the Trustees and all of the
Trust's executive officers are affiliated with the Manager, Quest for Value
Advisors and/or their affiliates. The Statement of Additional Information
contains background information regarding each Trustee and executive officer of
the Trust.

INVESTMENT MANAGER

Saratoga Capital Management, a registered investment advisor, located at 33
Maiden Lane, New York, NY 10038-4578, serves as the Trust's Manager.

Saratoga Capital Management is a Delaware general partnership which is owned by
certain executives of Saratoga Capital Management and by Oppenheimer Capital.
Oppenheimer Capital, which is also the parent of Quest for Value Advisors, has
been a registered investment advisor since 1968 with total assets under
management of approximately $28.8 billion on March 31, 1994.

The Trust has entered into an investment management agreement (the "Management
Agreement") with the Manager which, in turn, has entered into an advisory
agreement ("Advisory Agreement") with each Advisor selected for the Portfolios.
It is the Manager's responsibility to select, subject to the review and approval
of the Board of Trustees, the Advisors who have distinguished themselves by able
performance in their respective areas of expertise in asset management and to
review their continued performance.

Subject to the supervision and direction of the Trust's Board of Trustees, the
Manager provides to the Trust investment management evaluation services
principally by performing initial due diligence on prospective Advisors for each
Portfolio and thereafter monitoring Advisor performance. In evaluating
prospective Advisors, the Manager considers, among other factors, each Advisor's
level of expertise, relative performance and consistency of performance to
investment discipline or philosophy; personnel and financial strength; and
quality of service and client communications. The Manager has responsibility for
communicating performance expectations and evaluations to the Advisors and
ultimately recommending to the Board of Trustees of the Trust whether the
Advisors' contracts should be renewed, modified or terminated. The Manager
provides reports to the Board of Trustees regarding the results of its
evaluation and monitoring functions. The Manager is also responsible for
conducting all operations of the Trust except those operations contracted to the
Advisors, custodian, transfer agent and administrator. Each Portfolio pays the
Manager a fee for its services that is computed daily and paid monthly at the
annual rate specified below of the value of the average net assets of the
Portfolios. The Manager pays a portion of its fee to each Advisor for the
advisory services provided to the Portfolio that is computed daily and paid
monthly at the annual rate specified below of the value of the Portfolio's
average daily net assets:

<TABLE>
<CAPTION>
PORTION
OF THE
MANAGER'S
MANAGER'S FEE PAID
PORTFOLIO FEE TO THE ADVISOR
- ------------------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
U.S. Government Money Market Portfolio............................................... .475% .125%
Investment Quality Bond Portfolio.................................................... .55% .20%
Municipal Bond Portfolio............................................................. .55% .20%
Large Capitalization Value Portfolio................................................. .65% .30%
Large Capitalization Growth Portfolio................................................ .65% .30%
Small Capitalization Portfolio....................................................... .65% .30%
International Equity Portfolio....................................................... .75% .40%
</TABLE>

Investors should be aware that the Manager may be subject to a conflict of
interest when making decisions regarding the retention and compensation of
particular Advisors. However, the Manager's decisions, including the identity of
an Advisor and the specific amount of the

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<PAGE>
Manager's compensation to be paid to the Advisor, are subject to review and
approval by a majority of the Board of Trustees and separately by a majority of
the Trustees who are not affiliated with the Manager or any of its affiliates.
These decisions are also subject to the approval of the shareholders of the
Portfolio involved.

ADVISORS

The Advisors have agreed to the foregoing fees, which are generally lower than
the fees they charge to institutional accounts for which they serve as
investment advisor and perform all administrative functions associated with
serving in that capacity in recognition of the reduced administrative
responsibilities they have undertaken with respect to the Portfolios. Subject to
the supervision and direction of the Manager and, ultimately, the Board of
Trustees, each Advisor's responsibilities are to manage the securities held by
the Portfolio it serves in accordance with the Portfolio's stated investment
objective and policies, make investment decisions for the Portfolio and place
orders to purchase and sell securities on behalf of the Portfolio.

The following sets forth certain information about each of the Advisors:

Quest for Value Advisors ("Quest"), a registered investment adviser, located at
One World Financial Center, New York, NY 10281, serves as Advisor to the
Municipal Bond Portfolio and Large Capitalization Value Portfolio. Quest is a
majority owned subsidiary of Oppenheimer Capital, a registered investment
adviser, founded in 1968. Oppenheimer Financial Corp., a holding company, holds
a 33% interest in Oppenheimer Capital, and Oppenheimer Capital, L.P., a Delaware
limited partnership whose units are traded on the New York Stock Exchange and of
which Oppenheimer Financial Corp. is the sole general partner, owns the
remaining 67% interest. As of March 31, 1994 Quest had assets under management
of approximately $5.7 billion and Oppenheimer Capital and its subsidiary Quest
had assets under management of approximately $28.8 billion.

Fox Asset Management, Inc. ("Fox"), a registered investment adviser, serves as
Advisor to the Investment Quality Bond Portfolio. Fox was formed in 1985. Fox is
owned by its current employees, with a controlling interest held by J. Peter
Skirkanich, President, Managing Director and Chairman of Fox's Investment
Committee. Fox is located at 44 Sycamore Avenue, Little Silver, NJ 07739. As of
March 31, 1994, assets under management by Fox were approximately $1.1 billion.

Harris Bretall Sullivan & Smith, Inc. ("Harris Bretall"), a registered
investment advisor, serves as Advisor to the Large Capitalization Growth
Portfolio. The firm was founded in 1971 and is owned by W. Graeme Bretall,
President and Director, John J. Sullivan, Director and Treasurer and Henry
Smith, Director. Located at One Post Street, San Francisco, CA 94104, the firm
managed assets of approximately $2.7 billion as of March 31, 1994.

Axe-Houghton Associates, Inc. ("Axe-Houghton"), a registered investment adviser,
serves as Advisor to the Small Capitalization Portfolio. The firm was founded in
1984 and is a wholly-owned subsidiary of Hoenig Group Inc., a public company
whose subsidiaries are engaged in securities and investment management
activities. Axe-Houghton is located at Royal Executive Park, 4 International
Drive, Rye Brook, N.Y. 10573. As of March 31, 1994 assets under management at
Axe-Houghton were approximately $1.3 billion.

Sterling Capital Management Company ("Sterling"), a registered investment
adviser, is the Advisor to the U.S. Government Money Market Portfolio. Sterling
is a North Carolina corporation formed in 1970 and located at One First Union
Center, 301 S. College Street, Suite 3200, Charlotte, NC 28202. Sterling is a
wholly-owned subsidiary of United Asset Management Corporation and provides
investment management services to corporations, pension and profit-sharing
plans, trusts, estates and other institutions and individuals. As of March 31,
1994, Sterling had approximately $1.4 billion in assets under management. Since
1982, Sterling has

~ 23 ~
<PAGE>
been involved with the distribution of the North Carolina Capital Management
Trust, a money market mutual fund offered exclusively to public units in the
state, the first such fund to be registered with the Securities and Exchange
Commission. As of March 31, 1994 , the asset value of this fund was
approximately $1.4 billion.

Ivory & Sime International, Inc. ("ISI"), a registered investment adviser, is
the Advisor to the International Equity Portfolio and, in connection therewith,
has entered into a sub-investment advisory agreement with Ivory & Sime plc of
Edinburgh, Scotland. Pursuant to such sub-investment advisory agreement, Ivory &
Sime plc performs investment advisory and portfolio transaction services for
such Portfolio. While Ivory & Sime plc is responsible for the day-to-day
management of the Portfolio's assets, ISI reviews investment performance,
policies and guidelines, facilitates communication between Ivory & Sime plc and
the Manager and maintains certain books and records. As compensation for its
services as investment adviser, the Manager pays ISI a monthly fee at the annual
rate of .40% of the average daily net assets of the International Equity
Portfolio. As compensation for its services, Ivory & Sime plc receives from ISI
78% of the net monthly fees paid by the Manager to ISI pursuant to the
Investment Advisory Agreement between the Manager and ISI.

ISI was organized in 1978 with 50% of its voting stock owned by each of Jamison,
Eaton & Wood, Inc. and Ivory & Sime plc. ISI offers clients in the United States
the services of Ivory & Sime plc in global securities markets. Ivory & Sime plc,
founded in 1895, is one of the leading independent investment managers in the
United Kingdom. As of March 31, 1994, the firm and its affiliates managed in
excess of $5.8 billion of global equity investments. ISI is located at 39 Main
Street, Chatham, NJ 07928, and Ivory & Sime plc is located at 1 Charlotte
Square, Edinburgh, Scotland EH24DZ. Ivory & Sime plc is a public limited company
listed on the London Stock Exchange. As of July 29, 1994, approximately 26% of
Ivory & Sime's outstanding shares were held by Caledonia Investments.

ADMINISTRATION

State Street Bank and Trust Company ("State Street"), located at One Heritage
Drive, North Quincy, Massachusetts 02171, calculates the net asset value of the
Portfolios' shares and creates and maintains the Trust's financial records
required by Section 31 of the Investment Company Act of 1940.

Quest for Value Advisors provides administrative services and manages the
administrative affairs of the Trust pursuant to an Administration Agreement with
the Trust. Such services include the preparation of proxy statements and reports
filed with federal and state securities commissions (except to the extent that
the participation of independent accountants and attorneys is, in the opinion of
Quest for Value Advisors, necessary or desirable), preparation of materials for
regular and special meetings of the Board of Trustees of the Trust, responding
to shareholders' inquiries relating to the Trust and supervising the
determination of the net asset value of the Trust's Portfolios. For these
services, each Portfolio will pay Quest for Value Advisors an annual fee of
$42,000, provided that the Portfolio's average daily net assets do not exceed
$80 million. In the event that a Portfolio's average daily net assets exceed $80
million, an additional fee of .05% of average daily net assets in excess of $80
million shall be payable by the Portfolio.

EXPENSES OF THE PORTFOLIOS

Each Portfolio bears its own expenses, which generally include all costs not
specifically borne by the Manager, the Advisors, State Street and Quest for
Value Advisors as Administrator to the Trust. Included among a Portfolio's
expenses are: costs incurred in connection with the Portfolio's organization;
investment management and administration fees; fees for necessary professional
and brokerage services; fees for any pricing service; costs of the determination
of net asset value; the costs of regulatory compliance; and costs associated
with maintaining the Trust's

~ 24 ~
<PAGE>
legal existence and shareholder relations. The Trust's agreement with the
Manager provides that the Manager will reduce its fees to a Portfolio to the
extent required by applicable state laws for certain expenses that are described
in the Statement of Additional Information.

PORTFOLIO TRANSACTIONS

To the extent consistent with the applicable provisions of the 1940 Act and the
rules and exemptions adopted by the SEC under the 1940 Act, the Board of
Trustees of the Trust has determined that brokerage transactions for a Portfolio
may be executed through affiliated broker-dealers if, in the judgment of the
Advisor, the use of an affiliated broker-dealer is likely to result in price and
execution at least as favorable as those of other qualified broker-dealers. When
selecting broker-dealers, the Advisors may consider their record of sales of
shares of the Portfolios.

PURCHASE OF SHARES
GENERAL

Purchases of shares of a Portfolio by a participant in a Consulting Program must
be made through an entity having a sales agreement with Quest for Value
Distributors ("Consulting Brokers"), the Trust's general distributor and an
affiliate of the Manager and Quest for Value Advisors, or directly through Quest
for Value Distributors.

Shares of the Portfolio are available to participants in Consulting Programs and
to other investors and investment advisory services. The Trust is designed to
allow Consulting Programs and other investment advisory programs to relieve
investors of the burden of devising an asset allocation strategy to meet their
individual needs as well as selecting individual investments within each asset
category among the myriad choices available.

INVESTMENT ADVISORY PROGRAMS. Generally, the Consulting Programs provide
advisory services in connection with investments among the Portfolios by
identifying the investor's risk tolerance and investment objectives through
evaluation of an investor questionnaire; identifying and recommending an
appropriate allocation of assets among the Portfolios that conforms to such risk
tolerance and objectives in a recommendation; and providing on a periodic basis,
a report to the investor containing an analysis and evaluation of the investor's
account and recommending any appropriate changes in the allocation of assets
among the Portfolios. The investment advisors for the Consulting Programs are
also responsible for reviewing the asset allocation recommendations and
performance reports with the investor, providing any interpretations, monitoring
identified changes in the investor's financial characteristics and the
implementation of investment decisions.

The investment advisors in the Consulting Programs may use the Manager's
Saratoga SharpSM program in assisting their clients in translating investor
needs, preferences and attitudes into suggested portfolio allocations. In
addition, the Manager may provide some or all of the following administrative
services to the investment advisers for the Consulting Programs: the
preparation, printing and processing of investment questionnaires and investment
literature and other client communications.

The fee for the Consulting Programs is subject to negotiation between the client
and his or her investment advisor and is paid directly by each advisory client
to his or her investment advisor either by redemption of Portfolio shares or by
separate payment.

Investors should be aware that the Manager receives a fee from the investment
advisor to each participant in a Consulting Program for services rendered to the
investment advisor in connection with the investment advisory program. This fee
does not vary based on the Portfolios recommended for the participant's
investments. Also, the Manager serves as the Trust's Manager

~ 25 ~
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with responsibility for identifying, retaining, supervising and compensating
each Portfolio's Advisor under the supervision of the Trust's Board of Trustees
and receives a fee from each Portfolio. Although the portion of the fee paid by
each Portfolio that is retained by the Manager is the same for each Portfolio,
Quest for Value Advisors, an affiliate of the Manager, acts as the Advisor for
two of the Portfolios. Consequently, to the extent investors' funds are
allocated to such Portfolios, the Manager's affiliates will realize greater
financial benefits than if the funds were invested in Portfolios not advised by
Quest for Value Advisors.

OTHER ADVISORY PROGRAMS

Shares of the Portfolios are also available for purchase by certain registered
investment advisors (other than the investment advisors for the Consulting
Programs) as a means of implementing asset allocation recommendations based on
an investor's investment objectives and risk tolerance. In order to qualify to
purchase shares on behalf of its clients, the investment advisor must be
approved by the Manager. Investors purchasing shares through these investment
advisory programs will bear different fees for different levels of services as
agreed upon with the investment advisors offering the programs. Registered
investment advisors interested in utilizing the Portfolios for the purposes
described above should call 800-807-FUND (800-807-3863).

CONTINUOUS OFFERING

For participants in Consulting Programs, shares of the Portfolios may be
purchased from Consulting Brokers only after the completion and processing of
such documentation as may be required by the Consulting Broker for the Program.
The offering price is the net asset value per share next determined after
receipt of an order by Quest for Value Distributors. Shareholders will not
receive share certificates because the Trust does not issue share certificates.

The Trust offers an Automatic Investment Plan under which purchase orders may be
placed periodically for Portfolio shares in an amount not less than $100. The
purchase price is paid automatically from cash held in the shareholder's
designated account. For further information regarding the Automatic Investment
Plan, shareholders should contact their Consulting Broker or the Trust at
800-807-FUND (800-807-3863).

The minimum initial investment in the Trust is $10,000 and the minimum
investment in any individual Portfolio (other than the U.S. Government Money
Market Portfolio) is $250; there is no minimum investment for the U.S.
Government Money Market Portfolio. For employees of the Manager and its
affiliates and their relatives, the minimum initial investment is $1,000 with no
individual Portfolio minimum. There is no minimum initial investment for
employee benefit plans and individual retirement accounts. The minimum
subsequent investment in the Trust is $100 and there is no minimum subsequent
investment for any Portfolio. The Trust reserves the right at any time to vary
the initial and subsequent investment minimums.

The sale of shares will be suspended during any period when the determination of
net asset value is suspended and may be suspended by the Board of Trustees of
the Trust whenever the Board judges it to be in the best interest of the Trust
to do so. Quest for Value Distributors, in its sole discretion, may accept or
reject any purchase order.

Quest for Value Distributors will from time to time provide compensation to
dealers in connection with sales of shares of the Trust including promotional
gifts (including gift certificates, dinners and other items), financial
assistance to dealers in connection with conferences, sales or training programs
for their employees, seminars for the public and advertising campaigns.

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<PAGE>
REDEMPTION OF SHARES
REDEMPTION IN GENERAL

Shares of a Portfolio may be redeemed at no charge on any day that the Portfolio
calculates its net asset value as described below under "Net Asset Value."
Redemption requests received in proper form prior to the close of regular
trading on the NYSE will be effected at the net asset value per share determined
on that day. Redemption requests received after the close of regular trading on
the NYSE will be effected at the net asset value next determined. A Portfolio is
required to transmit redemption proceeds for credit to the shareholder's account
at no charge within seven days after receipt of a redemption request. A
shareholder who pays for Portfolio shares by personal check will be credited
with the proceeds of a redemption of those shares when the purchase check has
been collected, which may take up to 15 days. Shareholders who anticipate the
need for more immediate access to their investment should purchase shares by
Federal funds or bank wire or by a certified or cashier's check.

Redemption requests may be given to the shareholder's Consulting Broker who is
responsible for transmitting them to the Trust's Transfer Agent or directly to
the Transfer Agent, if the shareholder purchased shares directly from Quest for
Value Distributors. In order to be effective, a redemption request of a
shareholder other than an individual may require the submission of documents
commonly required to assure the safety of a particular account.

The agreement relating to participation in a Consulting Program between a client
and the investment advisor will provide that, absent separate payment by the
participant, fees charged pursuant to that agreement may be paid through
automatic redemptions of a portion of the participant's Trust account.

The Trust may suspend redemption procedures and postpone redemption payment
during any period when the NYSE is closed other than for customary weekend or
holiday closing or when the SEC has determined an emergency exists or has
otherwise permitted such suspension or postponement.

If the Board of Trustees determines that it would be detrimental to the best
interests of a Portfolio's shareholders to make a redemption payment wholly in
cash, the Portfolio may pay, in accordance with rules adopted by the SEC, any
portion of a redemption in excess of the lesser of $250,000 or 1% of the
Portfolio's net assets by a distributions in kind of readily marketable
portfolio securities in lieu of cash. Redemptions failing to meet this threshold
must be made in cash. Shareholders receiving distributions in kind of portfolio
securities may incur brokerage commissions when subsequently disposing of those
securities.

INVOLUNTARY REDEMPTIONS

Due to the relatively high cost of maintaining small accounts, the Trust may
redeem an account having a current value of $7,500 or less as a result of
redemptions, but not as a result of a fluctuation in a Portfolio's net asset
value or redemptions to pay fees for Consulting Programs, after the shareholder
has been given at least 30 days in which to increase the account balance to more
than that amount. Investors should be aware that involuntary redemptions may
result in the liquidation of Portfolio holdings at a time when the value of
those holdings is lower than the investor's cost of the investment or may result
in the realization of taxable capital gains.

NET ASSET VALUE

Each Portfolio's net asset value per share is calculated by State Street on each
day, Monday through Friday, except on days on which the NYSE is closed. The NYSE
is currently scheduled to

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<PAGE>
be closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas, and on the preceding
Friday when one of those holidays falls on a Saturday or on the subsequent
Monday when one of those holidays falls on a Sunday.

Net asset value per share is determined as of the close of trading on the NYSE
and is computed by dividing the value of a Portfolio's net assets by the total
number of its shares outstanding. Generally, a Portfolio's investments are
valued at market value or, in the absence of a market value, at fair value as
determined by or under the direction of the Board of Trustees.

Securities that are primarily traded on foreign exchanges are generally valued
for purposes of calculating a Portfolio's net asset value at the preceding
closing values of the securities on their respective exchanges, except that,
when an occurrence subsequent to the time a value was so established is likely
to have changed that value, the fair market value of those securities will be
determined by consideration of other factors by or under the direction of the
Board of Trustees. A security that is primarily traded on a domestic or foreign
stock exchange is valued at the last sale price on that exchange or, if no sales
occurred during the day, at the current quoted bid price. All portfolio
securities held by the U.S. Government Money Market Portfolio and short term
dollar-denominated investments of the other Portfolios that mature in 60 days or
less are valued on the basis of amortized cost (which involves valuing an
investment at its cost and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the effect of fluctuating
interest rates on the market value of the investment) when the Board of Trustees
has determined that amortized cost represents fair value. An option that is
written by the Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last offer price. An option that is
purchased by the Portfolio is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. The value of a futures
contact is equal to the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement price for a like
contract on the valuation date of the futures contract. A settlement price may
not be used if the market makes a limit move with respect to a particular
futures contract if the securities underlying the futures contract experience
significant price fluctuations after the determination of the settlement price.
When a settlement price cannot be used, futures contracts will be valued at
their fair market value as determined by or under the direction of the Board of
Trustees.

All assets and liabilities initially expressed in foreign currency values will
be converted into U.S. dollar values at the mean between the bid and offered
quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by or under the direction of by the
Board of Trustees. In carrying out the Board's valuation policies, State Street
may consult with an independent pricing service retained by the Trust. Further
information regarding the Portfolio's valuation policies is contained in the
Statement of Additional Information.

EXCHANGE PRIVILEGE

Shares of a Portfolio may be exchanged without payment of any exchange fee
(except as set forth below) for shares of another Portfolio at their respective
net asset values.

An exchange of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder, and an exchanging
shareholder may, therefore, realize a taxable gain or loss in connection with
the exchange. Shareholders exchanging shares of a Portfolio for shares of
another Portfolio should review the disclosure provided herein relating to the
exchanged-for shares carefully prior to making an exchange. The exchange
privilege is available to shareholders residing in any state in which Portfolio
shares being acquired may be legally sold.

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<PAGE>
The Manager reserves the right to reject any exchange request and the exchange
privilege may be modified or terminated upon notice to shareholders in
accordance with applicable rules adopted by the Securities and Exchange
Commission.

Quest for Value Distributors and the Trust's transfer agent will employ
reasonable procedures for telephone redemptions and exchanges to confirm that
the instructions received from shareholders or their account representatives are
genuine, and if they do not, Quest for Value Distributors or the transfer agent
may be liable for any losses due to unauthorized or fraudulent instructions.
Shareholders will be required to provide their name, address, social security
number and other identifying information. Account representatives must identify
themselves and their firm and Quest for Value Distributors will confirm that
such firm has a valid selling agreement with Quest for Value Distributors and
that the representative is authorized to act on behalf of the firm.

Because excessive trading (including short-term "market timing" trading can
limit a Portfolio's performance, each Portfolio may refuse any exchange orders
(1) if they appear to be market-timing transactions involving significant
portions of a Portfolio's assets or (2) from any shareholder account if the
shareholder or his or her broker-dealer has been advised that previous use of
the exchange privilege is considered excessive. Accounts under common ownership
or control, including those with the same taxpayer ID number and those
administered so as to redeem or purchase shares based upon certain predetermined
market indicators, will be considered one account for this purpose.

DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS

Net investment income (i.e., income other than long and short term capital
gains) and net realized long and short term capital gains will be determined
separately for each Portfolio. Dividends derived from net investment income and
distributions of net realized long and short term capital gains paid by a
Portfolio to a shareholder will be automatically reinvested (at current net
asset value) in additional shares of that Portfolio (which will be deposited in
the shareholder's account) unless the shareholder instructs the Trust, in
writing, to pay all dividends and distributions in cash. Dividends attributable
to the net investment income of the U.S. Government Money Market Portfolio, the
Municipal Bond Portfolio and the Investment Quality Bond Portfolio will be
declared daily and paid monthly. Shareholders of those Portfolios receive
dividends from the day following the purchase up to and including the date of
redemption. Dividends attributable to the net investment income of the remaining
Portfolios are declared and paid annually. Distributions of any net realized
long term and short term capital gains earned by a Portfolio will be made
annually.

TAXES

As each Portfolio will be treated as a separate entity for federal income tax
purposes, the amounts of net investment income and net realized capital gains
subject to tax will be determined separately for each Portfolio (rather than on
a Trust-wide basis).

Each Portfolio intends to qualify each year as a regulated investment company
for federal income tax purposes. The requirements for qualification (i) may
cause a Portfolio, among other things, to restrict the extent of its short term
trading or its transactions in warrants, currencies, options, futures or forward
contracts and (ii) will cause each of the Portfolios to maintain a diversified
asset portfolio.

A regulated investment company will not be subject to federal income tax on its
net investment income and its capital gains that it distributes to shareholders,
so long as it meets certain overall distribution requirements and other
conditions under the Code. Each Portfolio intends to satisfy

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<PAGE>
these overall distribution requirements and any other required conditions.
Dividends declared by a Portfolio in October, November or December of any
calendar year and payable to shareholders of record on a specified date in such
a month shall be deemed to have been received by each shareholder on December 31
of such calendar year and to have been paid by the Portfolio not later than such
December 31 provided that such dividend is actually paid by the Portfolio during
January of the following year.

Dividends derived from a Portfolio's taxable net investment income and
distributions of a Portfolio's net realized short term capital gains (including
short term gains from investments in tax exempt obligations) will be taxable to
shareholders as ordinary income for federal income tax purposes, regardless of
how long shareholders have held their Portfolio shares and whether the dividends
or distributions are received in cash or reinvested in additional shares.
Distributions of net realized long term capital gains will be taxable to
shareholders as long term capital gains for federal income tax purposes,
regardless of how long a shareholder has held his Portfolio shares and whether
the distributions are received in cash or reinvested in additional shares.
Dividends and distributions paid by the U.S. Government Money Market Portfolio,
the Investment Quality Bond Portfolio and the Municipal Bond Portfolio and
distributions of capital gains paid by all the Portfolios will not qualify for
the dividend received deduction for corporations. As a general rule, dividends
paid by a Portfolio, to the extent derived from dividends attributable to
certain types of stock issued by U.S. corporations, will qualify for the
dividend received deduction for corporations which hold shares in a Portfolio
for more than 45 days. Some states, if certain asset and diversification
requirements are satisfied, permit shareholders to treat their portions of a
Portfolio's dividends that are attributable to interest on U.S. Treasury
securities and certain U.S. Government Securities as income that is exempt from
state and local income taxes. Dividends attributable to repurchase agreement
earnings are, as a general rule, subject to state and local taxation.

Dividends paid by the Municipal Bond Portfolio that are derived from interest
earned on qualifying tax-exempt obligations are expected to be "exempt-interest"
dividends that shareholders may exclude from their gross incomes for federal
income tax purposes if the Portfolio satisfies certain asset percentage
requirements. To the extent that the Portfolio invest in bonds, the interest on
which is a specific tax preference item for federal income tax purposes
("AMT-Subject Bonds"), any exempt-interest dividends derived from interest on
AMT-Subject Bonds will be a specific tax preference item for purposes of the
federal individual and corporate alternative minimum taxes. Dividends
distributed by the Municipal Bond Portfolio may not be exempt from state or
local taxation. Shareholders will receive notification annually stating the
portion of the Municipal Bond Portfolio's tax-exempt income attributable to
issuers in each state. You should contact your tax advisor if you have any
questions, particularly with regard to state and local taxes.

Net investment income or capital gains earned by the Portfolios investing in
foreign securities may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries that entitle the Portfolios to a reduced rate of tax or exemption from
tax on this related income and gains. It is impossible to determine the
effective rate of foreign tax in advance since the amount of these Portfolios'
assets to be invested within various countries is not known. The Portfolios
intend to operate so as to qualify for treaty-reduced rates of tax where
applicable. Furthermore, if a Portfolio qualifies as a regulated investment
company, if certain distribution requirements are satisfied, and if more than
50% of the value of the Portfolio's assets at the close of the taxable year
consists of stock or securities of foreign corporations, the Portfolio may
elect, for U.S. federal income tax purposes, to treat foreign income taxes paid
by the Portfolio that can be treated as income taxes under U.S. income tax
principles as paid by its shareholders. The Trust anticipates that the
International Equity Portfolio will qualify for and make this election in most,
but not necessarily all, of its taxable years. If a Portfolio were to make an
election, an amount equal to the foreign income taxes paid

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<PAGE>
by the Portfolio would be included in the income of its shareholders and the
shareholders would be entitled to credit their portions of this amount against
their U.S. tax liabilities, if any, or to deduct such portions from their U.S.
taxable income, if any. Shortly after any year for which it makes an election, a
Portfolio will report to its shareholders, in writing, the amount per share of
foreign tax that must be included in each shareholder's gross income and the
amount which will be available for deduction or credit. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Certain
limitations will be imposed on the extent to which the credit (but not the
deduction) for foreign taxes may be claimed.

As noted above, shareholders who are participants in Consulting Programs or
other investment advisory services will pay an investment advisory fee out of
their own assets. For most shareholders who are individuals, this fee will be
treated as a "miscellaneous itemized deduction" for federal income tax purposes.
Under current federal income tax law, an individual's miscellaneous itemized
deductions for any taxable year shall be allowed as a deduction only to the
extent that the aggregate of these deductions exceeds 2% of adjusted gross
income.

As discussed above, an exchange of shares in a Portfolio for shares in another
Portfolio, including exchanges by participants in a Consulting Program, is
treated for federal income tax purposes as a redemption (sale) of shares and
taxable gain or loss may be realized.

Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Shareholders will also receive, if
appropriate, various written notices after the close of the Portfolios' taxable
year with respect to certain foreign taxes paid by the Portfolios and certain
dividends and distributions that were, or were deemed to be, received by
shareholders from the Portfolios during the Portfolios' prior taxable year.
Shareholders should consult with their own tax advisors with specific reference
to their own tax situations.

CUSTODIAN AND TRANSFER AGENT

State Street Bank and Trust Company is located at One Heritage Drive, North
Quincy, Massachusetts 02171 and serves as the Custodian of the Trust's
investments and the Trust's transfer agent. The Shareholder Services Group is
the subtransfer agent for certain retirement plan accounts. Cash balances of the
Portfolios with the Custodian in excess of $100,000 are unprotected by Federal
deposit insurance. Such uninsured balances may at times be substantial.

PERFORMANCE OF THE PORTFOLIOS
YIELD

The Trust may, from time to time, include the yield and effective yield of the
U.S. Government Money Market Portfolio in advertisements or reports to
shareholders or prospective investors. Current yield for the U.S. Government
Money Market Portfolio will be based on income received by a hypothetical
investment over a given seven-day period (less expenses accrued during the
period), and then "annualized" (i.e., assuming that the seven-day yield would be
received for 52 weeks, stated in terms of an annual percentage return on the
investment). "Effective yield" for the U.S. Government Money Market Portfolio
will be calculated in a manner similar to that used to calculate yield, but will
reflect the compounding effect of earnings on reinvested dividends.

For the Investment Quality Bond Portfolio and the Municipal Bond Portfolio, from
time to time, the Trust may advertise the thirty-day "yield" and, with respect
to the Municipal Bond Portfolio, an "equivalent taxable yield." The yield of a
Portfolio refers to the income generated by an investment in the Portfolio over
the thirty-day period identified in the advertisement and is computed by
dividing the net investment income per share earned by the Portfolio during the
period by the net asset value per share on the last day of the period. This
income is "annualized"

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by assuming that the amount of income is generated each month over a one-year
period and is compounded semi-annually. The annualized income is then shown as a
percentage of the net asset value.

EQUIVALENT TAXABLE YIELD

The equivalent taxable yield of the Municipal Bond Portfolio demonstrates the
yield on a taxable investment necessary to produce an after-tax yield equal to
the Portfolio's tax-exempt yield. It is calculated by increasing the yield shown
for the Portfolio, calculated as described above, to the extent necessary to
reflect the payment of specified tax rates. Thus, the equivalent taxable yield
always will exceed the Portfolio's yield.

TOTAL RETURN

From time to time, the Trust may advertise a Portfolio's (other than the U.S.
Government Money Market Portfolio's) "average annual total return" over various
periods of time. This total return figure shows the average percentage change in
value of an investment in the Portfolio from the beginning date of the measuring
period to the ending date of the measuring period. The figure reflects changes
in the price of the Portfolio's shares and assumes that any income, dividends
and/or capital gains distributions made by the Portfolio during the period are
reinvested in shares of the Portfolio. Figures will be given for recent one-,
five-and ten-year periods (if applicable) and may be given for other periods as
well (such as from commencement of the Portfolio's operations or on a
year-by-year basis). When considering "average" total return figures for periods
longer than one year, investors should note that Portfolio's annual total return
for any one year in the period might have been greater or less than the average
for the entire period. A Portfolio also may use "aggregate" total return figures
for various periods, representing the cumulative change in value of an
investment in the Portfolio for the specific period (again reflecting changes in
the Portfolio's share price and assuming reinvestment of dividends and
distributions). Aggregate total returns may be shown by means of schedules,
charts or graphs, and may indicate subtotals of the various components of total
return (that is, the change in value of initial investment, income dividends and
capital gains distributions).

It is important to note that yield and total return figures are based on
historical earnings and are not intended to indicate future performance. The
Statement of Additional Information describes the method used to determine a
Portfolio's yield and total return. Shareholders may make inquiries regarding a
Portfolio, including current yield quotations or total return figures, to any
Consulting Broker or the Trust at 800-807-FUND (800-807-3863).

In reports or other communications to shareholders or in advertising material, a
Portfolio may compare its performance with that of other mutual funds as listed
in the rankings prepared by Lipper Analytical Services, Inc., Morningstar or
similar independent services that monitor the performance of mutual funds or
with other appropriate indices of investment securities, such as the Lehman
Brothers Government/Corporate Bond Index, the S&P 500, the S&P/Barra Growth
Index and S&P/Barra Value Index, the EAFE Index and the Russell 2000 Index. The
performance information also may include evaluations of the Portfolios published
by nationally recognized ranking services and by financial publications that are
nationally recognized, such as BUSINESS WEEK, FORBES, FORTUNE, INSTITUTIONAL
INVESTOR, MORNINGSTAR, BARRON'S, INVESTOR'S BUSINESS DAILY, THE WALL STREET
JOURNAL, USA TODAY, THE NEW YORK TIMES and MONEY.

ADDITIONAL INFORMATION

The Trust was organized as an unincorporated business trust under the laws of
Delaware on April 8, 1994 and is a trust fund commonly known as a "business
trust."

The shareholders of the Portfolios are each entitled to a full vote for each
full share of beneficial interest (par value $.001 per share) held and
fractional votes for fractional shares. Shares of each

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Portfolio are entitled to vote as a class to the extent required by the
provisions of the Investment Company Act of 1940 or as otherwise permitted by
the Trustees. When issued, shares of each Portfolio are fully paid and have no
preemptive, conversion or other subscription rights. The shares do not have
cumulative voting rights.

It is the intention of the Trust not to hold Annual Meetings of Shareholders.
The Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Master Trust
Agreement. Shareholders have certain rights, including the right to call a
meeting upon a vote of the Trust's outstanding shares for the purpose of voting
on the removal of one or more Trustees. The Trust may from time to time add
additional Portfolios to the Trust or with approval of the shareholders of an
existing Portfolio, if necessary, terminate one or more of the Portfolios.

SHAREHOLDER INQUIRIES

All inquiries regarding the Trust should be directed to Saratoga Capital
Management at 800-807-FUND (800-807-3863).

Saratoga Capital Management provided the initial capital for the Trust by
purchasing 100,000 shares of the U.S. Government Money Market Portfolio of the
Trust for $100,000 on August 19, 1994 (constituting 100% of the outstanding
shares of the Trust) and may be deemed to control the Trust until such time as
it owns less than 25% of the outstanding shares of the Trust.

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<PAGE>
PROSPECTUS

LOGO

TRUST MANAGER:
SARATOGA CAPITAL MANAGEMENT
33 MAIDEN LANE
NEW YORK, NY 10038
(800) 807- FUND
(3863)

TRANSFER AGENT:
STATE STREET BANK AND TRUST COMPANY
BOSTON, MA

GENERAL DISTRIBUTOR:
QUEST FOR VALUE DISTRIBUTORS
P.O. BOX 3567
CHURCH STREET STATION
NEW YORK, NY 10277-1296
(800) 807- FUND
(3863)

( U.S. GOVERNMENT MONEY MARKET PORTFOLIO

( INVESTMENT QUALITY BOND PORTFOLIO

( MUNICIPAL BOND PORTFOLIO

( LARGE CAPITALIZATION VALUE PORTFOLIO

( LARGE CAPITALIZATION GROWTH PORTFOLIO

( SMALL CAPITALIZATION PORTFOLIO

( INTERNATIONAL EQUITY PORTFOLIO

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE TRUST'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF SHARES, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY
PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.