SARATOGA ADVANTAGE TRUST, 497, 1996-01-03

SARATOGA ADVANTAGE TRUST
497, 1996-01-03

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<PAGE>
LOGO

PROSPECTUS DATED DECEMBER 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 December 29, 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
----
<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 OpCap Advisors.

Equity Portfolios:

- -LARGE CAPITALIZATION VALUE PORTFOLIO, whose Advisor is OpCap 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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<PAGE>
supervised and compensated by the Manager. OpCap 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, OpCap 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 affiliate will realize greater
financial benefits than if the assets were allocated to Portfolios not advised
by OpCap 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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<PAGE>
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
MONEY MARKET QUALITY BOND MUNICIPAL BOND CAPITALIZATION
PORTFOLIO PORTFOLIO PORTFOLIO VALUE PORTFOLIO
---------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES........ NONE NONE NONE NONE
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees....................... .475% .55% .55% .65%
Distribution (Rule 12b-1 Expenses).... NONE NONE NONE NONE
Other Expenses........................ .65% .65% .65% .65%
------- ------ ------ ------
Total Operating Expenses.............. 1.125% 1.20% 1.20% 1.30%

<CAPTION>
LARGE SMALL INTERNATIONAL
CAPITALIZATION CAPITALIZATION EQUITY
GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
------------------- ----------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES........ NONE NONE NONE
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees....................... .65% .65% .75%
Distribution (Rule 12b-1 Expenses).... NONE NONE NONE
Other Expenses........................ .65% .65% .65%
------ ------ ------
Total Operating Expenses.............. 1.30% 1.30% 1.40%
</TABLE>

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

MANAGEMENT FEES AND OTHER 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 August 31, 1995,
the Manager waived its management fee and assumed certain operating expenses of
each Portfolio. Without such voluntary waivers and expense assumptions, 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>
1 year $ 11.47 $ 12.23 $ 12.23 $ 13.24
3 years 35.75 38.09 38.09 41.21
5 years 61.95 65.97 65.97 71.29
10 years 136.88 145.46 145.46 156.78

<CAPTION>
1 year $ 13.24 $ 13.24 $ 14.25
<S> <C> <C> <C>
3 years 41.21 41.21 44.32
5 years 71.29 71.29 76.59
10 years 156.78 156.78 167.98
</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 THE PERIOD)

The financial highlights listed below have been audited by KPMG Peat Marwick
LLP, independent auditors, whose unqualified report thereon appears in the SAI.
All the following information should be read in conjunction with the financial
statements and related notes there to appearing in the SAI. Further information
regarding the performance of each Portfolio is available in the Trust's Annual
Report. Annual Reports may be obtained without charge by calling the Trust at
(800) 807-FUND.

<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------ DIVIDENDS
NET REALIZED ------------
AND DIVIDENDS TO
NET ASSET UNREALIZED SHAREHOLDERS
VALUE, NET GAIN (LOSS) TOTAL FROM FROM NET NET ASSET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT VALUE, END
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME OF PERIOD
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SEPTEMBER 2,
1994(3) TO
AUGUST 31,
1995 $ 1.000(4) $ 0.052 $ 0.000 $ 0.052 ($0.052) $ 1.000

RATIOS
-----------------------------------------
RATIO OF NET RATIO OF NET
NET ASSETS OPERATING INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO
TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER
RETURN* (000'S) ASSETS ASSETS RATE
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SEPTEMBER 2,
1994(3) TO
AUGUST 31,
1995 5.36% $ 5,072 0.40%(1,2,5) 5.38%(1,2,5) --
</TABLE>

<CAPTION>
INVESTMENT QUALITY BOND PORTFOLIO
<S> <C> <C> <C> <C> <C>
SEPTEMBER 2,
1994(3) TO
AUGUST 31,
1995 7.12% $ 4,503 .45%(1,2,5) 5.77%(1,2,5) 18%
</TABLE>

<CAPTION>
MUNICIPAL BOND PORTFOLIO
<S> <C> <C> <C> <C> <C>
SEPTEMBER 2,
1994(3) TO
AUGUST 31,
1995 4.65% $ 1,477 0.37%(1,2,5) 4.79%(1,2,5) 27%
</TABLE>

<CAPTION>
LARGE CAPITALIZATION VALUE PORTFOLIO
<S> <C> <C> <C> <C> <C>
SEPTEMBER 2,
1994(3) TO
AUGUST 31,
1995 23.60% $ 5,515 0.40%(1,2,5) 2.29%(1,2,5) 33%
</TABLE>

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<PAGE>
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) (CONTINUED)
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------ DIVIDENDS
NET REALIZED ------------
AND DIVIDENDS TO
NET ASSET UNREALIZED SHAREHOLDERS
VALUE, NET GAIN (LOSS) TOTAL FROM FROM NET NET ASSET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT VALUE, END
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME OF PERIOD
<S> <C> <C> <C> <C> <C> <C>
LARGE CAPITALIZATION GROWTH PORTFOLIO
SEPTEMBER 2,
1994(3) TO
AUGUST 31,
1995 $ 10.00(4) $ 0.02 $ 2.85 $ 2.87 ($0.01) $ 12.86

RATIOS
-----------------------------------------
RATIO OF NET RATIO OF NET
NET ASSETS OPERATING INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO
TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER
RETURN* (000'S) ASSETS ASSETS RATE
<S> <C> <C> <C> <C> <C>
LARGE CAPITALIZATION GROWTH PORTFOLIO
SEPTEMBER 2,
1994(3) TO
AUGUST 31,
1995 28.77% $ 11,107 0.51%(1,2,5) 0.32%(1,2,5) 23%
</TABLE>

<CAPTION>
SMALL CAPITALIZATION PORTFOLIO
<S> <C> <C> <C> <C> <C>
SEPTEMBER 2,
1994(3) TO
AUGUST 31,
1995 26.38% $ 15,103 0.42%(1,2,5) 0.07%(1,2,5) 111%
</TABLE>

<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
<S> <C> <C> <C> <C> <C>
SEPTEMBER 2,
1994(3) TO
AUGUST 31,
1995 (6.61%) $ 2,907 0.38%(1,2,5) 1.03%(1,2,5) 36%
</TABLE>

(1) DURING THE PERIOD PRESENTED ABOVE, SARATOGA CAPITAL MANAGEMENT HAS
VOLUNTARILY WAIVED ALL OF ITS FEES AND ASSUMED A PORTION OF THE OPERATING
EXPENSES. IF SUCH WAIVERS AND ASSUMPTIONS 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 8.96% AND (7.55%), RESPECTIVELY.
- ----------------------------------
(2) AVERAGE DAILY NET ASSETS FOR THE PERIOD SEPTEMBER 2, 1994 (COMMENCEMENT OF
OPERATIONS) TO AUGUST 31, 1995 WERE $1,895,581, $1,595,477, $545,904,
$2,307,493, $3,412,058, $6,572,389 AND $1,469,003 FOR U.S. GOVERNMENT MONEY
MARKET, INVESTMENT QUALITY BOND, MUNICIPAL BOND, LARGE CAPITALIZATION VALUE,
LARGE CAPITALIZATION GROWTH, SMALL CAPITALIZATION AND INTERNATIONAL EQUITY,
RESPECTIVELY.
(3) COMMENCEMENT OF OPERATIONS.
(4) OFFERING PRICE.
(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 since 1993. 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 since 1993, and was previously with Acorn Asset
Management, serving as Vice President and portfolio manager.

MUNICIPAL BOND PORTFOLIO is advised by OpCap Advisors (formerly known as 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 16.

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
OpCap 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 rating within the two
highest grades of Moody's or S&P or, if not rated, having an issue of

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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 OpCap 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 PaineWebber's Mitchell
Hutchins Asset Management.

LARGE CAPITALIZATION VALUE PORTFOLIO is advised by OpCap 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, Managing Director of Oppenheimer
Capital, the parent of OpCap 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 is 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 is 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. 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
political systems that can be expected to have less stability, than those of
developed countries. The Advisor attempts to limit

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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 is 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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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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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

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<PAGE>
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 18 and "Certain
Investment Policies--Portfolio Turnover" on page 21.

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
(10% with respect to the Small Capitalization Portfolio) 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%. The Advisor of the Small
Capitalization Portfolio anticipates that the annual turnover in that Portfolio
will not be in excess of 150%. The Advisors of each of the other Portfolios
anticipate that the annual turnover in those Portfolios will not exceed 80%. 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,

~ 21 ~
<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, OpCap 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 OpCap Advisors, has been a
registered investment advisor since 1968 with total assets under management of
approximately $36.5 billion on November 30, 1995.

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

~ 22 ~
<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:

OpCap Advisors ("OpCap"), 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. OpCap 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 November 30, 1995 OpCap had assets under management of
approximately $4.4 billion and Oppenheimer Capital and its subsidiary OpCap had
assets under management of approximately $36.5 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
November 30, 1995, assets under management by Fox were approximately $2 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 $2.9 billion as of November 30, 1995.

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 November 30, 1995 assets under management at
Axe-Houghton were approximately $2.2 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 November
30, 1995, Sterling had approximately $1.6 billion in assets under management.
Since 1982, Sterling has been involved with the distribution of the North
Carolina Capital Management Trust, a money

~ 23 ~
<PAGE>
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
November 30, 1995, the asset value of this fund was approximately $1.8 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 November 30, 1995, the firm and its affiliates managed
approximately $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 November 30, 1995, 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.

OpCap 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
OpCap 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 pays OpCap 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 OpCap 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 legal

~ 24 ~
<PAGE>
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 OCC Distributors
("Consulting Brokers"), the Trust's general distributor and an affiliate of the
Manager and OpCap Advisors, or directly through OCC 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 ~
<PAGE>
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,
OpCap 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 OpCap 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 OCC Distributors (previously known as 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. OCC Distributors, in its sole discretion, may accept or reject any
purchase order.

OCC 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 OCC
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.

OCC 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, OCC 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 OCC Distributors will confirm that such firm has a
valid selling agreement with OCC 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 invests 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

~ 30 ~
<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"

~ 31 ~
<PAGE>
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."

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<PAGE>
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 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).

MAJOR SHAREHOLDERS

To the knowledge of the Trust, the only person who as of November 30, 1995 had
beneficial ownership of more than 25% of the voting securities of any of the
Portfolios is the American Medical Association Pension Trust which held 54% of
the outstanding shares of the Small Capitalization Portfolio and may be deemed
to control the Small Capitalization Portfolio until such time as it owns less
than 25% of the outstanding shares of the Small Capitalization Portfolio.

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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:
OCC 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.
<PAGE>

THE SARATOGA ADVANTAGE TRUST

STATEMENT OF ADDITIONAL INFORMATION

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

33 Maiden Lane
New York, New York 10038
800-807-FUND (800-807-3863).

This Statement of Additional Information (the "Additional Statement") is not a
Prospectus. Investors should understand that this Additional Statement should
be read in conjunction with the Trust's Prospectus dated December 29, 1995 (the
"Prospectus"), which may be obtained by written request to Saratoga Capital
Management at the address or phone listed above.

The date of this Additional Statement is December 29, 1995

<PAGE>

TABLE OF CONTENTS
Page

INVESTMENT OF THE TRUST'S ASSETS . . . . . . . . . . . . . . . . . . . . . . . 3

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .13

PRINCIPAL HOLDERS OF SECURITIES AND
CONTROL PERSONS OF THE PORTFOLIOS. . . . . . . . . . . . . . . . . . . . . . .15

TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

MANAGEMENT AND OTHER SERVICES. . . . . . . . . . . . . . . . . . . . . . . . .18

INVESTMENT ADVISORY SERVICES . . . . . . . . . . . . . . . . . . . . . . . . .20

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . .24

PORTFOLIO YIELD AND TOTAL RETURN INFORMATION . . . . . . . . . . . . . . . . .27

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

APPENDIX A - RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1

<PAGE>

INVESTMENT OF THE TRUST'S ASSETS

The investment objective and policies of each Portfolio are described in
the Prospectus. A further description of each Portfolio's investments and
investment methods appears below.

COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to securities issued by
Ginnie Mae, Fannie Mae and Freddie Mac, another type of mortgage-backed security
is the "collateralized mortgage obligation," which is secured by groups of
individual mortgages but is similar to a conventional bond where the investor
looks only to the issuer for payment of principal and interest. Although the
obligations are recourse obligations to the issuer, the issuer typically has no
significant assets, other than assets pledged as collateral for the obligations,
and the market value of the collateral, which is sensitive to interest rate
movements, may affect the market value of the obligations. A public market for
a particular collateralized mortgage obligation may or may not develop and thus,
there can be no guarantee of liquidity of an investment in such obligations.

INFORMATION ON TIME DEPOSITS AND VARIABLE RATE NOTES. The Portfolios may
invest in fixed time deposits, whether or not subject to withdrawal penalties;
however, investment in such deposits which are subject to withdrawal penalties,
other than overnight deposits, are subject to the 15% limit on illiquid
investments set forth in the Prospectus for each Portfolio.

The commercial paper obligations which the Portfolios may buy are unsecured
and may include variable rate notes. The nature and terms of a variable rate
note (i.e., a "Master Note") permit a Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to a direct arrangement between a Portfolio
as lender, and the issuer, as borrower. It permits daily changes in the amounts
borrowed. The Portfolio has the right at any time to increase, up to the full
amount stated in the note agreement, or to decrease the amount outstanding under
the note. The issuer may prepay at any time and without penalty any part of or
the full amount of the note. The note may or may not be backed by one or more
bank letters of credit. Because these notes are direct lending arrangements
between the Portfolio and the issuer, it is not generally contemplated that they
will be traded; moreover, there is currently no secondary market for them.
Except as specifically provided in the Prospectus there is no limitation on the
type of issuer from whom these notes will be purchased; however, in connection
with such purchase and on an ongoing basis, a Portfolio's Advisor will consider
the earning power, cash flow and other liquidity ratios of the issuer, and its
ability to pay principal and interest on demand, including a situation in which
all holders of such notes made demand simultaneously. A Portfolio will not
invest more than 5% of its total assets in variable rate notes. Variable rate
notes are subject to the Portfolio's investment restriction on illiquid
securities unless such notes can be put back to the issuer on demand within
seven days.

CONVERTIBLE SECURITIES. As specified in the Prospectus, certain of the
Portfolios may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).

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To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, the convertible security will sell at some premium over
its conversion value. (This premium represents the price investors are willing
to pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.) At such
times the price of the convertible security will tend to fluctuate directly with
the price of the underlying equity security. Convertible securities may be
purchased by the Portfolios at varying price levels above their investment
values and/or their conversion values in keeping with the Portfolios'
objectives.

INSURED BANK OBLIGATIONS. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits of federally insured banks and savings and loan
associations (collectively referred to as "banks") up to $100,000. A Portfolio
may, within the limits set forth in the Prospectus, purchase bank obligations
which are fully insured as to principal by the FDIC. Currently, to remain fully
insured as to principal, these investments must be limited to $100,000 per bank;
if the principal amount and accrued interest together exceed $100,000, the
excess principal and accrued interest will not be insured. Insured bank
obligations may have limited marketability. Unless the Board of Trustees
determines that a readily available market exists for such obligations, a
Portfolio will treat such obligations as subject to the 15% limit for illiquid
investments set forth in the Prospectus unless such obligations are payable at
principal amount plus accrued interest on demand or within seven days after
demand.

WHEN-ISSUED SECURITIES. All Portfolios may take advantage of offerings of
eligible portfolio securities on a "when-issued" basis, i.e., delivery of and
payment for such securities take place sometime after the transaction date on
terms established on such date. Normally, settlement on U.S. Government
securities takes place within ten days. A Portfolio only will make when-issued
commitments on eligible securities with the intention of actually acquiring the
securities. If a Portfolio chooses to dispose of the right to acquire a when-
issued security (prior to its acquisition), it could, as with the disposition of
any other Portfolio obligation, incur a gain or loss due to market fluctuation.
No when-issued commitments will be made if, as a result, more than 15% of the
net assets of a Portfolio would be so committed.

HEDGING. Certain Portfolios may use certain Hedging Instruments as
described, and subject to the restrictions stated, in the Prospectus. To engage
in short hedging, a Portfolio would: (i) sell financial futures, (ii) purchase
puts on such futures or on individual securities held by it ("Portfolio
securities") or securities indexes; or (iii) write calls on Portfolio securities
or on financial futures or securities indexes. To engage in long hedging, a
Portfolio would: (i) purchase financial futures, or (ii) purchase calls or write
puts on such futures or on Portfolio securities or securities indexes.
Additional information about the Hedging Instruments a Portfolio may use is
provided below.

FINANCIAL FUTURES. No price is paid or received upon the purchase of a
financial future. Upon entering into a futures transaction, a Portfolio will be
required to deposit an initial margin payment

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equal to a specified percentage of the contract value. Initial margin payments
will be deposited with a Portfolio's custodian bank in an account registered in
the futures commission merchant's name; however the futures commission merchant
can gain access to that account only under specified conditions. As the future
is marked to market to reflect changes in its market value, subsequent payments,
called variation margin, will be made to or from the futures commission merchant
on a daily basis. Prior to expiration of the future, if the Portfolio elects to
close out its position by taking an opposite position, a final determination of
variation margin is made, additional cash is required to be paid by or released
to the Portfolio, and any loss or gain is realized for tax purposes. Although
financial futures by their terms call for the actual delivery or acquisition of
the specified debt security, in most cases the obligation is fulfilled by
closing out the position. All futures transactions are effected through a
clearing house associated with the exchange on which the contracts are traded.
At present, no Portfolio intends to enter into financial futures and options on
such futures if after any such purchase, the sum of initial margin deposits on
futures and premiums paid on futures options would exceed 5% of a Portfolio's
total assets. This limitation is not a fundamental policy.

ADDITIONAL INFORMATION ON PUTS AND CALLS. When a Portfolio writes a call,
it receives a premium and agrees to sell the callable securities to a purchaser
of a corresponding call during the call period (usually not more than 9 months)
at a fixed exercise price (which may differ from the market price of the
underlying securities) regardless of market price changes during the call
period. If the call is exercised, the Portfolio forgoes any possible profit
from an increase in market price over the exercise price. A Portfolio may, in
the case of listed options, purchase calls in "closing purchase transactions" to
terminate a call obligation. A profit or loss will be realized, depending upon
whether the net of the amount of option transaction costs and the premium
received on the call written is more or less than the price of the call
subsequently purchased. A profit may be realized if the call lapses
unexercised, because the Portfolio retains the underlying security and the
premium received. Sixty percent of any such profits are considered long-term
gains and forty percent are considered short-term gains for tax purposes. If,
due to a lack of a market, a Portfolio could not effect a closing purchase
transaction, it would have to hold the callable securities until the call lapsed
or was exercised. A Portfolio's Custodian, or a securities depository acting
for the Custodian, will act as the Portfolio's escrow agent, through the
facilities of the Options Clearing Corporation ("OCC") in connection with listed
calls, as to the securities on which the Portfolio has written calls, or as to
other acceptable escrow securities, so that no margin will be required for such
transactions. OCC will release the securities on the expiration of the calls or
upon the Portfolio's entering into a closing purchase transaction.

When a Portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period (or on a certain date for OTC options) at a fixed exercise
price. A Portfolio benefits only if the call is sold at a profit or if, during
the call period, the market price of the underlying investment is above the call
price plus the transaction costs and the premium paid for the call and the call
is exercised. If a call is not exercised or sold (whether or not at a profit),
it will become worthless at its expiration date and the Portfolio will lose its
premium payment and the right to purchase the underlying investment.

With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the Portfolio and the transacting dealer,
without the intermediation of a third

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party such as the OCC. If a transacting dealer fails to make delivery on the
U.S. Government securities underlying an option it has written, in accordance
with the terms of that option as written, a Portfolio could lose the premium
paid for the option as well as any anticipated benefit of the transaction. The
Portfolios will engage in OTC option transactions only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York. In the event that any OTC option transaction is not subject to a forward
price at which the Portfolio has the absolute right to repurchase the OTC option
which it has sold, the value of the OTC option purchased and of the Portfolio
assets used to "cover" the OTC option will be considered "illiquid securities"
and will be subject to the 15% limit on illiquid securities. The "formula" on
which the forward price will be based may vary among contracts with different
primary dealers, but it will be based on a multiple of the premium received by
the Portfolio for writing the option plus the amount, if any, of the option's
intrinsic value, i.e., current market value of the underlying securities minus
the option's strike price.

A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period (or on a certain date for OTC options). The investment
characteristics of writing a put covered by segregated liquid assets equal to
the exercise price of the put are similar to those of writing a covered call.
The premium paid on a put written by a Portfolio represents a profit, as long as
the price of the underlying investment remains above the exercise price.
However, a Portfolio has also assumed the obligation during the option period to
buy the underlying investment from the buyer of the put at the exercise price,
even though the value of the investment may fall below the exercise price. If
the put expires unexercised, the Portfolio (as writer) realizes a gain in the
amount of the premium. If the put is exercised, the Portfolio must fulfill its
obligation to purchase the underlying investment at the exercise price, which
will usually exceed the market value of the investment at that time. In that
case, the Portfolio may incur a loss upon disposition, equal to the sum of the
sale price of the underlying investment and the premium received minus the sum
of the exercise price and any transaction costs incurred.

When writing put options, to secure its obligation to pay for the
underlying security, a Portfolio will maintain in a segregated account at its
Custodian liquid assets with a value equal to at least the exercise price of the
option. As a result, the Portfolio forgoes the opportunity of trading the
segregated assets or writing calls against those assets. As long as the
Portfolio's obligation as a put writer continues, the Portfolio may be assigned
an exercise notice by the broker-dealer through whom such option was sold,
requiring the Portfolio to purchase the underlying security at the exercise
price. A Portfolio has no control over when it may be required to purchase the
underlying security, since it may be assigned an exercise notice at any time
prior to the termination of its obligation as the writer of the put. This
obligation terminates upon the earlier of the expiration of the put, or the
consummation by the Portfolio of a closing purchase transaction by purchasing a
put of the same series as that previously sold. Once a Portfolio has been
assigned an exercise notice, it is thereafter not allowed to effect a closing
purchase transaction.

A Portfolio may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying security
from being put to it. Furthermore, effecting such a closing purchase
transaction will permit the Portfolio to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments by the
Portfolio. The Portfolio will realize a profit or loss from a

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closing purchase transaction if the cost of the transaction is less or more than
the premium received from writing the option.

When a Portfolio purchases a put, it pays a premium and has the right to
sell the underlying investment at a fixed exercise price to a seller of a
corresponding put on the same investment during the put period if it is a listed
option (or on a certain date if it is an OTC option). Buying a put on
securities or futures held by it permits a Portfolio to attempt to protect
itself during the put period against a decline in the value of the underlying
investment below the exercise price. In the event of a decline in the market,
the Portfolio could exercise, or sell the put option at a profit that would
offset some or all of its loss on the Portfolio securities. If the market price
of the underlying investment is above the exercise price and as a result, the
put is not exercised, the put will become worthless at its expiration date and
the purchasing Portfolio will lose the premium paid and the right to sell the
underlying securities; the put may, however, be sold prior to expiration
(whether or not at a profit). Purchasing a put on futures or securities not
held by it permits a Portfolio to protect its Portfolio securities against a
decline in the market to the extent that the prices of the future or securities
underlying the put move in a similar pattern to the prices of the securities in
the Portfolio's portfolio.

An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. A Portfolio's
option activities may affect its turnover rate and brokerage commissions. The
exercise of calls written by a Portfolio may cause the Portfolio to sell from
its Portfolio securities to cover the call, thus increasing its turnover rate in
a manner beyond the Portfolio's control. The exercise of puts on securities or
futures will increase portfolio turnover. Although such exercise is within the
Portfolio's control, holding a put might cause a Portfolio to sell the
underlying investment for reasons which would not exist in the absence of the
put. A Portfolio will pay a brokerage commission every time it purchases or
sells a put or a call or purchases or sells a related investment in connection
with the exercise of a put or a call.

REGULATORY ASPECTS OF HEDGING INSTRUMENTS. Transactions in options by a
Portfolio are subject to limitations established (and changed from time to time)
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which a Portfolio may write or hold may be affected by options written or held
by other investment companies and discretionary accounts of the Portfolio's
Advisor, including other investment companies having the same or an affiliated
investment adviser. An exchange may order the liquidation of positions found to
be in violation of those limits and may impose certain other sanctions.

Due to requirements under the Act when a Portfolio sells a future, it will
maintain in a segregated account or accounts with its custodian bank, cash or
readily marketable short-term (maturing in one year or less) debt instruments in
an amount equal to the market value of such future, less the margin deposit
applicable to it.

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The Trust and each Portfolio must operate within certain restrictions as to
its positions in futures and options thereon under a rule ("CFTC Rule") adopted
by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Trust and each Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined under the
CEA). Under those restrictions, a Portfolio may 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 its assets. Each Portfolio may use futures and options
thereon for bona fide hedging or for other purposes within the meaning and
intent of the applicable provisions of the CEA.

TAX ASPECTS OF HEDGING INSTRUMENTS. Each Portfolio in the Trust intends to
qualify as a "regulated investment company" under the Internal Revenue Code.
One of the tests for such qualification is that at least 90% of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of securities. Another test is that less than 30% of its gross
income must be derived from gains realized on the sale of securities held for
less than three months. In connection with the 90% test, recent amendments to
the Internal Revenue Code specify that income from options, futures and other
gains derived from investments in securities is qualifying income under the 90%
test. Due to the 30% limitation, each Portfolio will limit the extent to which
it engages in the following activities, but will not be precluded from them: (i)
selling investments, including futures, held for less than three months, whether
or not they were purchased on the exercise of a call held by the Portfolio; (ii)
writing or purchasing calls on investments held less than three months; (iii)
purchasing calls or puts which expire in less than three months; (iv) effecting
closing transactions with respect to calls or puts purchased less than three
months previously; and (v) exercising puts or calls held by a Portfolio for less
than three months.

Regulated futures contracts, options on broad-based stock indices, options
on stock index futures, certain other futures contracts and options thereon
(collectively, "Section 1256 contracts") held by a Portfolio at the end of each
taxable year may be required to be "marked to market" for federal income tax
purposes (that is, treated as having been sold at that time at market value).
Any unrealized gain or loss taxed pursuant to this rule will be added to
realized gains or losses recognized on Section 1256 contracts sold by a
Portfolio during the year, and the resulting gain or loss will be deemed to
consist of 60% long-term capital gain or loss and 40% short-term capital gain or
loss. A Portfolio may elect to exclude certain transactions from the mark-to-
market rule although doing so may have the effect of increasing the relative
proportion of short-term capital gain (taxable as ordinary income) and/or
increasing the amount of dividends that must be distributed annually to meet
income distribution requirements, currently at 98%.

It should also be noted that under certain circumstances, the acquisition
of positions in hedging instruments may result in the elimination or suspension
of the holding period for tax purposes of other assets held by a Portfolio with
the result that the relative proportion of short-term capital gains (taxable as
ordinary income) could increase and the amount of dividends qualifying for the
dividends received deduction could decrease.

<PAGE>

POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks with respect to
futures and options discussed in the Prospectus and above, there is a risk in
selling futures that the prices of futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a Portfolio's securities.
The ordinary spreads between prices in the cash and futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions.

When a Portfolio uses appropriate Hedging Instruments to establish a
position in the market as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures or on a
particular security, it is possible that the market may decline. If the
Portfolio then concludes not to invest in such securities at that time because
of concerns as to possible further market decline or for other reasons, it will
realize a loss on the Hedging Instruments that is not offset by a reduction in
the price of the securities purchased.

TYPE OF SECURITIES IN WHICH THE INTERNATIONAL EQUITY PORTFOLIO MAY INVEST.
As discussed in the Prospectus, the International Equity Portfolio seeks to
achieve its investment objectives through investment primarily in equity
securities. It is expected that the Portfolio will invest principally in
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and
European Depositary Receipts ("EDRs") although it also may invest directly in
equity securities. Generally, ADRs and GDRs in registered form are U.S. dollar
denominated securities designed for use in the U.S. securities markets, which
represent and may be converted into the underlying foreign security. EDRs are
typically issued in bearer form and are designed for use in the European
securities markets. Issuers of the stock of ADRs not sponsored by such
underlying issuers 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. The Portfolio also may purchase
shares of investment companies or trusts which invest principally in securities
in which the Portfolio is authorized to invest. The return on the Portfolio's
investments in investment companies will be reduced by the operating expenses,
including investment advisory and administrative fees, of such companies. The
Portfolio's investment in an investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company thereafter may decline without any change
in the value of the investment company's assets. The Portfolio will not invest
in any investment company or trust unless it is believed that the potential
benefits of such investment are sufficient to warrant the payment of any such
premium. Under the Act, the Portfolio may not invest more than 10% of its
assets in investment companies or more than 5% of its total assets in the
securities of any one investment company, nor may it own more than 3% of the
outstanding voting securities of any such company. To the extent the Portfolio
invests in securities in bearer form it may be more difficult to recover
securities in the event such securities are lost or stolen.

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If the Portfolio invests in an entity which is classified as a "passive
foreign investment company" ("PFIC") for U.S. tax purposes, the application of
certain technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the
Portfolio level which could not be eliminated by distributions to shareholders.
The U.S. Treasury has issued proposed regulations which establish a mark-to-
market regime that allows a regulated investment company ("RIC") to avoid most,
if not all, of the difficulties posed by the PFIC rules. In any event, it is
not anticipated that any taxes on the Portfolio with respect to investments in
PFIC's would be significant.

PRIVATE PLACEMENTS. The Portfolios may invest in securities which are
subject to restriction on resale because they have not been registered under the
Securities Act of 1933, or which are otherwise not readily marketable. These
securities are generally referred to as private placements or restricted
securities. Limitations on the resale of such securities may have an adverse
effect on their marketability, and may prevent the Portfolios from disposing of
them promptly at reasonable prices. A Portfolio may have to bear the expense of
registering such securities for resale and risk the substantive delays in
effecting such registration. However, as described in the Prospectus, the
Portfolios may avail themselves of recently adopted regulatory changes to the
Securities Act of 1933 ("Rule 144A") which permit the Portfolios to purchase
securities which have been privately placed and resell such securities to
certain qualified institutional buyers without restriction. Since it is not
possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Board of Trustees
will carefully monitor the Portfolios' investments in these securities, focusing
on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Portfolios to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these restricted securities.

Securities of foreign issuers often have not been registered in the U.S.
Accordingly, if a Portfolio wishes to sell unregistered foreign securities in
the U.S. it will avail itself of Rule 144A.

FOREIGN CURRENCY TRANSACTIONS. When a Portfolio agrees to purchase or sell
a security in a foreign market it will generally be obligated to pay or entitled
to receive a specified amount of foreign currency and will then generally
convert dollars to that currency in the case of a purchase or that currency to
dollars in the case of a sale. The Portfolios will conduct their foreign
currency exchange transactions either on a spot basis (i.e., cash) at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward foreign currency contracts ("forward contracts") to purchase or
sell foreign currencies. A Portfolio may enter into forward contracts in order
to lock in the U.S. dollar amount it must pay or expects to receive for a
security it has agreed to buy or sell. A Portfolio may also enter into forward
currency contracts with respect to the Portfolio's portfolio positions when it
believes that a particular currency may change unfavorably compared to the U.S.
dollar. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large, commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.

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A Portfolio's custodian bank will place cash, U.S. Government securities or
debt securities in a separate account of the Portfolio in an amount equal to the
value of the Portfolio's total assets committed to the consummation of any such
contract in such account and if the value of the securities placed in the
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Portfolio's commitments with respect to such forward contracts. If,
rather than cash, portfolio securities are used to secure such a forward
contract, on the settlement of the forward contract for delivery by the
Portfolio of a foreign currency, the Portfolio may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same settlement date, the same amount of foreign currency.

The Portfolios may effect currency hedging transactions in foreign currency
futures contracts, exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies. The use of
forward futures or options contracts will not eliminate fluctuations in the
underlying prices of the securities which the Portfolios own or intend to
purchase or sell. They simply establish a rate of exchange for a future point
in time. Additionally, while these techniques tend to minimize the risk of loss
due to a decline in the value of the hedged currency, their use tends to limit
any potential gain which might result from the increase in value of such
currency. In addition, such transactions involve costs and may result in
losses.

Although each Portfolio values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the spread between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.

Under Internal Revenue Code Section 988, special rules are provided for
certain transactions in a currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from forward contracts,
futures contracts that are not "regulated futures contracts", and from unlisted
options will be treated as ordinary income or loss under Code Section 988.
Also, certain foreign exchange gains or losses derived with respect to fixed-
income securities are also subject to Section 988 treatment. In general,
therefore, Code Section 988 gains or losses will increase or decrease the amount
of the Portfolio's investment company taxable income available to be distributed
to shareholders as ordinary income, rather than increasing or decreasing the
amount of the Portfolio's net capital gain. Additionally, if Code Section 988
losses exceed other investment company taxable income during a taxable year, a
Portfolio would not be able to make any ordinary income distributions.

FOREIGN CUSTODY. Rules adopted under the Act permit each Portfolio to
maintain its securities and cash in the custody of certain eligible banks and
securities depositories. The Portfolios' portfolios of securities of issuers
located outside of the U.S. will be held by their sub-custodians who will be

<PAGE>

approved by the Trustees in accordance with such Rules. Such determination will
be made pursuant to such Rules following a consideration of a number of factors,
including, but not limited to, the reliability and financial stability of the
institution; the ability of the institution to perform custodial services for
the Trust; the reputation of the institution in its national market; the
political and economic stability of the country in which the institution is
located; and the risks of potential nationalization or expropriation of the
Portfolio's assets. However, no assurances can be given that the Trustees'
appraisal of the risks in connection with foreign custodial arrangements will
always be correct or that expropriation, nationalization, freezes (including
currency blockage), or confiscations of assets that would affect assets of the
Portfolios will not occur, and shareholders bear the risk of losses arising from
those or other similar events.

ADDITIONAL RISKS. Securities in which the Portfolios may invest are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors and shareholders, such as the federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress or the state
legislatures extending the time for payment of principal or interest, or both or
imposing other constraints upon enforcement of such obligations.

RATINGS OF CORPORATE AND MUNICIPAL DEBT OBLIGATIONS. Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") and Fitch
Municipal Division ("Fitch") are private services that provide ratings of the
credit quality of debt obligations, including issues of corporate and municipal
securities. A description of the range of ratings assigned to corporate and
municipal securities by Moody's, S&P and Fitch is included in Appendix A to this
Statement of Additional Information. The Investment Quality Bond Portfolio and
the Municipal Bond Portfolio may use these ratings in determining whether to
purchase, sell or hold a security. These ratings represent Moody's, S&P's and
Fitch's opinions as to the quality of the securities that they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, securities with the same maturity,
interest rate and rating may have different market prices. Subsequent to its
purchase by the Investment Quality Bond Portfolio or the Municipal Bond
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Portfolio. The
advisers to the Municipal Bond Portfolio and the Investment Quality Bond
Portfolio will consider such an event in determining whether the Portfolio
should continue to hold the obligation but will dispose of such securities in
order to limit the holdings of debt securities rated below investment grade to
less than 5% of the assets of the respective Portfolio.

Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from federal income tax (and also, when available,
from the federal alternative minimum tax) are rendered by bond counsel to the
issuing authorities at the time of issuance. Neither the Municipal Bond
Portfolio nor the Portfolio's Advisor will review the proceedings relating to
the issuance of municipal securities or the basis for such opinions. An
issuer's obligations under its municipal securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors (such as the federal bankruptcy laws) and federal, state
and local laws that may be enacted to extend the time for payment of principal
or interest, or both, or to impose other constraints upon enforcement of such
obligations. There also is the possibility that, as a result of litigation or
other conditions, the power or ability of issuers to meet their obligations for
the payment of principal of and interest on their municipal securities may be
materially adversely affected.

<PAGE>

MUNICIPAL NOTES. For liquidity purposes, pending investment in municipal
bonds, or on a temporary or defensive basis due to market conditions, the
Municipal Bond Portfolio may invest in tax-exempt short-term debt obligations
(maturing in one year or less). These obligations, known as "municipal notes,"
include tax, revenue and bond anticipation notes, construction loan notes and
tax-exempt commercial paper which are issued to obtain funds for various public
purposes; the interest from these Notes is also exempt from federal income
taxes. The Municipal Bond Portfolio will limit its investments in municipal
notes to those which are rated, at the time of purchase, within the two highest
grades assigned by Moody's or the two highest grades assigned by S&P or Fitch,
or if unrated, which are of comparable quality in the opinion of the Advisor.

MUNICIPAL BONDS. Municipal bonds include debt obligations of a state, a
territory, or a possession of the United States, or any political subdivision
thereof (e.g., counties, cities, towns, villages, districts, authorities) or the
District of Columbia issued to obtain funds for various purposes, including the
construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which municipal bonds may be issued
include the refunding of outstanding obligations, obtaining funds for general
operating expenses and the obtaining of funds to loan to public or private
institutions for the construction of facilities such as education, hospital and
housing facilities. In addition, certain types of private activity bonds may be
issued by or on behalf of public authorities to obtain funds to provide
privately-operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass transit, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Such obligations are included
within the term municipal bonds if the interest paid thereon is at the time of
issuance, in the opinion of the issuer's bond counsel, exempt from federal
income tax. The current federal tax laws, however, substantially limit the
amount of such obligations that can be issued in each state.

The two principal classifications of municipal bonds are "general
obligation" and limited obligation or "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, whereas revenue bonds are payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise tax or other specific revenue
source. Private activity bonds that are municipal bonds are in most cases
revenue bonds and do not generally constitute the pledge of the credit of the
issuer of such bonds. The credit quality of private activity revenue bonds is
usually directly related to the credit standing of the industrial user involved.
There are, in addition, a variety of hybrid and special types of municipal
obligations as well as numerous differences in the collateral security of
municipal bonds, both within and between the two principal classifications
described above.

INVESTMENT RESTRICTIONS

The Trust's significant investment restrictions applicable to each
Portfolio are described in the Prospectus. The following are also fundamental
policies and, together with the restrictions and other fundamental policies
described in the Prospectus, cannot be changed without the vote of a majority of
the outstanding voting securities of that Portfolio, as defined in the Act.
Such a majority is defined as the lesser of (a) 67% or more of the shares of the
Portfolio present at a meeting of shareholders of the

<PAGE>

Trust, if the holders of more than 50% of the outstanding shares of the
Portfolio are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Portfolio. For purposes of the following restrictions
and those contained in the Prospectus: (i) all percentage limitations apply
immediately after a purchase or initial investment; and (ii) any subsequent
change in any applicable percentage resulting from market fluctuations or other
changes in the amount of total assets does not require elimination of any
security from a Portfolio.

Under these additional restrictions, each Portfolio cannot: (a) Invest in
physical commodities or physical commodity contracts or speculate in financial
commodity contracts, but all Portfolios are authorized to purchase and sell
financial futures contracts and options on such futures contracts exclusively
for hedging and other non-speculative purposes to the extent specified in the
Prospectus; (b) Invest in real estate or real estate limited partnerships
(direct participation programs); however, each Portfolio may purchase securities
of issuers which engage in real estate operations and securities which are
secured by real estate or interests therein; (c) Purchase securities on margin
(except for such short-term loans as are necessary for the clearance of
purchases of Portfolio securities) or make short sales of securities except
"against the box" (collateral arrangements in connection with transactions in
futures and options are not deemed to be margin transactions); (d) Underwrite
securities of other companies except in so far as the Portfolio may be deemed to
be an underwriter under the Securities Act of 1933 in disposing of a security;
(e) Invest more than 10% of its assets in securities of other investment
companies or more than 5% of its assets in the securities of one investment
company or more than 3% of the outstanding voting securities of such company,
except in connection with a merger, consolidation, reorganization or acquisition
of assets; (f) Invest in interests in oil, gas or other mineral exploration or
development programs or leases; (g) Purchase warrants if as a result the
Portfolio would then have either more than 5% of its total assets (determined at
the time of investment) invested in warrants or more than 2% of its total assets
invested in warrants not listed on the New York or American Stock Exchange; (h)
Invest in securities of any issuer if any officer or trustee of the Trust or any
officer or director of any of the Advisers owns more than 1/2 of 1% of the
outstanding securities of such issuer, and such officers, trustees and directors
who own more than 1/2 of l% own in the aggregate more than 5% of the outstanding
securities of such issuer; (i) Pledge its assets or assign or otherwise encumber
its assets in excess of 33 1/3% of its net assets (taken at market value at the
time of pledging) and then only to secure borrowings effected within the
limitations set forth in the Prospectus; (j) Invest for the purpose of
exercising control or management of another company; (k) Issue senior securities
as defined in the Act except insofar as the Portfolio may be deemed to have
issued a senior security by reason of: (a) entering into any repurchase
agreement; (b) borrowing money in accordance with restrictions described above;
or (c) lending Portfolio securities; and (l) make loans to any person or
individual except that Portfolio securities may be loaned by all Portfolios
within the limitations set forth in the Prospectus.

In addition each Portfolio may not with respect to 75% of its assets,
invest more than 5% of the value of its total assets in the securities of any
one issuer.

<PAGE>

PRINCIPAL HOLDERS OF
SECURITIES AND CONTROL PERSONS OF THE PORTFOLIOS

The following table sets forth the name, address and percentage of
ownership of each person that to the knowledge of the Trust owns of record or
beneficially 5 percent or more of the shares of any of the Portfolios as of
November 30, 1995.

PORTFOLIO NAME AND ADDRESS OF 5% OWNER PERCENTAGE OF OWNERSHIP

International Equity Shelcore Hong Kong Ltd. 7.59%
Portfolio c/o Shelcore Inc.
P.O. Box 6080
Somerset, NJ 08875-6080

Small Capitalization American Medical Association 54.31%
Portfolio Pension Trust
515 North State Street
Chicago, IL 60610-4320

U.S. Government Money Raymond P. Kane 7.95%
Market Portfolio TTEE Pisa Bros
Profit Sharing Trust
c/o PISA 630 5th Avenue
Suite 2207
New York, NY 10111

TRUSTEES AND OFFICERS

The trustees and officers of the Trust, and their principal occupations
during the past five years, are set forth below. Trustees who are "interested
persons," as defined in the Act, are denoted by an asterisk. As of November 30,
1995, the trustees and officers of the Trust as a group owned less than 1% of
the outstanding shares of the Large Capitalization Value Portfolio, less than
1% of the outstanding shares of the Large Capitalization Growth Portfolio, 1% of
the outstanding shares of the Small Capitalization Portfolio, 3.12% of the
outstanding shares of the International Equity Portfolio, and less than 1% of
the outstanding shares of the U.S. Government Money Market, Investment Quality
Bond and Municipal Bond Portfolios.

JOSEPH M. LA MOTTA, CHAIRMAN OF THE BOARD OF TRUSTEES*
One World Financial Center
New York, NY 10281

President of Oppenheimer Capital and Chairman of OpCap Advisors, registered
investment advisors; Chairman of the Board and President of Quest Cash Reserves,
Inc. and Quest for Value Accumulation Trust, open-end investment companies, and
Quest for Value Dual Purpose Fund, Inc., a closed-end investment company.

<PAGE>

BRUCE E. VENTIMIGLIA, PRESIDENT AND TRUSTEE*
Two World Financial Center
New York, NY 10080-6116

Chairman, President and Chief Executive Officer of Saratoga Capital Management;
Senior Vice President of Oppenheimer Capital and OpCap Advisors since 1992;
prior thereto, Senior Vice President of Prudential Securities, Inc.

LACY B. HERRMANN, TRUSTEE
380 Madison Avenue, Suite 2300
New York, New York 10017

President and Chairman of the Board of Aquila Management Corporation (since
1984), the sponsoring organization and Administrator and/or Sub-Advisor to the
following open-end investment companies, and Chairman of the Board of Trustees
and President of each: Prime Cash Fund (since 1982), Oxford Cash Management Fund
(1982-1988), Trinity Liquid Assets Trust (1982-1985), Short Term Asset Reserves
(since 1984), Pacific Capital Cash Assets Trust (since 1984), Churchill Cash
Reserves Trust (since 1985), Pacific Capital U.S. Treasuries Cash Assets Trust
(since 1988), Pacific Capital Tax-Free Cash Assets Trust (since 1988), each of
which is a money market fund, and of Hawaiian Tax-Free Trust (since 1984), Tax-
Free Trust of Oregon (since 1985), Tax-Free Trust of Arizona (since 1985),
Churchill Tax-Free Fund of Kentucky (since 1986), Tax-Free Fund of Colorado
(since 1986), Tax Free Fund for Utah (since 1992) and Narragensett Insured Tax
Free Income Fund (since 1992), each of which is a tax-free municipal bond fund;
Aquila Rocky Mountain Equity Fund (since 1994), an equity fund, Vice President,
Director, Secretary, and formerly Treasurer of Aquila Distributors, Inc. (since
1981), distributor of most of the above funds; President and Chairman of the
Board of Trustees of Capital Cash Management Trust ("CCMT") a money market fund
(since 1981) and an Officer and Trustee/Director of its predecessors (since
1974); and President and Director of STCM Management Company, Inc., sponsor and
Advisor to CCMT. Director of Quest Cash Reserves, Inc., Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest Global Value Fund, Inc., Trustee of Quest for
Value Accumulation Trust and Oppenheimer Quest for Value Funds, each of which is
an open-end investment company.

GEORGE LOFT, TRUSTEE
51 Herrick Road
Sharon, Connecticut 06069

Private Investor; Director of Quest Cash Reserves, Inc., Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest Global Value Fund, Inc., Trustee of Quest for
Value Accumulation Trust and Oppenheimer Quest for Value Funds, all of which are
open-end investment companies, and Director of the Quest for Value Dual Purpose
Fund, Inc., a closed-end investment company.

<PAGE>

PATRICK H. MCCOLLOUGH, TRUSTEE
One Michigan Avenue Building
120 North Washington Square
Lansing, Michigan 48933

Partner with the law firm of Cawthorne, McCollough & Cavanagh since 1987;
Michigan State Senator from 1971 to 1978 and 1982 to 1986.

MARIA CAMACHO, ASSISTANT SECRETARY

Assistant Vice President of Oppenheimer Capital since 1994 and Registrations
Department Administrator with Oppenheimer Capital since 1989; Assistant
Secretary of Quest Cash Reserves, Inc., an open-end investment company.

THOMAS E. DUGGAN, ASSISTANT SECRETARY

General Counsel and Secretary, Oppenheimer Capital and OpCap Advisors, Secretary
of Quest for Value Dual Purpose Fund, Inc., a closed-end investment company;
Assistant Secretary of Quest Cash Reserves, Inc., open-end investment company.

DEBORAH KABACK, SECRETARY

Senior Vice President, Oppenheimer Capital; Secretary of Quest Cash Reserves,
Inc. and Quest for Value Accumulation Trust, open-end investment companies, and
Assistant Secretary of Quest for Value Dual Purpose Fund, Inc., a closed-end
investment company.

SCOTT KANE, VICE PRESIDENT

Managing Director and Chief Financial Officer of Saratoga Capital Management;
prior thereto, he was Vice President of Prudential Securities, Inc.

LESLIE KLEIN, ASSISTANT TREASURER

Vice President, Oppenheimer Capital; Assistant Treasurer of Quest Cash Reserves,
Inc., and Quest for Value Accumulation Trust, open-end investment companies, and
Quest for Value Dual Purpose Fund, Inc., a closed-end investment company.

SHELDON M. SIEGEL, TREASURER

Managing Director and Treasurer, Oppenheimer Capital; Treasurer of OpCap
Advisors; Treasurer of Quest Cash Reserves, Inc. and Quest for Value
Accumulation Trust, open-end investment companies, and Quest for Value Dual
Purpose Fund, Inc., a closed-end investment company.

<PAGE>

STEPHEN VENTIMIGLIA, VICE PRESIDENT

Vice Chairman and Chief Investment Officer of Saratoga Capital Management; prior
thereto, he was First Vice President and Senior Portfolio Manager of Prudential
Securities, Inc.

REMUNERATION OF OFFICERS AND TRUSTEES. All officers of the Trust are
officers of Saratoga Capital Management or Oppenheimer Capital and receive no
salary or fee from the Trust. Until a Portfolio has net assets of $25 million,
no trustees fees will be paid by that Portfolio. When a Portfolio has net
assets of at least $25 million but not more than $50 million, the Trustees,
other than Mr. La Motta and Mr. Ventimiglia, will be paid an annual fee of
$1,750 plus $250 for each trustees' meeting attended and $100 for each committee
meeting attended. When a Portfolio has net assets in excess of $50 million, the
Trustees, other than Mr. La Motta and Mr. Ventimiglia, will be paid an annual
fee of $3,500 plus $500 for each trustees' meeting attended and $100 for each
committee meeting attended. The following table sets forth the aggregate
compensation paid by the Trust to each of the Trustees during the period
September 2, 1994 (commencement of operations) to August 31, 1995 and the
aggregate compensation paid to each of the Trustees by all of the funds in the
Fund Complex of OpCap Advisors during each such fund's 1994 fiscal year.

<TABLE>
<CAPTION>
Name of Trustee of the Aggregate Pension or Estimated Annual Total Compensation
Trust Compensation from Retirement Benefits Benefits upon from the Trust and the
the Trust Accrued as Part of Retirement Fund Complex of
Trust Expenses OpCap Advisors
<S> <C> <C> <C> <C>
Lacy Herrmann 0 0 0 $67,350
Joseph La Motta 0 0 0 0
George Loft 0 0 0 74,800
Patrick McCollough 0 0 0 0
Bruce Ventimiglia 0 0 0 0
</TABLE>

Mr. Herrmann earned directors fees with respect to 18 investment companies
in the Advisor's Fund Complex and the fees earned by Mr. Loft were with respect
to 19 investment companies in the Advisor's Fund Complex. During such periods
Mr. Herrmann and Mr. Loft received fees from three investment companies for
which they no longer serve as directors and which are no longer part of OpCap
Advisors' Fund Complex and they received fees from 12 investment companies for
which they continue to serve as directors but which are no longer part of the
OpCap Advisors' Fund Complex. In addition, during such periods, Mr. Loft and
Mr. Herrmann each served as director with respect to 3 investment companies (in
addition to the Trust's seven portfolios) in OpCap Advisors' Fund Complex for
which they received no fees. For the purpose of this paragraph, a portfolio of
an investment company organized in series form is considered to be an investment
company.

MANAGEMENT AND OTHER SERVICES

The manager of the Trust is Saratoga Capital Management, Inc. (Saratoga or
the Manager), Two World Financial Center, New York, New York 10080-6116. See
"Management of the Trust" in the Prospectus.

Pursuant to the Management Agreement with the Trust (the Management
Agreement), Saratoga, subject to the supervision of the Trustees and in
conformity with the stated policies of the

<PAGE>

Trust, manages both the operations of the Trust and reviews the performance of
the Advisers, and makes recommendations to the Trustees with respect to the
retention and renewal of contracts.

The following table sets forth the annual management fee rates payable by each
Portfolio to Saratoga pursuant to the Management Agreement, expressed as a
percentage of the Portfolio's average daily net assets:

Total Amount
Management Retained by
Portfolio Fee Manager
- --------- --- -------

Large Capitalization Growth Portfolio 0.65% 0.35%

Large Capitalization Value Portfolio 0.65% 0.35%

Small Capitalization Portfolio 0.65% 0.35%

International Equity Portfolio 0.75% 0.35%

Investment Quality Bond Portfolio 0.55% 0.35%

Municipal Bond Portfolio 0.55% 0.35%

U.S. Government Money Market Portfolio 0.475% 0.35%

The fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Trust (including the fees of
Saratoga, but excluding interest, taxes, brokerage commissions, litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Trust's business) for any fiscal year exceed the lowest
applicable annual expense limitation established and enforced pursuant to the
statutes or regulations of any jurisdiction in which the Trust's shares are
qualified for offer and sale, the compensation due to Saratoga will be reduced
by the amount of such excess. Currently the Trust believes that the most
restrictive expense limitation of state securities commissions is 2 1/2% of the
Trust's average daily net assets up to $30 million, 2% of the next $70 million
of such assets and 1 1/2% of such assets in excess of $100 million. During the
period September 2, 1994 (commencement of operations) to August 31, 1995, the
Manager voluntarily waived its management fees and assumed $109,897, $110,359,
$104,700, $126,245, $130,628, $164,025 and $114,661 in other operating expenses
for the U.S. Government Money Market, Investment Quality Bond, Municipal Bond,
Large Capitalization Value, Large Capitalization Growth, Small Capitalization
and International Equity Portfolios, respectively..

Expenses not expressly assumed by Saratoga under the Management Agreement
or by OpCap Advisors under the Administration Agreement are paid by the Trust.
The fees payable to each Advisor pursuant to the Investment Advisory Agreements
between each Advisor and Saratoga with respect to the Portfolios are paid for by
Saratoga. Under the terms of the Management Agreement, the Trust is responsible
for the payment of the following expenses: (a) the fees payable to the Manager,
(b) the fees and expenses of Trustees who are not affiliated persons of the
Manager or the Trust's Advisors, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
maintaining certain required records of the Trust and of pricing the Trust's
shares, (d) the charges and expenses of legal counsel and independent
accountants for the Trust, (e) brokerage

<PAGE>

commissions and any issue or transfer taxes chargeable to the Trust in
connection with its securities transactions, (f) all taxes and corporate fees
payable by the Trust to governmental agencies, (g) the fees of any trade
association of which the Trust may be a member, (h) the cost of share
certificates representing shares of the Trust, (i) the cost of fidelity and
liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Trust and of its shares with the SEC, qualifying
its shares under state securities laws, including the preparation and printing
of the Trust's registration statements and prospectuses for such purposes, (k)
all expenses of shareholders and Trustees meetings (including travel expenses of
trustees and officers of the Trust who are directors, officers or employees of
the Manager or Advisors) and of preparing, printing and mailing reports, proxy
statements and prospectuses to shareholders in the amount necessary for
distribution to the shareholders and (j) litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of the
Trust's business.

The Management Agreement provides that Saratoga will not be liable for any
error of judgment or for any loss suffered by the Trust in connection with the
matters to which the Management Agreement relates, except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Management Agreement will continue in effect for a period of more than two
years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the Act. The
Management Agreement was approved by the Trustees of the Trust including all of
the Trustees who are not parties to the contract or interested persons of any
such party as defined in the Act on July 25, 1994 and by the sole shareholder of
the Trust on August 22, 1994.

ADMINISTRATION AGREEMENT. OpCap Advisors acts as the Trust's Administrator
pursuant to an Administration Agreement which was approved by the Trust's
trustees on July 25, 1994 and its initial shareholder on August 22, 1994. The
Administration Agreement will remain in effect for two years from the date of
its execution and may be continued annually thereafter if approved in accordance
with the requirements of the Act. For the period September 2, 1994
(commencement of operations) to August 31, 1995 each Portfolio accrued $42,000
in administrative fees.

INVESTMENT ADVISORY SERVICES

As noted in the Prospectus, subject to the supervision and direction of the
Manager and, ultimately, the Trustees, each Advisor manages the securities held
by the Portfolio it serves in accordance with the Portfolio's stated investment
objectives and policies, makes investment decisions for the Portfolio and places
orders to purchase and sell securities on behalf of the Portfolio.

The Advisory Agreements were approved by the Trustees including a majority
of the Trustees who are not parties to such contract or interested persons of
any such parties, on July 25, 1994 and were approved by the sole shareholder of
the Trust on August 22, 1994.

Each Advisory Agreement provides that it will terminate in the event of its
assignment (as defined in the Act). Each Advisory Agreement may be terminated
by the Trust, Saratoga, or by vote of a majority of the outstanding voting
securities of the Trust, upon written notice to the Advisor, or by the Advisor
upon at least 100 days' written notice. Each Advisory Agreement provides that
it will

<PAGE>

continue in effect for a period of more than two years from its execution only
so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Act.

ADVISORS. The Advisors have agreed to the following fees, which are
generally lower than the fees they charge to institutional accounts for which
they serve as investment adviser.
PORTION
PAID BY
TOTAL MANAGER
MANAGEMENT TO THE
PORTFOLIO FEE ADVISOR
- --------- --- -------

Large Capitalization Growth Portfolio 0.65% 0.30%

Large Capitalization Value Portfolio 0.65% 0.30%

Small Capitalization Portfolio 0.65% 0.30%

International Equity Portfolio 0.75% 0.40%

Investment Quality Bond Portfolio 0.55% 0.20%

Municipal Bond Portfolio 0.55% 0.20%

U.S. Government Money Market Portfolio 0.475% 0.125%

For the period September 2, 1994 (commencement of operations) to June 30,
1995, the Advisors waived their fees. For the period July 1, 1995 to August 31,
1995, the Manager paid advisory fees to the Advisors but the Manager waived its
fees from the Portfolios.

Subject to the supervision and direction of the Manager and, ultimately,
the Trustees, each Adviser's responsibilities are limited to managing the
securities held by the Portfolio it serves in accordance with the Portfolio's
stated investment objective and policies, making investment decisions for the
Portfolio and placing orders to purchase and sell securities on behalf of the
Portfolio.

PORTFOLIO TRANSACTIONS. Each Advisor is responsible for decisions to buy
and sell securities, futures contracts and options thereon, the selection of
brokers, dealers and futures commission merchants to effect the transactions and
the negotiation of brokerage commissions, if any. As most, if not all,
purchases made by the Income Portfolios are principal transactions at net
prices, those Portfolios pay no brokerage commissions; however, prices of debt
obligations reflect mark-ups and mark-downs which constitute compensation to the
executing dealer. Each Portfolio will pay brokerage commissions on transactions
in listed options and equity securities. Prices of portfolio securities
purchased from underwriters of new issues include a commission or concession
paid by the issuer to the underwriter, and prices of debt securities purchased
from dealers include a spread between the bid and asked prices. Each Advisor
seeks to obtain prompt execution of orders at the most favorable net price.
Transactions may be directed to dealers during the course of an underwriting in
return for their brokerage and research services, which are intangible and on
which no dollar value can be placed. There is no formula for such allocation.
The research information may or may not be useful to one or more of the
Portfolios and/or other accounts of the Advisors; information received in
connection with

<PAGE>

directed orders of other accounts managed by the Advisors or its affiliates may
or may not be useful to one or more of the Portfolios. Such information may be
in written or oral form and includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of the
Advisors, to make available additional views for consideration and comparison,
and to enable the Advisors to obtain market information for the valuation of
securities held in a Portfolio's assets.

Sales of shares of each Portfolio, subject to applicable rules covering the
Distributor's activities in this area, will also be considered as a factor in
the direction of portfolio transactions to dealers, but only in conformity with
the price, execution and other considerations and practices discussed above. A
Portfolio will not purchase any securities from or sell any securities to a
broker that is affiliated with any of the Advisors (an "affiliated broker") that
is acting as principal for its own account. Each of the Advisors currently
serves as investment manager to a number of clients, including other investment
companies, and may in the future act as investment manager or advisor to others.
It is the practice of each Advisor to cause purchase or sale transactions to be
allocated among the Portfolios and others whose assets it manages in such manner
as it deems equitable. In making such allocations among the Portfolios and
other client accounts, the main factors considered are the respective investment
objectives, the relative size of Portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the Portfolios of each Portfolio and other client accounts. When
orders to purchase or sell the same security on identical terms are placed by
more than one of the Portfolios and/or other advisory accounts managed by an
Advisor or its affiliates, the transactions are generally executed as received,
although a Portfolio or advisory account that does not direct trades to a
specific broker ("free trades") usually will have its order executed first.
Purchases are combined where possible for the purpose of negotiating brokerage
commissions, which in some cases might have a detrimental effect on the price or
volume of the security in a particular transaction as far as the Portfolio is
concerned. Orders placed by accounts that direct trades to a specific broker
will generally be executed after the free trades. All orders placed on behalf
of the Portfolio are considered free trades. However, having an order placed
first in the market does not necessarily guarantee the most favorable price.

Subject to the above considerations, an affiliated broker may act as a
securities broker or futures commission merchant for the Trust. In order for an
affiliate of an Advisor or Saratoga to effect any Portfolio transactions for the
Trust, the commissions, fees or other remuneration received by an affiliated
broker must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold during a comparable period
of time. This standard would allow an affiliated broker to receive no more than
the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. Furthermore, the Trustees,
including a majority of the Trustees who are not "interested" persons, have
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to an affiliated broker are
consistent with the foregoing standard.

<PAGE>

The following tables present information as to the allocation of brokerage
commissions by the Portfolios of the Trust during the period September 2, 1994
(commencement of operations) to August 31, 1995 to Hoenig & Co, Inc. ("Hoenig"),
which is an affiliated person of Axe-Houghton Associates, Inc., and Oppenheimer
& Co., Inc. ("Opco"), which is an affiliated person of OpCap Advisors.

Total Amount of Transactions where
Brokerage Commissions Paid to
Brokerage Commissions Paid to Hoenig Hoenig
------------------------------------ -----------------------------------
Total
Name of Brokerage Dollar % Dollar Amounts %
Portfolio Commissions Amounts
Paid
<S> <C> <C> <C> <C> <C>
Small
Capitalization
Portfolio $14,454 $5,860 40.5% $3,086,778 41.4%
------- ------ ----- ---------- -----
------- ------ ----- ---------- -----
Investment
Quality Bond
Portfolio 567 188 33.2% 402,109 53.5%
--- --- ----- ---------- -----
--- --- ----- ---------- -----

</TABLE>

* Most transactions for the Investment Quality Bond Portfolio are on a
principal basis; however transactions with Hoenig & Co, Inc. are on an
agency basis since principal transactions between the Portfolio and an
affiliated broker are restricted by the Investment Company Act of 1940.

Total Amount of Transactions where
Brokerage Commissions Paid to
Brokerage Commissions Paid to Opco Opco
----------------------------------- -----------------------------------
Total
Name of Brokerage Dollar % Dollar Amounts %
Portfolio Commissions Amounts
Paid
<S> <C> <C> <C> <C> <C>
Large
Capitalization
Value Portfolio $8,087 $5,953 73.6% $3,923,454 77.3%
------ ------ ----- ---------- -----
------ ------ ----- ---------- -----

Small
Capitalization
Portfolio 14,454 578 4.0% 169,191 2.3%
------ --- ---- ------- ----
------ --- ---- ------- ----
</TABLE>

<PAGE>

DETERMINATION OF NET ASSET VALUE

The net asset value per share of each Portfolio is determined each day the
New York Stock Exchange (the "Exchange") is open, as of the close of the regular
trading session of the Exchange that day (currently 4:00 p.m. Eastern Time), by
dividing the value of a Portfolio's net assets by the number of its shares
outstanding.

The Exchange's most recent annual announcement (which is subject to change)
states that it will close on New Year's Day, President's Day, Good Friday,
Memorial Day, July 4, Labor Day, Thanksgiving and Christmas Day. It may also
close on other days.

Securities listed on a national securities exchange or designated national
market system securities are valued at the last reported sale price on that day,
or, if there has been no sale on such day or on the previous day on which the
Exchange was open (if a week has not elapsed between such days), then the value
of such security is taken to be the reported bid price at the time as of which
the value is being ascertained. Securities actively traded in the over-the-
counter market but not designated as national market system securities are
valued at the last quoted bid price. Any securities or other assets for which
current market quotations are not readily available are valued at their fair
value as determined in good faith under procedures established by and under the
general supervision and responsibility of the Trust's Board of Trustees. The
value of a foreign security is determined in its national currency and that
value is then converted into its US dollar equivalent at the foreign exchange
rate in effect on the date of valuation.

The Trust's Board of Trustees has approved the use of nationally recognized
bond pricing services for the valuation of each Portfolio's debt securities.
The services selected create and maintain price matrices of U.S. Government and
other securities from which individual holdings are valued shortly after the
close of business each trading day. Debt securities not covered by the pricing
services are valued upon bid prices obtained from dealers who maintain an active
market therein or, if no readily available market quotations are available from
dealers, such securities (including restricted securities and OTC options) are
valued at fair value under the Board's procedures. Short-term (having a
maturity of 60 days or less) debt securities are valued at amortized cost.

Puts and calls are valued at the last sales price therefor, or, if there
are no transactions, at the last reported sales price that is within the spread
between the closing bid and asked prices on the valuation date. Futures are
valued based on their daily settlement value. When a Portfolio writes a call,
an amount equal to the premium received is included in the Portfolio's Statement
of Assets and Liabilities as an asset, and an equivalent deferred credit is
included in the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the call. If a call written by
a Portfolio is exercised, the proceeds on the sale of the underlying securities
are increased by the premium received. If a call or put written by a Portfolio
expires on its stipulated expiration date or if a Portfolio enters into a
closing transaction, it will realize a gain or loss depending on whether the
premium was more or less than the transaction costs, without regard to
unrealized appreciation or depreciation on the underlying securities. If a put
held by a Portfolio is exercised by it, the amount the Portfolio receives on its
sale of the underlying investment is reduced by the amount of the premium paid
by the Portfolio.

<PAGE>

The U.S. Government Money Market Portfolio utilizes the amortized cost
method in valuing its portfolio securities for purposes of determining the net
asset value of the shares of the Portfolio. The Portfolio utilizes the
amortized cost method in valuing its portfolio securities even though the
portfolio securities may increase or decrease in market value, generally, in
connection with changes in interest rates. The amortized cost method of
valuation involves valuing a security at its cost adjusted by a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if it sold the instrument. During such periods, the
yield to investors in the Portfolio may differ somewhat from that obtained in a
similar company which uses mark to market values from all its portfolio
securities. For example, if the use of amortized cost resulted in a lower
(higher) aggregate portfolio value on a particular day, a prospective investor
in the Portfolio would be able to obtain a somewhat higher (lower) yield than
would result from investment in such a similar company and existing investors
would receive less (more) investment income. The purpose of this method of
calculation is to facilitate the maintenance of a constant net asset value per
share of $1.00.

The Portfolio's use of the amortized cost method to value its portfolio
securities and the maintenance of the per share net asset value of $1.00 is
permitted pursuant to Rule 2a-7 of the Act (the "Rule"), and is conditioned on
its compliance with various conditions including: (a) the Trustees are
obligated, as a particular responsibility within the overall duty of care owed
to the Portfolio's shareholders, to establish procedures reasonably designed,
taking into account current market conditions and the Portfolio's investment
objectives, to stabilize the net asset value per share as computed for the
purpose of distribution and redemption at $1.00 per share; (b) the procedures
include (i) calculation, at such intervals as the Trustees determine are
appropriate and as are reasonable in light of current market conditions, of the
deviation, if any, between net asset value per share using amortized cost to
value portfolio securities and net asset value per share based upon available
market quotations with respect to such portfolio securities; (ii) periodic
review by the Trustees of the amount of deviation as well as methods used to
calculate it; and (iii) maintenance of written records of the procedures, the
Trustees' considerations made pursuant to them and any actions taken upon such
considerations; (c) the Trustees should consider what steps should be taken, if
any, in the event of a difference of more than 1/2 of 1% between the two methods
of valuation; and (d) the Trustees should take such action as they deem
appropriate (such as shortening the average portfolio maturity, realizing gains
or losses or as provided by the Agreement and Declaration of Trust, reducing the
number of the outstanding shares of the Portfolio to eliminate or reduce to the
extent reasonably practicable material dilution or other unfair results to
investors or existing shareholders). Any reduction of outstanding shares will
be effected by having each shareholder proportionately contribute to the
Portfolio's capital the necessary shares that represent the amount of excess
upon such determination. Each shareholder will be deemed to have agreed to such
contribution in these circumstances by investment in the Portfolio.

The Rule further requires that the Portfolio limit its investments to U.S.
dollar-denominated instruments which the Trustees determine present minimal
credit risks and which are Eligible Securities (as defined below). The Rule
also requires the Portfolio to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to its objective of maintaining a
stable net asset

<PAGE>

value of $1.00 per share and precludes the purchase of any instrument with
remaining maturity of more than thirteen months. Should the disposition of a
portfolio security result in a dollar-weighted average portfolio maturity of
more than 90 days, the Portfolio would be required to invest its available cash
in such a manner as to reduce such maturity to 90 days or less as soon as
reasonably practicable.

Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio instrument is deemed to be the period remaining
(calculated from the trade date or such other date on which the Portfolio's
interest in the instrument is subject to market action) until the date noted on
the face of the instrument as the date on which the principal amount must be
paid, or in the case of an instrument called for redemption, the date on which
the redemption payment must be made.

A variable rate obligation that is subject to a demand feature is deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate instrument that is
subject to a demand feature is deemed to have a maturity equal to the period
remaining until the principal amount can be recovered through demand.

An Eligible Security is defined in the Rule to mean a security which: (a)
has a remaining maturity of thirteen months or less; (b) (i) is rated in the two
highest short-term rating categories by any two nationally recognized
statistical rating organizations ("NRSROs") that have issued a short-term rating
with respect to the security or class of debt obligations of the issuer, or (ii)
if only one NRSRO has issued a short-term rating with respect to the security,
then by that NRSRO; (c) was a long-term security at the time of issuance whose
issuer has outstanding a short-term debt obligation which is comparable in
priority and security and has a rating as specified in clause (b) above; or (d)
if no rating is assigned by any NRSRO as provided in clauses (b) and (c) above,
the unrated security is determined by the Board to be of comparable quality to
any such rated security.

As permitted by the Rule, the Trustees have delegated to the Portfolio's
Advisor, subject to the Trustees' oversight pursuant to guidelines and
procedures adopted by the Trustees, the authority to determine which securities
present minimal credit risks and which unrated securities are comparable in
quality to rated securities.

If the Trustees determine that it is no longer in the best interests of the
Portfolio and its shareholders to maintain a stable price of $1.00 per share, or
if the Trustees believe that maintaining such price no longer reflects a market-
based net asset value per share, the Trustees have the right to change from an
amortized cost basis of valuation to valuation based on market quotations. The
Trust will notify shareholders of any such change.

The Portfolio will manage its portfolio in an effort to maintain a constant
$1.00 per share price, but it cannot assure that the value of its shares will
never deviate from this price. Since dividends from net investment income are
declared and reinvested on a daily basis, the net asset value per share, under
ordinary circumstances, is likely to remain constant. Otherwise, realized and
unrealized gains and losses will not be distributed on a daily basis but will be
reflected in the Portfolio's net asset value. The amounts of such gains and
losses will be considered by the Trustees in determining the action to be taken
to maintain the Trust's $1.00 per share net asset value. Such action may
include distribution at

<PAGE>

any time of part or all of the then accumulated undistributed net realized
capital gains, or reduction or elimination of daily dividends by an amount equal
to part or all of the then accumulated net realized capital losses. However, if
realized losses should exceed the sum of net investment income plus realized
gains on any day, the net asset value per share on that day might decline below
$1.00 per share. In such circumstances, the Trust may reduce or eliminate the
payment of daily dividends for a period of time in an effort to restore the
Trust's $1.00 per share net asset value. A decline in prices of securities
could result in significant unrealized depreciation on a mark to market basis.
Under these circumstances the Portfolio may reduce or eliminate the payment of
dividends and utilize a net asset value per share as determined by using
available market quotations or reduce the number of its shares outstanding.

PORTFOLIO YIELD AND TOTAL RETURN INFORMATION

PERFORMANCE INFORMATION

U.S. GOVERNMENT MONEY MARKET PORTFOLIO

CURRENT YIELD AND EFFECTIVE YIELD. The Trust may from time to time
advertise the current yield and effective annual yield of the U.S. Government
Money Market Portfolio calculated over a 7-day period. The yield quoted will be
the simple annualized yield for an identified seven calendar day period. The
yield calculation will be based on a hypothetical account having a balance of
exactly one share at the beginning of the seven-day period. The base period
return will be the change in the value of the hypothetical account during the
seven-day period, including dividends declared on any shares purchased with
dividends on the share but excluding any capital changes. The yield will vary
as interest rates and other conditions affecting money market instruments
change. Yield also depends on the quality, length of maturity and type of
instruments in the Portfolio, and its operating expenses. The Portfolio may
also prepare an effective annual yield computed by compounding the unannualized
seven-day period return as follows: by adding 1 to the unannualized 7-day
period return, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.

Effective Yield = [(base period return +1)365/7]-1]

OTHER PORTFOLIOS

YIELDS. Yield information may be useful to investors in reviewing a
Portfolio's performance. However, a number of factors should be considered
before using yield information as a basis for comparison with other investments.
An investment in any of the Portfolios of the Trust is not insured; yield is not
guaranteed and normally will fluctuate on a daily basis. The yield for any
given past period is not an indication or representation of future yields or
rates of return. Yield is affected by Portfolio quality, Portfolio maturity,
type of instruments held and operating expenses. When comparing a Portfolio's
yield with that of other investments, investors should understand that certain
other investment alternatives such as money-market instruments or bank accounts
provide fixed yields and also that bank accounts may be insured.

<PAGE>

The Trust may from time to time advertise the yield of a Portfolio as
calculated over a 30-day period. This yield will be computed by dividing the
Trust's net investment income per share earned during this 30-day period by the
maximum offering price per share on the last day of this period. The average
number of shares used in determining the net investment income per share will be
the average daily number of shares outstanding during the 30-day period that
were eligible to receive dividends. In accordance with regulations of the
Securities and Exchange Commission, income will be computed by totaling the
interest earned on all debt obligations during the 30-day period and subtracting
from that amount the total of all expenses incurred during the period, which
include management and distribution fees. The 30-day yield is then annualized
on a bond-equivalent basis assuming semi-annual reinvestment and compounding of
net investment income, as described in the Prospectus. Yield is calculated
according to the following formula:

x 6
YIELD = 2(-- + 1) - 1
cd
Where:

x = daily net investment income, based upon the subtraction of daily accrued
expenses from daily accrued income of the Portfolio. Income is accrued
daily for each day of the indicated period based upon yield-to-maturity of
each obligation held in the Portfolio as of the day before the beginning of
any thirty-day period or as of contractual settlement date for securities
acquired during the period. Mortgage and other receivables-backed
securities calculate income using coupon rate and outstanding principal
amount.

c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.

d = the maximum offering price per share on the last day of the period.

Yield does not reflect capital gains or losses, non-recurring or irregular
income. Gain or loss attributable to actual monthly paydowns on mortgage or
other receivables-backed obligations purchased at a discount or premium is
reflected as an increase or decrease in interest income during the period.

TAX EQUIVALENT YIELD is computed by dividing that portion of the current
yield (computed as described above) which is tax exempt by 1 minus a stated tax
rate and adding the quotient to that portion, if any, of the yield of the
Portfolio that is not tax exempt.

E
TAX EQUIVALENT YIELD =---- + t
1-p Where: E = tax exempt yield
P = stated income tax rate
t = taxable yield

The Municipal Bond Portfolio may advertise tax-equivalent yields at varying
assumed tax rates.

<PAGE>

AVERAGE ANNUAL TOTAL RETURN

The Trust may from time to time advertise the average annual total return
of a Portfolio. Average annual total return is computed by finding the average
annual compounded rates of return over the 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:

P (1+t)n = ERV

Where:P = a hypothetical initial investment of $1,000
t = average annual total return
n = number of years
ERV = ending redeemable value of P at the end of each period

Total return information may be useful to investors in reviewing a
Portfolio's performance. However, certain factors should be considered before
using this information as a basis for comparison with alternate investments. No
adjustment is made for taxes payable on distributions. The total return for any
given past period is not an indication or representation by the Portfolio of
future rates of return on its shares.

Total returns quoted in advertising reflect all aspects of a Portfolio's
return including the effect of reinvesting dividends and capital gain
distributions, and any change in a Portfolio's net asset value per share over
the period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in a Portfolio over a stated
period, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual return that would equal 100% growth on a compounded basis in ten years.

AGGREGATE TOTAL RETURN

The Trust may from time to time advertise the aggregate total return of a
Portfolio. A Portfolio's aggregate total return figures represent the
cumulative change in the value of an investment in the Portfolio for the
specified period and are computed by the following formula:

ERV - P
-------
P

Where: P = a hypothetical initial payment of $1000.

ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at
the beginning of the 1, 5, or 10 year period at the end of the 1, 5 or 10
year period (or fractional portion thereof).

Unaveraged or cumulative total returns reflect the simple change in value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a

<PAGE>

dollar amount and may be calculated for a single investment, a series of
investments and/or a series of redemptions over any time period. Total returns
and other performance information may be quoted numerically or in a table, graph
or similar illustration.

The average annual total return on an investment made in shares of the
Portfolios for the year ended August 31, 1995 is as follows:

Average Annual Total Return for
Name of Portfolio the year ended August 31, 1995*
Large Capitalization Value Portfolio 23.60%
------
Large Capitalization Growth Portfolio 28.77%
------
Small Capitalization Portfolio 26.38%
------
International Equity Portfolio (6.61)%
------
Investment Quality Bond Portfolio 7.12%
------
Municipal Bond Portfolio 4.65%
------

* During the year ended August 31, 1995, the Manager waived the management
fee and assumed certain expenses of the Portfolios. Without such waivers and
expense assumptions, the returns would have been lower.

YIELD FOR 30-DAY PERIOD

Portfolio Yield for 30 Day Period Ended August 31, 1995*
--------- ----------------------------------------------
Investment Quality Bond Portfolio 4.90%
-----
Municipal Bond Portfolio 4.08%
-----

* Reflects the waiver of management fees and assumption of certain operating
expenses by the Manager. Without such waivers and assumptions, the yields would
have been 2.07% for the Investment Quality Bond Portfolio and 1.96% for the
Municipal Bond Portfolio.

TAX EQUIVALENT YIELD FOR 30 DAY PERIOD
for the 30 day period ended
August 31, 1995*
<TABLE>
<CAPTION>

At Federal Income At Federal Income At Federal Income At Federal Income
Portfolio Tax Rate of 28% Tax Rate of 31% Tax Rate of 36% Tax Rate of 39.6%
- --------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Municipal
Bond
Portfolio 5.67% 5.91% 6.38% 6.75%
</TABLE>

* During the 30 day period ended August 31, 1995, the Manager waived the
management fee and assumed certain expenses of the Municipal Bond Portfolio.
Without such waiver and expense assumptions, the yields for the Municipal Bond
Portfolio would have been 2.72% at the 28% Federal income tax rate, 2.84% at the
31% Federal income tax rate, 3.06% at the 36% Federal income tax rate and 3.25%
at the 39.6% Federal income tax rate.

<PAGE>

YIELD FOR SEVEN DAY PERIOD

Yield for seven day period ended August 31, 1995*
-------------------------------------------------
Portfolio Current Effective
- --------- ------- ---------
U.S. Government Money
Market Portfolio 4.59% 4.70%
----- -----

* During the seven day period ended August 31, 1995, the Manager waived the
entire management fee and assumed certain expenses of the U.S. Government Money
Market Portfolio. Without such waiver and expense assumptions, the current
yield and effective yield would have been 2.78% and 2.82%, respectively..

From time to time the Portfolios may refer in advertisements to rankings
and performance statistics published by (1) recognized mutual fund performance
rating services including but not limited to Lipper Analytical Services, Inc.
and Morningstar, Inc., (2) recognized indexes including but not limited to the
Standard & Poors Composite Stock Price Index, Russell 2000 Index, Dow Jones
Industrial Average, Consumer Price Index, EAFE Index, Lehman Brothers
Government/Corporate Bond Index, the S & P Barra/ Growth Index, the S&P/Barra
Value Index, Lehman Municipal Bond Index and (3) Money Magazine and other
financial publications including but not limited to magazines, newspapers and
newsletters. Performance statistics may include yields, total returns, measures
of volatility, standard deviation or other methods of portraying performance
based on the method used by the publishers of the information. In addition,
comparisons may be made between yields on certificates of deposit and U.S.
government securities and corporate bonds, and between value stocks and growth
stocks, and may refer to current or historic financial or economic trends or
conditions.

The performance of the Portfolios may be compared to the performance of
other mutual funds in general, or to the performance of particular types of
mutual funds. These comparisons may be expressed as mutual fund rankings
prepared by Lipper Analytical Services, Inc. (Lipper), an independent service
located in Summit, New Jersey that monitors the performance of mutual funds.
Lipper generally ranks funds on the basis of total return, assuming reinvestment
of distributions, but does not take sales charges or redemption fees into
consideration, and is prepared without regard to tax consequences. In addition
to the mutual fund rankings, performance may be compared to mutual fund
performance indices prepared by Lipper.

From time to time, a Portfolio's performance also may be compared to other
mutual funds tracked by financial or business publications and periodicals. For
example, the Portfolio may quote Morningstar, Inc., in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates mutual
funds on the basis of risk-adjusted performance.

Saratoga Capital Management or OCC Distributors may provide information
designed to help individuals understand their investment goals and explore
various financial strategies such as general principles of investing, such as
asset allocation, diversification, risk tolerance; goal setting; and a
questionnaire designed to help create a personal financial profile.

<PAGE>

Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on CPI), and combinations of various capital markets. The
performance of these capital markets is based on the returns of different
indices.

Saratoga Capital Management or OCC Distributors may use the performance of
these capital markets in order to demonstrate general risk-versus-reward
investment scenarios. Performance comparisons may also include the value of a
hypothetical investment in any of these capital markets. The risks associated
with the security types in any capital market may or may not correspond directly
to those of the Portfolios. The Portfolios may also compare performance to that
of other compilations or indices that may be developed and made available in the
future.

In advertising materials, OCC Distributors may reference or discuss its
products and services, which may include: retirement investing; brokerage
products and services; the effects of dollar-cost averaging and saving for
college; and the risks of market timing. In addition, OCC Distributors may
quote financial or business publications and periodicals, including model
portfolios or allocations, as they relate to fund management, investment
philosophy, and investment techniques.

The Portfolios may present their fund number, Quotron number, CUSIP number,
and discuss or quote their current portfolio manager.

Volatility. The Portfolios may quote various measures of volatility and
benchmark correlation in advertising. In addition, the Portfolios may compare
these measures to those of other funds. Measures of volatility seek to compare
a fund's historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a comparative
benchmark may be. All measures of volatility and correlation are calculated
using averages of historical data.

Momentum Indicators indicate the Portfolios price movements over specific
periods of time. Each point on the momentum indicator represents the
Portfolio's percentage change in price movements over that period.

The Portfolios may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against a loss in
a declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.

The Portfolios may be available for purchase through retirement plans or
other programs offering deferral of or exemption from income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually would have an after-tax value of $1,949
after ten years, assuming tax was deducted from the return each year at a

<PAGE>

28% rate. An equivalent tax-deferred investment would have an after-tax value
of $2,100 after ten years, assuming tax was deducted at a 31% rate from the tax-
deferred earnings at the end of the ten-year period.

TAXES

THE MUNICIPAL BOND PORTFOLIO

Because the Municipal Bond Portfolio will distribute exempt-interest
dividends, interest on indebtedness incurred by a shareholder to purchase or
carry shares of the Municipal Bond Portfolio is not deductible for Federal
income tax purposes. If a shareholder of the Municipal Bond Portfolio receives
exempt-interest dividends with respect to any share and if such share is held by
the shareholder for six months or less, then any loss on the sale or exchange of
such share may, to the extent of such exempt-interest dividends, be disallowed.
In addition, the Code may require a shareholder, if he or she receives exempt-
interest dividends, to treat as taxable income a portion of certain otherwise
non-taxable social security and railroad retirement benefit payments.
Furthermore, that portion of any exempt-interest dividend paid by the Municipal
Bond Portfolio which represents income derived from private activity bonds held
by the Portfolio may not retain its tax-exempt status in the hands of a
shareholder who is a "substantial user" of a facility financed by such bonds, or
a "related person" thereof. Moreover, as noted in the Prospectus, some of the
Municipal Bond Portfolio's dividends may be a specific preference item or a
component of an adjustment item, for purposes of the Federal individual and
corporate alternative minimum taxes. In addition, the receipt of dividends and
distributions from the Municipal Bond Portfolio also may affect a foreign
corporate shareholder's Federal "branch profits" tax liability and a Subchapter
S corporate shareholder's Federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisors as to whether they are (a)
substantial users with respect to a facility or related to such users within the
meaning of the Code or (b) subject to a Federal alternative minimum tax, the
Federal environmental tax, the Federal branch profits tax or the Federal excess
net passive income tax.

Each shareholder of the Municipal Bond Portfolio will receive after the
close of the calendar year an annual statement as to the Federal income tax
status of his or her dividends and distributions from the Portfolio for the
prior calendar year. These statements also will designate the amount of exempt-
interest dividends that is a specified preference item for purposes of the
Federal individual and corporate alternative minimum taxes. Each shareholder of
the Municipal Bond Portfolio will also receive a report of the percentage and
source on a state-by-state basis of interest income on municipal obligations
received by the Portfolio during the preceding year. Shareholders should
consult their tax advisors as to any other state and local taxes that may apply
to these dividends and distributions. In the event that the Municipal Bond
Portfolio derives taxable net investment income, it intends to designate as
taxable dividends the same percentage of each day's dividend as its actual
taxable net investment income bears to its total taxable net investment income
earned on that day. Therefore, the percentage of each day's dividend designated
as taxable, if any, may vary from day to day.

For the period September 2, 1994 (commencement of operations) to August 31,
1995, the International Equity Portfolio had capital loss carryforwards of $821,
which will be available, to the

<PAGE>

extent provided by regulations, to offset future net capital gains realized
through the fiscal year ending 2003 and reduce amounts distributable to
shareholders.

ALL PORTFOLIOS

As described above and in the Prospectus, the Portfolios may invest in
futures contracts and options. Each Portfolio anticipates that these investment
activities will not prevent the Trust from qualifying as a regulated investment
company. As a general rule, these investment activities will increase or
decrease the amount of long-term and short-term capital gains or losses realized
by a Portfolio and, accordingly, will affect the amount of capital gains
distributed to the Portfolio's shareholders.

Any net long-term capital gains realized by a Portfolio will be distributed
annually as described in the Prospectus. Such distributions ("capital gain
dividends") will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held shares of the Portfolio and will
be designated as capital gain dividends in a written notice mailed by the
Portfolio to shareholders after the close of the Portfolio's taxable year. If a
shareholder receives a capital gain dividend with respect to any share and if
the share has been held by the shareholder for six months or less, then any loss
(to the extent not disallowed pursuant to the other six-month rule described
above relating to exempt-interest dividends) on the sale or exchange of such
share will be treated as a long-term capital loss to the extent of the capital
gain dividend. Short-term capital gains will be distributed annually as
ordinary income as required by the Internal Revenue Code.

If a shareholder fails to furnish a correct taxpayer identification number,
fails to fully report dividend or interest income or fails to certify that he or
she has provided a correct taxpayer identification number and that he or she is
not subject to backup withholding, then the shareholder may be subject to a 31%
"backup withholding tax," with respect to (a) taxable dividends and
distributions, and (b) the proceeds of any redemptions of shares of a Portfolio.
An individual's taxpayer identification number is his or her social security
number. The backup withholding tax is not an additional tax and will be
credited against a taxpayer's regular Federal income tax liability.

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by the Municipal Bond Portfolio could be affected. In
that event the Board of Trustees of the Trust would reevaluate the investment
objections and policies of the Municipal Bond Portfolio.

The foregoing is only a summary of certain tax considerations generally
affecting the Portfolios, and is not intended as a substitute for careful tax
planning. Individuals are often exempt from state and local personal income
taxes on distributions of tax-exempt interest income derived from obligations of
issuers located in the state in which they reside when these distributions are
received directly from these issuers, but are usually subject to such taxes on
income derived from obligations of issuers located in other jurisdictions. The
discussion does not purport to deal with all of the Federal, state and local tax
consequences applicable to an investment in the Municipal Bond Portfolio, or to
all

<PAGE>

categories of investors, some of which may be subject to special rules.
Shareholders are urged to consult their tax advisors with specific reference to
their own tax situations.

ADDITIONAL INFORMATION

DESCRIPTION OF THE TRUST. The Trust was formed under the laws of Delaware
on April 8, 1994. It is not contemplated that regular annual meetings of
shareholders will be held. Shareholders of each Portfolio have the right, upon
the declaration in writing or vote by two-thirds of the outstanding shares of
the Portfolio, to remove a Trustee. The Trustees will call a meeting of
shareholders to vote on the removal of a Trustee upon the written request of the
record holders (for at least six months) of 10% of its outstanding shares. In
addition, 10 shareholders holding the lesser of $25,000 or 1% of a Portfolio's
outstanding shares may advise the Trustees in writing that they wish to
communicate with other shareholders of that Portfolio for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then either give
the applicants access to the Portfolio's shareholder list or mail the
applicants' communication to all other shareholders at the applicants' expense.

When issued, shares of each class are fully paid and have no preemptive,
conversion or other subscription rights. Each class of shares represents
identical interests in the applicable Portfolio's investment Portfolio. As
such, they have the same rights, privileges and preferences, except with respect
to: (a) the designation of each class, (b) the effect of the respective sales
charges, if any, for each class, (c) the distribution fees borne by each class,
(d) the expenses allocable exclusively to each class, (e) voting rights on
matters exclusively affecting a single class and (f) the exchange privilege of
each class. Upon liquidation of the Trust or any Portfolio, shareholders of
each class of shares of a Portfolio are entitled to share pro rata in the net
assets of that class available for distribution to shareholders after all debts
and expenses have been paid. The shares do not have cumulative voting rights.

The assets received by the Trust on the sale of shares of each Portfolio
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are allocated to each Portfolio, and constitute the assets
of such Portfolio. The assets of each Portfolio are required to be segregated
on the Trust's books of account. Expenses not otherwise identified with a
particular Portfolio will be allocated fairly among two or more Portfolios by
the Board of Trustees. The Trust's Board of Trustees has agreed to monitor the
Portfolio transactions and management of each of the Portfolios and to consider
and resolve any conflict that may arise.

The Agreement and Declaration of Trust contains an express disclaimer of
shareholder liability for each Portfolio's obligations, and provides that each
Portfolio shall indemnify any shareholder who is held personally liable for the
obligations of that Portfolio. It also provides that each Portfolio shall
assume, upon request, the defense of any claim made against any shareholder for
any act or obligation of that Portfolio and shall satisfy any judgment thereon.

POSSIBLE ADDITIONAL PORTFOLIO SERIES. If additional Portfolios are created
by the Board of Trustees, shares of each such Portfolio will be entitled to vote
as a group only to the extent permitted by the 1940 Act (see below) or as
permitted by the Board of Trustees.

<PAGE>

Under Rule 18f-2 of the 1940 Act, any matter required to be submitted to a
vote of shareholders of any investment company which has two or more series
outstanding is not deemed to have been effectively acted upon unless approved by
the holders of a "majority" (as defined in that Rule) of the voting securities
of each series affected by the matter. Such separate voting requirements do not
apply to the election of trustees or the ratification of the selection of
accountants. Approval of an investment management or distribution plan and a
change in fundamental policies would be regarded as matters requiring separate
voting by each Portfolio. The Rule contains provisions for cases in which an
advisory contract is approved by one or more, but not all, series. A change in
investment policy may go into effect as to one or more series whose holders so
approve the change even though the required vote is not obtained as to the
holders of other affected series.

INDEPENDENT AUDITORS. KPMG Peat Marwick LLP, 345 Park Avenue, New York,
New York 10154, are the independent auditors of the Trust and of each Portfolio;
their services include auditing the annual financial statements and financial
highlights of each Portfolio as well as other related services.

CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT. State Street
Bank and Trust Company acts as transfer agent, shareholder servicing agent and
custodian of the assets of the Trust.

DISTRIBUTION OPTIONS. Shareholders may change their distribution options
by giving the Transfer Agent three days prior notice in writing.

TAX INFORMATION. The Federal tax treatment of the Portfolios' dividends
and distributions is explained in the Prospectus under the heading "Tax Status."
A Portfolio will be subject to a nondeductible 4% excise tax to the extent that
it fails to distribute by the end of any calendar year substantially all its
ordinary income for that year and capital gains for the one year period ending
on October 31 of that year.

OTHER. Oppenheimer Capital, an affiliate of Saratoga Capital Management,
is the parent of OpCap Advisors and a leading institutional investment manager
with over $36.5 billion in assets under management, and has been an investment
advisor to the American Medical Association's pension fund since the 1960's.

RETIREMENT PLANS. OCC Distributors may print advertisements and brochures
concerning retirement plans, lump sum distributions and 401-k plans. These
materials may include descriptions of tax rules, strategies for reducing risk
and descriptions of 401-k programs. From time to time hypothetical investment
programs illustrating various tax-deferred investment strategies will be used in
brochures, sales literature, and omitting prospectuses. The following examples
illustrate the general approaches that will be followed. These hypotheticals
will be modified with different investment amounts, reflecting the amounts that
can be invested in different types of retirement programs, different assumed tax
rates, and assumed rates of return. They should not be viewed as indicative of
past or future performance of any OpCap products.

<PAGE>

EXAMPLES

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Benefits of Long Term Tax-Free - Benefits of Long Term Tax-Free
Compounding Single Sum Compounding -Periodic Investment
- -------------------------------------------------------------------------------
Amount of Contribution:$100,000 Amount Invested Annually: $2,000
- -------------------------------------------------------------------------------
Rates of Return Rates of Return
Years Years
--------------------------------- --------------------------------
8.00% 10.00% 12.00% 8.00% 10.00% 12.00%
--------------------------------- --------------------------------
Value at end Value at End
--------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 $ 146,933 $ 161,051 $ 176,234 5 $ 12,672 $ 13,431 $ 14,230
--------------------------------- -------------------------------
10 $ 215,892 $ 259,374 $ 310,585 10 $ 31,291 $ 35,062 $ 39,309
--------------------------------- -------------------------------
15 $ 317,217 $ 417,725 $ 547,357 15 $ 58,649 $ 69,899 $ 83,507
--------------------------------- -------------------------------
20 $ 466,096 $ 672,750 $ 964,629 20 $ 98,846 $126,005 $161,397
--------------------------------- -------------------------------
25 $ 684,848 $1,083,471 $1,700,006 25 $157,909 $216,364 $298,668
--------------------------------- -------------------------------
30 $1,006,266 $1,744,940 $2,995,992 30 $244,692 $361,887 $540,585
--------------------------------- -------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Comparison of Taxable and Tax-Free Investing -- Periodic Investments
(Assumed Tax Rate : 28%)
- -------------------------------------------------------------------------------
Amount of Annual Contribution Annual Contribution (After Tax):
(Pre-Tax):$2,000 $1,440
- -------------------------------------------------------------------------------
Tax Deferred Rates of Return Fully Taxed Rates of Return
Years Years
--------------------------------- -------------------------------
8.00% 10.00% 12.00% 5.76% 7.20% 8.64%
--------------------------------- -------------------------------
Value at end Value at End
--------------------------------- -------------------------------

- --------------------------------------------------
- --------------------------------------------------
Comparison of Tax Deferred Investing
-- Deducting Taxes at End
(Assumed Tax Rate at End: 28%)
- --------------------------------------------------
Amount of Annual Contribution: $2,000
- --------------------------------------------------
Tax Deferred Rates of Return

Years
------------------------------------------
8.00% 10.00% 12.00%
------------------------------------------
Value at End
------------------------------------------
<S> <C> <C> <C>
5 $ 11,924 $ 12,470 $ 13,046
------------------------------------------
10 $ 28,130 $ 30,485 $ 33,903
------------------------------------------
15 $ 50,627 $ 58,728 $ 68,525
------------------------------------------
20 $ 82,369 $101,924 $127,406
------------------------------------------
25 $127,694 $169,782 $229,041
------------------------------------------
30 $192,978 $277,359 $406,021
- --------------------------------------------------
- --------------------------------------------------
</TABLE>

<PAGE>

APPENDIX A -- RATINGS

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

AAA. Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of these issues.

AA. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A. Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

BAA. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA. Bonds which are rated Ba are judged to have speculative elements;
their future payments cannot be considered as well assured. Often the
protection of interest and principal may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Moody's applies the numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.

A-1

<PAGE>

DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS

AAA. Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.

AA. Bonds which are rated Aa are judged to be of high quality by all
standards. They are rated lower than the Aaa bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which made the long-term risks appear somewhat larger than in Aaa
securities.

A. Bonds which are rated A are judged to be upper medium grade
obligations. Security for principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future.

BAA. Bonds which are rated Baa are considered as medium grade
obligations, i.e.; they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.

BA. Bonds which are rated Ba are judges to have speculative elements
and their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times. Uncertainty of position
characterizes bonds in this class.

B. Bonds which are rated B generally lack the characteristics of a
desirable investment. Assurance of interest and principal payments or of other
terms of the contract over long periods may be small.

CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be elements of danger present with respect to principal or
interest.

DESCRIPTION OF S&P CORPORATE BOND RATINGS:

AAA. Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

A-2

<PAGE>

AA. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

A. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.

BB AND B. Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents a lower degree of
speculation than B. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

DESCRIPTION OF S&P'S MUNICIPAL BOND RATINGS

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree. The
AA rating may be modified by the addition of a plus or minus sign to show
relative standing within the AA rating category.

A. Debt rated A is regarded as safe. This rating differs from the two
higher ratings because, with respect to general obligation bonds, there is some
weakness which, under certain adverse circumstances, might impair the ability of
the issuer to meet debt obligations at some future date. With respect to
revenue bonds, debt service coverage is good but not exceptional and stability
of pledged revenues could show some variations because of increased competition
or economic influences in revenues.

BBB. Bonds rated BBB are regarded as having adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in the A category.

BB. Debt rated BB has less near-term vulnerability to default than other
speculative grade debt, however, it faces major ongoing uncertainties or
exposure to adverse business, financial or

A-3

<PAGE>

economic conditions which could lead to inadequate capacity to meet timely
interest and principal payment.

B. Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest and principal payments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal.

CCC. Debt rated CCC has a current identifiable vulnerability to default and
is dependent upon favorable business, financial and economic conditions to meet
timely payments of principal. In the event of adverse business, financial or
economic conditions, it is not likely to have the capacity to pay interest and
repay principal.

DESCRIPTION OF FITCH'S MUNICIPAL BOND RATINGS.

Debt rated "AAA", the highest rating by Fitch, is considered to be of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

Debt rated "AA" is regarded as very high credit quality. The obligor's
ability to pay interest and repay principal is very strong.

Debt rated "A" is of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than debt
with higher ratings.

Debt rated "BBB" is of satisfactory credit quality. The obligor's ability
to pay interest and repay principal is adequate, however a change in economic
conditions may adversely affect timely payment.

Debt rated "BB" is considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes, however, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.

Debt rated "B" is considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.

Debt rated "CCC" has certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

A-4

<PAGE>

Plus (+) and minus (-) signs are used with a rating symbol (except AAA) to
indicate the relative position within the category.

DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER SHORT-TERM
LOANS

Moody's ratings for state and municipal notes and other short-term loans
are designated "Moody's Investment Grade" ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. A short-term
rating designated VMIG may also be assigned on an issue having a demand feature.
Factors affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term borrowing. Symbols used will be as follows:

MIG-1/VMIG-1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.

MIG-2/VMIG-2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

DESCRIPTION OF S&P'S RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER SHORT-TERM
LOANS

Standard & Poor's tax exempt note ratings are generally given to such notes
that mature in three years or less. The two higher rating categories are as
follows:

SP-1. Very strong or strong capacity to pay principal and interest. These
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.

SP-2. Satisfactory capacity to pay principal and interest.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

Commercial paper rated Prime-1 by Moody's are judged by Moody's to be of
the best quality. Their short-term debt obligations carry the smallest degree
of investment risk. Margins of support for current indebtedness are large or
stable with cash flow and asset protection well assured. Current liquidity
provides ample coverage of near-term liabilities and unused alternative
financing arrangements are generally available. While protective elements may
change over the intermediate or longer term, such changes are most unlikely to
impair the fundamentally strong position of short-term obligations.

Issuers (or related supporting institutions) rated Prime-2 have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more

A-5

<PAGE>

subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

Commercial paper rated A by S&P have the following characteristics.
Liquidity ratios are better than industry average. Long-term debt rating is A
or better. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow are in an upward trend. Typically, the
issuer is a strong company in a well-established industry and has superior
management. Issuers rated A are further refined by use of numbers 1, 2, and 3
to denote relative strength within this highest classification. Those issuers
rated A-1 that are determined by S&P to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.

Fitch's commercial paper ratings represent Fitch's assessment of the
issuer's ability to meet its obligations in a timely manner. The assessment
places emphasis on the existence of liquidity. Ratings range from F-1+ which
represents exceptionally strong credit quality to F-4 which represents weak
credit quality.

Duff & Phelps' short-term ratings apply to all obligations with maturities
of under one year, including commercial paper, the uninsured portion of
certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit and current maturities of long-term
debt. Emphasis is placed on liquidity. Ratings range from Duff 1+ for the
highest quality to Duff 5 for the lowest, issuers in default. Issues rated Duff
1+ are regarded as having the highest certainty of timely payment. Issues rated
Duff 1 are regarded as having very high certainty of timely payment.

A-6
<PAGE>
- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULES OF INVESTMENTS
AUGUST 31, 1995
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT VALUE
- ----------------- ---------
<S> <C> <C> <C>
FEDERAL FARM CREDIT BANK-15.8%
$600,000 5.70%, 9/05/95 . . . . . . . . . . . . . . . . $599,620
200,000 5.77%, 9/03/96(1). . . . . . . . . . . . . . . 200,000
---------
Total Federal Farm Credit Bank
(cost--$799,620) . . . . . . . . . . . . . . . $799,620
---------

FEDERAL HOME LOAN BANK-12.7%
$340,000 5.67%, 9/25/95 . . . . . . . . . . . . . . . . $338,715
300,000 7.81%, 7/17/96 . . . . . . . . . . . . . . . . 304,605
---------

TOTAL FEDERAL HOME LOAN BANK
(cost--$643,320) . . . . . . . . . . . . . . . $643,320
---------

FEDERAL HOME LOAN MORTGAGE CORPORATION-22.4%
$390,000 5.63%, 9/01/95 . . . . . . . . . . . . . . . . $390,000
440,000 5.66%, 9/25/95 . . . . . . . . . . . . . . . . 438,340
310,000 5.67%, 9/20/95 . . . . . . . . . . . . . . . . 309,072
---------

Total Federal Home Loan Mortgage Corporation
(cost--$1,137,412) . . . . . . . . . . . . . .$1,137,412
---------

FEDERAL NATIONAL MORTGAGE ASSOCIATION-51.6%
$365,000 5.63%, 6/28/96 . . . . . . . . . . . . . . . . $364,327
860,000 5.64%, 9/14/95 . . . . . . . . . . . . . . . . 858,248
20,000 5.65%, 9/01/95 . . . . . . . . . . . . . . . . 20,000
320,000 5.66%, 9/25/95 . . . . . . . . . . . . . . . . 318,793
25,000 5.66%, 9/27/95 . . . . . . . . . . . . . . . . 24,898
630,000 5.67%, 9/08/95 . . . . . . . . . . . . . . . . 629,305
340,000 5.67%, 9/13/95 . . . . . . . . . . . . . . . . 339,357
25,000 5.67%, 9/18/95 . . . . . . . . . . . . . . . . 24,933
40,000 5.68%, 9/18/95 . . . . . . . . . . . . . . . . 39,893
---------

Total Federal National Mortgage Association
(cost--$2,619,754) . . . . . . . . . . . . . .$2,619,754
---------
Total Investments
(cost--$5,200,106) . . . . . . . . . . . . . . . . 102.5% $5,200,106

Other Liabilities in Excess of
Other Assets . . . . . . . . . . . . . . . . . . . (2.5) (128,080)
--------- ---------
--------- ---------

TOTAL NET ASSETS . . . . . . . . . . . . . . . . . . 100.0% $5,072,026
--------- ---------
--------- ---------

</TABLE>

(1) Represents a floating interest rate note subject to change on quarterly
coupon dates, based on the current 90 day U.S. Treasury Bill rate plus 20
basis points. Rate shown reflects the rate in effect at 8/31/95.

B-1

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
INVESTMENT QUALITY BOND PORTFOLIO
SCHEDULES OF INVESTMENTS
AUGUST 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

PRINCIPAL
AMOUNT VALUE
- ----------------- ---------
<S> <C> <C> <C>
CORPORATE NOTES & BONDS - 16.6%
AUTOMOTIVE - 4.0%
$25,000 Ford Motor Credit Corp.
7.75%, 10/01/99. . . . . . . . . . . . . . . . $25,994
150,000 General Motors Acceptance Corp.
7.75%, 1/15/99 . . . . . . . . . . . . . . . . 154,632
---------
180,626
---------
DRUGS & MEDICAL PRODUCTS - 4.6%
AMERICAN HOME PRODUCTS CORP.
200,000 7.70%, 2/15/00 . . . . . . . . . . . . . . . . 209,162
---------

MISCELLANEOUS FINANCIAL SERVICES - 4.7%
150,000 Bear Stearns & Co.
7.625%, 9/15/99. . . . . . . . . . . . . . . . 154,728
50,000 Lehman Brothers, Inc.
9.875%, 10/15/00 . . . . . . . . . . . . . . . 54,711
---------
209,439
---------
OIL/GAS- 3.3%
10,000 Amoco Canada Petroleum Co.
7.25%, 12/01/02. . . . . . . . . . . . . . . . 10,389
125,000 E.I. Dupont De Nemours & Co.
8.50%, 2/15/03 . . . . . . . . . . . . . . . . 135,863
---------
146,252
---------
Total Corporate Notes & Bonds
(cost --$739,531). . . . . . . . . . . . . . . $745,479
---------

U.S. TREASURY NOTES - 78.2%
$430,000 4.75%, 10/31/98. . . . . . . . . . . . . . . . $414,881
850,000 6.50%, 11/30/96. . . . . . . . . . . . . . . . 857,174
2,200,000 6.75%, 5/31/99 . . . . . . . . . . . . . . . . 2,250,864
---------

Total U.S. Treasury Notes
(cost --$3,482,065). . . . . . . . . . . . . .$3,522,919
---------

Total Investments
(cost--$4,221,596) . . . . . . . . . . . . . . . . 94.8% $4,268,398
--------- ---------

Other Assets in Excess of
Other Liabilities. . . . . . . . . . . . . . . . . 5.2 234,436
--------- ---------
Total Net Assets . . . . . . . . . . . . . . . . . . 100.0% $4,502,834
--------- ---------
--------- ---------
</TABLE>

B-2

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
MUNICIPAL BOND PORTFOLIO
SCHEDULES OF INVESTMENTS
AUGUST 31, 1995
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT VALUE
- ----------------- ---------
<S> <C> <C>
MUNICIPAL NOTES & BONDS - 90.8%
ALABAMA - 1.4%
POLLUTION CONTROL - 0.7%
$10,000 Alabama Water Pollution Control Authority
Revolving Fund Loan
6.25%, 8/15/14 (AMBAC insured) . . . . . . . . $10,148
---------

WATER/SEWER - 0.7%
10,000 Montgomery, Alabama Waterworks & Sanitary
Sewer Board Water & Sewer Systems Revenue
6.30%, 9/01/10 . . . . . . . . . . . . . . . . 10,396
---------
20,544
---------
CALIFORNIA - 11.4%
EDUCATION - 4.0%
California State Public Works Board Lease
Revenue
50,000 California State University Projects
6.00%, 9/01/15 . . . . . . . . . . . . . . . . 48,639
10,000 Community College Projects
6.00%, 12/01/12 (AMBAC insured). . . . . . . . 10,119
---------
58,758
---------
POLLUTION CONTROL - 6.7%
100,000 California Pollution Control Financing
Authority Pollution Control Revenue
Southern California Edison
3.45%, 2/28/08(1). . . . . . . . . . . . . . . 100,000
---------

WATER/SEWER - 0.7%
10,000 San Francisco, California City & County
Public Utilities Community Water Revenue
(Series A)
6.00%, 11/01/15. . . . . . . . . . . . . . . . 10,028
---------
168,786
---------
CONNECTICUT - 1.4%
HOUSING
20,000 Connecticut State Housing Finance
Authority Housing Mortgage Financing Program
6.50%, 5/15/18 . . . . . . . . . . . . . . . . 20,462
---------

FLORIDA - 10.9%
CONVENTION CENTERS/STADIUMS - 3.3%
50,000 St. Petersburg, Florida Professional
Sports Facilities Sales Tax Revenue
5.60%, 10/01/15 (MBIA insured) . . . . . . . . 48,474
---------

EDUCATION - 2.4%
35,000 Dade County, Florida School Board
Certificates of Participation (Series A)
5.75%, 5/01/12 (MBIA insured). . . . . . . . . 35,274
---------

GENERAL OBLIGATION - 2.4%
35,000 Florida State Board of Education Capital
Outlay
6.00%, 6/01/19. . . . . . . . . . . . . . . . . 35,021
---------

POWER/UTILITY - 1.6%
25,000 Jacksonville, Florida Electric Authority
Revenue St. John's River Power
5.50%, 10/01/14. . . . . . . . . . . . . . . . 23,973
---------
</TABLE>

B-3

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
MUNICIPAL BOND PORTFOLIO
SCHEDULES OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

PRINCIPAL
AMOUNT VALUE
- ----------------- ---------
<S> <C> <C>
FLORIDA (CONT'D)
TURNPIKE/TOLL - 1.2%
$20,000 Orlando & Orange County Expressway
Authority Florida Expressway Revenue
5.00%, 7/01/17 (FGIC insured). . . . . . . . . $17,760
---------
160,502
---------
ILLINOIS - 0.6%
HEALTH/HOSPITAL
10,000 Illinois Health Facilities Authority
Revenue Lutheran Health System (Series B)
6.00%, 4/01/18 . . . . . . . . . . . . . . . . 9,400
---------

IOWA - 3.6%
WATER/SEWER
50,000 West Des Moines, Iowa Water Revenue
6.80%, 12/01/13 (AMBAC insured). . . . . . . . 53,254
---------

MASSACHUSETTS - 9.8%
GENERAL OBLIGATION - 4.2%
10,000 Boston, Massachusetts General Obligation
Bonds (Series B)
5.875%, 8/01/12 (AMBAC insured). . . . . . . . 10,108
50,000 Lowell, Massachusetts General Obligation Bonds
6.05%, 4/01/11 . . . . . . . . . . . . . . . . 51,083
---------
61,191
---------
HOUSING - 0.7%
10,000 Massachusetts State Housing Finance Agency
Single Family Housing Revenue
6.35%, 6/01/17 . . . . . . . . . . . . . . . . 10,119
---------

TRANSPORTATION - 3.3%
50,000 Massachusetts Bay Transportation Authority
General Transportation System
5.90%, 3/01/24 . . . . . . . . . . . . . . . . 49,053
---------

WATER/SEWER - 1.6%
Massachusetts State Water Resources Authority
15,000 5.50%, 11/01/15 (Series B) . . . . . . . . . . 14,145
10,000 5.75%, 8/01/10 (Series A). . . . . . . . . . . 10,096
---------
24,241
---------
144,604
---------
---------
MISSOURI - 3.2%
HOUSING
45,000 Missouri State Housing Development Community
Single Family Mortgage Revenue
6.90%, 7/01/18 . . . . . . . . . . . . . . . . 47,409
---------

NEBRASKA - 2.6%
POWER/UTILITY
40,000 Omaha Public Power Distribution
5.50%, 2/01/14 . . . . . . . . . . . . . . . . 38,388
---------

NEVADA - 3.4%
GENERAL OBLIGATION
50,000 Clark County, Nevada General Obligation Bonds
6.00%, 6/01/16 (AMBAC insured) . . . . . . . . 49,643
---------
</TABLE>

B-4

<PAGE>

PRINCIPAL
AMOUNT VALUE
- ----------------- ---------
<S> <C> <C>
NEW HAMPSHIRE - 2.0%
TURNPIKE/TOLL
$30,000 New Hampshire State Turnpike Systems
6.00%, 4/01/13 . . . . . . . . . . . . . . . . $30,038
---------
NEW JERSEY - 0.7%
WATER/SEWER
10,000 Gloucester County, New Jersey
Utilities Authority Sewer Revenue
6.125%, 1/01/13. . . . . . . . . . . . . . . . 10,257
---------

NEW YORK - 17.0%
EDUCATION - 2.1%
30,000 New York State Dormitory Authority Revenue
Sarah Lawrence College
6.00%, 7/01/15 . . . . . . . . . . . . . . . . 30,301
---------

GENERAL OBLIGATION - 1.4%
20,000 New York City General Obligation Bonds (Series B)
7.00%, 10/01/19. . . . . . . . . . . . . . . . 20,388
---------

HEALTH/HOSPITAL - 0.7%
10,000 New York State Medical Care Facilities
Finance Agency Revenue Mental Health
Services (Series F)
6.25%, 2/15/10 . . . . . . . . . . . . . . . . 10,126
---------

HOUSING - 1.3%
20,000 New York State Mortgage Agency (Series A)
6.875%, 4/01/17. . . . . . . . . . . . . . . . 20,633
---------

POLLUTION CONTROL - 9.4%
100,000 New York State Energy Research &
Developement Authorit Pollution Control
Revenue
3.30%, 10/01/29(1) . . . . . . . . . . . . . . 100,000

40,000 New York State Environmental Facilities Corp.
Pollution Control Revenue
5.875%, 6/15/14. . . . . . . . . . . . . . . . 39,838
---------
139,838
---------
SALES TAX - 0.7%
10,000 New York State Local Government Assistance Corp.
6.25%, 4/01/18 . . . . . . . . . . . . . . . . 10,098
---------

TURNPIKE/TOLL - 1.4%
10,000 New York State Thruway Authority Service
Contract Revenue Local Highway & Bridge
6.00%, 4/01/10 . . . . . . . . . . . . . . . . 9,942
10,000 Triborough Bridge & Tunnel Authority
Special Obligation
6.00%, 1/01/15 (AMBAC insured) . . . . . . . . 10,077
---------
20,019
---------
251,403
---------
OHIO - 4.0%
HEALTH/HOSPITAL
50,000 Lorain County, Ohio Hospital Revenue
7.75%, 11/01/13 (AMBAC insured). . . . . . . . 58,940
---------
</TABLE>

B-5

<PAGE>

PRINCIPAL
AMOUNT VALUE
- ----------------- ---------
<S> <C> <C> <C>

PENNSYLVANIA - 3.2%
WATER/SEWER
$50,000 Pittsburgh, Pennsylvania Water &
Sewer Authority Water & Sewer
Systems Revenue
5.60%, 9/15/15 . . . . . . . . . . . . . . . . $47,857
---------

PUERTO RICO - 0.7%
POWER/UTILITY
10,000 Puerto Rico Electric Power Authority
Power Revenue (Series R)
6.25%, 7/01/17 . . . . . . . . . . . . . . . . 10,134
---------

TEXAS - 10.0%
CORRECTIONAL FACILITIES - 0.7%
10,000 East Texas Criminal Justice Facilities
Financing Corp. Mortgage Revenue City
of Henderson Project
6.125%, 11/01/14 (AMBAC insured) . . . . . . . 10,131
---------

EDUCATION - 1.8%
10,000 University of Texas Permanent University
Funding (Series A)
6.25%, 7/01/13 . . . . . . . . . . . . . . . . 10,227

15,000 University of Texas Revenue Bonds
(Series B)
6.75%, 8/15/13 . . . . . . . . . . . . . . . . 16,197
---------
26,424
---------
GENERAL OBLIGATION - 4.2%
25,000 San Antonio, Texas General Obligation Bonds
6.625%, 8/01/14. . . . . . . . . . . . . . . . 26,223
35,000 Texas State General Obligation Bonds
6.00%, 8/01/12 . . . . . . . . . . . . . . . . 35,816
---------
62,039
---------
POWER/UTILITY - 3.3%
50,000 Brazos River Authority Texas Revenue
Houston Light & Power Company
5.80%, 8/01/15 (MBIA insured). . . . . . . . . 49,014
---------
147,608

WASHINGTON - 3.1%
POWER/UTILITY
35,000 Seattle, Washington Municipal Light & Power
Revenue
5.75%, 8/01/11 . . . . . . . . . . . . . . . . 35,094

10,000 Washington State Public Power Supply Systems
Nuclear Project Revenue
7.25%, 7/01/12 (FGIC insured). . . . . . . . . 11,012
---------
46,106
---------
WYOMING - 1.8%
HOUSING
25,000 Wyoming Community Development
Authority Housing Revenue
6.65%, 12/01/06. . . . . . . . . . . . . . . . 26,692
---------

TOTAL INVESTMENTS
(cost--$1,319,182) . . . . . . . . . . . . . . . . 90.8% $1,342,027

Other Assets in Excess of
Other Liabilities. . . . . . . . . . . . . . . . . 9.2 135,397
--------- ---------

TOTAL NET ASSETS . . . . . . . . . . . . . . . . . . 100.0% $1,477,424
--------- ---------
--------- ---------
</TABLE>

- -------------------------------------------------------
(1) Represents a variable rate demand note subject to change daily and payable
on demand. Rate shown reflects the rate in effect on 8/31/95.

B-6

<PAGE>

THE SARATOGA ADVANTAGE TRUST
LARGE CAPITALIZATION VALUE PORTFOLIO
SCHEDULES OF INVESTMENTS
AUGUST 31, 1995
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT VALUE
- ----------------- ---------
<S> <C> <C>

SHORT-TERM CORPORATE NOTES - 20.3%
MISCELLANEOUS FINANCIAL SERVICES
$640,000 Federal Home Loan Mortgage Corp.
5.66%, 9/05/95 . . . . . . . . . . . . . . . . $639,597
480,000 Federal National Mortgage Association
5.66%, 9/14/95 . . . . . . . . . . . . . . . . 479,019
---------

Total Short-Term Corporate Notes
(cost-$1,118,616). . . . . . . . . . . . . . .$1,118,616
---------
SHARES
- -----------------
COMMON STOCKS - 82.5%
AEROSPACE - 5.7%
1,820 AlliedSignal, Inc. . . . . . . . . . . . . . . . $80,763
6,300 Coltec Industries, Inc.* . . . . . . . . . . . . 94,500
1,700 McDonnell Douglas Corp.. . . . . . . . . . . . . 136,425
---------
311,688
---------
BANKING - 2.8%
2,300 Citicorp . . . . . . . . . . . . . . . . . . . . 152,662
---------
CHEMICALS - 3.6%
1,780 Hercules, Inc. . . . . . . . . . . . . . . . . . 99,013
1,050 Monsanto Co. . . . . . . . . . . . . . . . . . . 99,619
---------
198,632
---------
CONGLOMERATES - 4.3%
2,200 General Electric Co. . . . . . . . . . . . . . . 129,525
6,500 Canadian Pacific Ltd.. . . . . . . . . . . . . . 109,688
---------
239,213
---------
CONSUMER PRODUCTS - 2.3%
3,600 Reebok International Ltd.. . . . . . . . . . . . 127,800
---------

CONTAINERS - 3.6%
3,800 Temple-Inland, Inc.. . . . . . . . . . . . . . . 196,650
---------

DRUGS & MEDICAL PRODUCTS - 3.5%
3,440 Becton, Dickinson & Co.. . . . . . . . . . . . . 193,930
---------

ELECTRONICS - 2.0%
2,080 Arrow Electronics, Inc.* . . . . . . . . . . . . 112,840
---------

HEALTH/HOSPITAL - 5.0%
2,800 Columbia/HCA Healthcare Corp.. . . . . . . . . . 131,600
9,000 Tenet Healthcare Corp.*. . . . . . . . . . . . . 142,875
---------
274,475
---------
INSURANCE - 15.6%
4,000 Ace Ltd. . . . . . . . . . . . . . . . . . . . . 123,000
3,000 AFLAC, Inc.. . . . . . . . . . . . . . . . . . . 122,625
1,650 American International Group, Inc. . . . . . . . 133,031
4,710 EXEL Ltd.. . . . . . . . . . . . . . . . . . . . 259,050
250 General Reinsurance Corp.. . . . . . . . . . . . 37,156
4,180 Progressive Corp., Ohio. . . . . . . . . . . . . 185,487
---------
860,349
---------
METALS/MINING - 25%
Freeport McMoRan, Copper & Gold
3,000 (Class A). . . . . . . . . . . . . . . . . . . 70,125
3,000 (Class B). . . . . . . . . . . . . . . . . . . 70,125
---------
140,250
---------
</TABLE>

B-7

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
LARGE CAPITALIZATION VALUE PORTFOLIO
SCHEDULES OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

SHARES VALUE
- ----------------- ---------
<S> <C> <C> <C>

MISCELLANEOUS FINANCIAL SERVICES - 9.0%
5,200 Countrywide Credit Industries, Inc.. . . . . . . $114,400
3,250 Federal Home Loan Mortgage Corp. . . . . . . . . 208,812
1,800 Federal National Mortgage Corp.. . . . . . . . . 171,675
---------
494,887
---------
PAPER PRODUCTS - 2.7%
2,600 Champion International Corp. 147,225
---------

RETAIL - 5.6%
1,100 J.C. Penney Co.. . . . . . . . . . . . . . . . . 49,775
4,450 May Department Stores Co.. . . . . . . . . . . . 188,569
1,500 Mercantile Stores Co., Inc.. . . . . . . . . . . 68,813
---------
307,157
---------
TELECOMMUNICATIONS - 3.5%
5,500 Sprint Corp. . . . . . . . . . . . . . . . . . . 195,250
---------

TEXTILES - 2.7%
10,000 Shaw Industries, Inc.. . . . . . . . . . . . . . 150,000
---------

TOBACCO/BEVERAGES/FOOD PRODUCTS - 0.5%
980 Sara Lee Corp. . . . . . . . . . . . . . . . . . 27,195
---------

TOYS/GAMES/HOBBY - 21%
4,000 Mattel, Inc. . . . . . . . . . . . . . . . . . . 116,000
---------

TRANSPORTATION - 55%
1,900 CSX Corp.. . . . . . . . . . . . . . . . . . . . 156,750
2,100 Norfolk Southern Corp. . . . . . . . . . . . . . 148,575
---------
305,325
---------
TOTAL COMMON STOCKS
(cost--$4,016,882) . . . . . . . . . . . . . .$4,551,528
---------

Total Investments
(cost--$5,135,498) . . . . . . . . . . . . . . . . 102.8% $5,670,144

Other Liabilities in Excess of
Other Assets . . . . . . . . . . . . . . . . . . . (2.8) (155,454)
--------- ---------

TOTAL NET ASSETS . . . . . . . . . . . . . . . . . . 100.0% $5,514,690
--------- ---------
--------- ---------
</TABLE>

- -------------------------------------------------------
* Non-income producing security.

B-8

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
LARGE CAPITALIZATION GROWTH PORTFOLIO
SCHEDULES OF INVESTMENTS
AUGUST 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

SHARES VALUE
- ----------------- ---------
<S> <C> <C>
COMMON STOCKS - 95.6%
BANKING - 6.6%
4,300 BankAmerica Corp.. . . . . . . . . . . . . . . . $242,950
3,960 NationsBank Corp.. . . . . . . . . . . . . . . . 243,045
8,230 Norwest Corp.. . . . . . . . . . . . . . . . . . 247,929
---------
733,924
---------
CHEMICALS - 4.4%
3,705 Great Lakes Chemical Corp. . . . . . . . . . . . 244,993
7,580 Morton International, Inc. . . . . . . . . . . . 246,350
---------
491,343
---------
COMPUTERS - 6.8%
5,800 Apple Computer, Inc. . . . . . . . . . . . . . . 249,400
4,770 Cabletron Systems, Inc.* . . . . . . . . . . . . 252,214
5,940 Silicon Graphics, Inc.*. . . . . . . . . . . . . 250,965
---------
752,579
COMPUTER SERVICES - 11.2%
4,960 Adobe Systems, Inc.. . . . . . . . . . . . . . . 252,960
5,290 Autodesk, Inc. . . . . . . . . . . . . . . . . . 244,001
3,810 Automatic Data Processing, Inc.. . . . . . . . . 247,650
3,910 Cisco Systems, Inc.* . . . . . . . . . . . . . . 256,594
7,760 Sybase, Inc.*. . . . . . . . . . . . . . . . . . 249,290
---------
1,250,495
---------
COMPUTER SOFTWARE - 4.7%
6,790 Electronic Arts, Inc.* . . . . . . . . . . . . . 258,020
2,825 Microsoft Corp.* . . . . . . . . . . . . . . . . 261,312
---------
519,332
---------
CONGLOMERATE - 2.2%
4,190 General Electric Co. . . . . . . . . . . . . . . 246,686
---------

DRUGS/MEDICAL PRODUCTS - 8.7%
5,070 Amgen, Inc.* . . . . . . . . . . . . . . . . . . 242,726
4,215 Genzyme Corp.. . . . . . . . . . . . . . . . . . 235,513
5,030 Merck & Co., Inc.. . . . . . . . . . . . . . . . 250,871
10,200 Mylan Laboratories, Inc. . . . . . . . . . . . . 233,325
---------
962,435
---------
ELECTRONICS - 8.9%
14,625 American Power Conversion Corp.* . . . . . . . . 244,969
2,180 Applied Materials, Inc.. . . . . . . . . . . . . 226,720
3,195 Hewlett - Packard Co.. . . . . . . . . . . . . . 255,600
4,220 Intel Corp.. . . . . . . . . . . . . . . . . . . 259,003
---------
986,292
---------
ENTERTAINMENT - 2.3%
4,475 The Walt Disney Co.. . . . . . . . . . . . . . . 251,159
---------

FOOD SERVICES - 1.9%
12,950 Brinker International, Inc.* . . . . . . . . . . 216,913
---------

INSURANCE - 4.5%
3,092 American International Group, Inc. . . . . . . . 249,293
5,880 United Healthcare Corp.. . . . . . . . . . . . . 248,430
---------
497,723
---------
MEDIA/BROADCASTING - 2.3%
2,190 Capital Cities/ABC, Inc. . . . . . . . . . . . . 251,850
---------
</TABLE>

B-9

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
LARGE CAPITALIZATION GROWTH PORTFOLIO
SCHEDULES OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

SHARES VALUE
- ----------------- ---------
<S> <C> <C> <C>
MISCELLANEOUS FINANCIAL SERVICES - 6.9%
4,915 Dean Witter, Discover and Co.. . . . . . . . . . $250,665
2,930 First Financial Management Corp. . . . . . . . . 264,066
5,395 Charles Schwab Corp. . . . . . . . . . . . . . . 250,868
---------
765,599
---------
PRINTING/PUBLISHING - 2.2%
3,660 Tribune Co.. . . . . . . . . . . . . . . . . . . 245,220
---------

RETAIL - 13.4%
7,685 Albertson's, Inc.. . . . . . . . . . . . . . . . 244,959
7,400 Circuit City Stores, Inc.. . . . . . . . . . . . 255,300
6,110 Home Depot, Inc. . . . . . . . . . . . . . . . . 243,636
7,955 Office Depot, Inc.*. . . . . . . . . . . . . . . 247,599
9,838 Staples, Inc.* . . . . . . . . . . . . . . . . . 252,099
9,550 Toys "R" Us, Inc.* . . . . . . . . . . . . . . . 248,300
---------
1,491,893
---------
SECURITY/INVESTIGATION - 2.0%
10,435 Sensormatic Electronics Corp.. . . . . . . . . . 219,135
---------

TELECOMMUNICATIONS - 4.4%
3,200 Motorola, Inc. . . . . . . . . . . . . . . . . . 239,200
5,100 Qualcomm, Inc.*. . . . . . . . . . . . . . . . . 248,625
---------
487,825
---------
TOYS/GAMES/HOBBY - 2.2%
4,200 Tyco International Ltd . . . . . . . . . . . . . 248,325
---------

Total Investments
(cost--$9,420,199) . . . . . . . . . . . . . . . . 95.6% $10,618,728

Other Assets in Excess of
Other Liabilities. . . . . . . . . . . . . . . . . 4.4 488,523
--------- ---------

TOTAL NET ASSETS . . . . . . . . . . . . . . . . . . 100.0% $11,107,251
--------- ---------
--------- ---------
</TABLE>

- -------------------------------------------------------
*Non-income producing security.

B-10

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANAGE TRUST
SMALL CAPITALIZATION PORTFOLIO
SCHEDULES OF INVESTMENTS
AUGUST 31, 1995
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT VALUE
- ----------------- ---------
<S> <C> <C>
U.S. GOVERNMENT AGENCY - 6.1%
$930,000 Federal Home Loan Bank
5.70%, 9/01/95
(cost --$930,000). . . . . . . . . . . . . . . $930,000
---------
SHARES
- -----------------
COMMON STOCKS - 95.2%
AIRLINES - 2.3%
13,500 Comair Holdings, Inc.. . . . . . . . . . . . . . $340,875
---------

AUTOMOTIVE - 2.4%
10,000 Wabash National Corp.. . . . . . . . . . . . . . 365,000
---------

BUILDING & CONSTRUCTION - 4.2%
22,500 Cavalier Homes, Inc. . . . . . . . . . . . . . . 309,375
23,500 Southern Energy Homes, Inc.* . . . . . . . . . . 323,125
---------
632,500
---------
CASINOS/GAMING - 2.4%
17,000 Players International, Inc.* . . . . . . . . . . 359,125
---------

COMPUTERS - 8.1%
8,000 Cognex Corp.*. . . . . . . . . . . . . . . . . . 399,000
13,000 Digital Link Corp.*. . . . . . . . . . . . . . . 305,500
5,000 Micros Systems, Inc.*. . . . . . . . . . . . . . 170,625
9,000 Norand Corp.*. . . . . . . . . . . . . . . . . . 346,500
---------
1,221,625
---------
COMPUTER SERVICES - 1.9%
15,500 American Business Information, Inc.* . . . . . . 294,500
---------

COMPUTER SOFTWARE - 9.0%
16,000 Cheyene Software, Inc.*. . . . . . . . . . . . . 330,000
10,000 Electronic Arts, Inc.* . . . . . . . . . . . . . 380,000
15,000 Mercury Interactive Corp.* . . . . . . . . . . . 339,375
9,000 Remedy Corp.*. . . . . . . . . . . . . . . . . . 308,250
---------
1,357,625
---------
CONSUMER PRODUCTS - 1.8%
16,500 Inbrand Corp.* . . . . . . . . . . . . . . . . . 268,125
---------

DRUGS & MEDICAL PRODUCTS - 7.1%
12,500 Omnicare, Inc. . . . . . . . . . . . . . . . . . 415,625
15,500 Gelman Sciences, Inc.* . . . . . . . . . . . . . 292,563
20,500 Respironics, Inc.* . . . . . . . . . . . . . . . 363,875
---------
1,072,063
---------

ELECTRONICS - 4.2%
15,000 Methode Electronics, Inc. (Class A). . . . . . . 352,500
9,000 SDL, Inc.* . . . . . . . . . . . . . . . . . . . 285,750
---------
638,250
---------
FOOD SERVICES - 2.8%
10,500 Lone Star Steakhouse & Saloon* . . . . . . . . . 421,313
---------

HEALTHCARE SERVICES - 2.2%
12,000 MedPartners, Inc.* . . . . . . . . . . . . . . . 333,000
---------

HOUSEHOLD PRODUCTS - 2.3%
8,000 Department 56, Inc.* . . . . . . . . . . . . . . 354,000
---------
</TABLE>

B-11

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANAGE TRUST
SMALL CAPITALIZATION PORTFOLIO
SCHEDULES OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- -------------------------------------------------------------------------------

SHARES VALUE
- ----------------- ---------
<S> <C> <C> <C>
LEISURE - 2.4%
9,500 Coleman Company, Inc.* . . . . . . . . . . . . . $358,625
---------

LODGING - 2.5%
12,500 La Quinta Inns, Inc. . . . . . . . . . . . . . . 375,000
---------

MANUFACTURING - 4.6%
5,000 Novellus Systems, Inc.*. . . . . . . . . . . . . 368,437
18,000 Special Devices, Inc.* . . . . . . . . . . . . . 319,500
---------
687,937
---------
MISCELLANEOUS FINANCIAL SERVICES - 1.3%
13,500 Jayhawk Acceptance Corp.*. . . . . . . . . . . . 197,437
---------

PRINTING & PUBLISHING - 5.3%
6,000 Scholastic Corp.*. . . . . . . . . . . . . . . . 367,500
17,000 Thomas Nelson, Inc.. . . . . . . . . . . . . . . 433,500
---------
801,000
---------
RETAIL - 8.9%
9,000 Barnes & Noble, Inc.*. . . . . . . . . . . . . . 352,125
12,000 Dollar Tree Stores, Inc.*. . . . . . . . . . . . 357,000
8,000 Sunglass Hut International, Inc.*. . . . . . . . 340,000
9,500 The Men's Wearhouse, Inc.* . . . . . . . . . . . 298,062
---------
1,347,187
---------
TELECOMMUNICATIONS - 14.9%
7,000 Applied Innovation, Inc.*. . . . . . . . . . . . 341,250
12,000 Century Telephone Enterprises. . . . . . . . . . 334,500
18,500 Harmonic Lightwaves, Inc.* . . . . . . . . . . . 279,813
13,500 Midcom Communications, Inc.* . . . . . . . . . . 212,625
6,500 Picturetel Corp.*. . . . . . . . . . . . . . . . 365,625
8,000 Spectrian Corp.* . . . . . . . . . . . . . . . . 370,000
15,000 Teltrend, Inc.*. . . . . . . . . . . . . . . . . 352,500
---------
2,256,313
---------
TRANSPORTATION - 2.2%
13,500 Rural/Metro Corp.* . . . . . . . . . . . . . . . 327,375
---------

OTHER - 2.4%
16,000 RTW, Inc.* . . . . . . . . . . . . . . . . . . . 368,000
---------

TOTAL COMMON STOCKS
(cost--$12,068,146). . . . . . . . . . . . . .$14,376,875
----------

TOTAL INVESTMENTS
(cost--$12,998,146). . . . . . . . . . . . . . . . . 101.3% $15,306,875

Other Liabilities in Excess of
Other Assets . . . . . . . . . . . . . . . . . . . (1.3) (203,484)
--------- ---------

Total Net Assets . . . . . . . . . . . . . . . . . . 100.0% $15,103,391
--------- ---------
--------- ---------
</TABLE>
- -------------------------------------------------------
* Non-income producing security.

B-12

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULES OF INVESTMENTS
AUGUST 31, 1995
- -------------------------------------------------------------------------------

SHARES VALUE
- ----------------- ---------
<S> <C> <C> <C>
COMMON STOCKS - 85.0%
AUSTRALIA - 1.4%
METALS/MINING
1,500 Western Mining Corp. Holdings Ltd. ADR . . . . . $40,313
---------

FINLAND - 1.3%
TELECOMMUNICATIONS
530 Nokia Corp. ADR. . . . . . . . . . . . . . . . . 36,769
---------

FRANCE - 3.8%
AUTOMOTIVE - 1.6%
1,000 Valeo SA Sponsored ADR . . . . . . . . . . . . . 47,737
---------

OIL/GAS - 0.8%
604 Elf Aquitaine, Inc. ADR. . . . . . . . . . . . . 22,122
---------

TOBACCO/BEVERAGES/FOOD PRODUCTS - 1.4%
1,100 LVMH Moet Hennessy Louis Vuitton ADR . . . . . . 39,875
---------
109,734
---------
GERMANY - 4.4%
CHEMICALS - 2.2%
1,200 Bayer AG ADR . . . . . . . . . . . . . . . . . . 31,950
300 Hoechst AG ADR . . . . . . . . . . . . . . . . . 32,175
---------
64,125
---------
MACHINERY/ENGINEERING - 2.2%
200 Mannesmann AG ADR. . . . . . . . . . . . . . . . 63,045
---------
127,170
---------

HONG KONG - 8.2%
BANKING - 1.4%
300 HSBC Holdings Plc. ADR . . . . . . . . . . . . . 40,306
---------

CONGLOMERATE - 1.2%
1,500 Hutchison Whampoa Ltd. ADR . . . . . . . . . . . 36,140
---------

REAL ESTATE - 4.2%
10,000 Cheung Kong Holdings Ltd. ADR. . . . . . . . . . 49,607
9,000 Hopewell Holdings Ltd. Sponsored ADR . . . . . . 31,500
5,500 Sun Hung Kai Properties Ltd. ADR . . . . . . . . 39,966
---------
121,073
---------
TRANSPORTATION - 1.4%
5,300 Swire Pacific Ltd. Sponsored ADR . . . . . . . . 39,711
---------
237,230
---------
INDONESIA - 1.0%
TELECOMMUNICATIONS
800 Indonesian Satellite ADR . . . . . . . . . . . . 28,100
---------

ITALY - 2.3%
FURNITURE - 0.7%
584 Industrie Natuzzi Spa. ADR . . . . . . . . . . . 20,440
---------

TELECOMMUNICATIONS - 1.6%
1,500 Stet Societa Finanziaria Telefonica Sponsored
ADR. . . . . . . . . . . . . . . . . . . . . . 46,041
---------
66,481
---------

JAPAN - 41.1%
AUTOMOTIVE - 1.4%
1,000 Toyota Motor Corp. ADR . . . . . . . . . . . . . 39,375
---------
</TABLE>

B-13

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULES OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- -------------------------------------------------------------------------------

SHARES VALUE
- ----------------- ---------
<S> <C> <C>
JAPAN (CONT'D)
BANKING - 6.4%
400 Mitsubishi Trust & Banking Corp. ADR . . . . . . $66,567
600 Sakura Bank Ltd. ADR . . . . . . . . . . . . . . 63,708
300 Sumitomo Bank Ltd. Japan ADR . . . . . . . . . . 55,438
---------
185,713
---------
BUILDING & CONSTRUCTION - 4.0%
600 Asahi Glass ADR. . . . . . . . . . . . . . . . . 67,996
700 Taisei Construction Ltd. ADR . . . . . . . . . . 47,168
---------
115,164
---------
CHEMICALS - 1.8%
800 Asahi Chemical Industries Ltd. ADR . . . . . . . 53,090
---------

CONGLOMERATE - 2.0%
2,600 Mitsbushi Corp. Sponsored ADR. . . . . . . . . . 57,337
---------

DRUGS/MEDICAL PRODUCTS - 1.7%
300 Eisai Ltd. ADR . . . . . . . . . . . . . . . . . 48,394
---------

ELECTRONICS - 8.2%
300 Kyocera Corp. ADR. . . . . . . . . . . . . . . . 53,475
500 Secom Ltd. ADR . . . . . . . . . . . . . . . . . 65,648
450 Sharp Corp. ADR. . . . . . . . . . . . . . . . . 63,861
1,000 Sony Corp. ADR . . . . . . . . . . . . . . . . . 55,125
---------
238,109
---------
MANUFACTURING - 1.8%
350 Bridgestone Corp. ADR. . . . . . . . . . . . . . 51,456
---------

METALS & MINING - 2.1%
1,800 Kawasaki Steel Corp. Sponsored ADR . . . . . . . 61,564
---------

MISCELLANEOUS FINANCIAL SERVICES - 2.0%
300 Nomura Securities Ltd. ADR . . . . . . . . . . . 58,807
---------

PAPER PRODUCTS - 1.2%
400 OJI Paper Ltd. ADR.. . . . . . . . . . . . . . . 36,019
---------

PHOTOGRAPHY - 2.3%
750 Canon, Inc. ADR. . . . . . . . . . . . . . . . . 67,594
---------

REAL ESTATE - 1.4%
349 Mitsubishi Estate Co. Ltd. ADR . . . . . . . . . 40,976
---------

RETAIL - 2.5%
350 Ito-Yokado Co. Ltd. ADR. . . . . . . . . . . . . 74,025
---------

TELECOMMUNICATIONS - 2.3%
1,500 Nippon Telegraph & Telephone Corp. ADR . . . . . 68,250
---------
---------
1,195,873
---------
MALAYSIA - 1.0%
ENTERTAINMENT
3,500 Genting Berhad SH Malay ADR. . . . . . . . . . . 31,005
---------

NETHERLANDS - 1.4%
PRINTING/ PUBLISHING
476 Wolters Kluwer NV Sponsored ADR. . . . . . . . . 41,965
---------
</TABLE>

B-14

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULES OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- -------------------------------------------------------------------------------

SHARES VALUE
- ----------------- ---------
<S> <C> <C>
PHILIPPINES - 2.7%
TELECOMMUNICATIONS - 1.8%
850 Philippine Long Distance Telephone Co. ADR . . . $53,444
---------

TOBACCO/BEVERAGES/FOOD PRODUCTS - 0.9%
700 San Miguel Corp. ADR (Class B) . . . . . . . . . 24,441
---------
77,885
---------

SPAIN - 1.6%
OIL/GAS
1,500 Repsol SA Sponsored ADR. . . . . . . . . . . . . 47,437
---------

SWITZERLAND - 1.8%
DRUGS & MEDICAL PRODUCTS
800 Roche Holdings Ltd Sponsored ADR.. . . . . . . . 53,600
---------

UNITED KINGDOM - 13.0%
BANKING - 1.0%
685 Barclays Plc. ADR. . . . . . . . . . . . . . . . 30,568
---------

CONGLOMERATES - 1.9%
3,550 BET Plc. ADR . . . . . . . . . . . . . . . . . . 29,288
1,820 Rank Organisation Plc. Sponsored ADR . . . . . . 25,025
---------
54,313
---------
DRUGS & MEDICAL PRODUCTS - 1.1%
1,400 Glaxo Wellcome Plc. ADR. . . . . . . . . . . . . 33,250
---------

MANUFACTURING - 0.9%
1,700 Tomkins Plc. ADR . . . . . . . . . . . . . . . . 26,350
---------

MEDIA/BROADCASTING - 0.9%
800 Carlton Communications Plc. ADR. . . . . . . . . 26,000
---------

OIL/GAS - 0.6%
250 Shell Transport & Trading Plc. ADR . . . . . . . 17,344
---------

PRINTING/PUBLISHING - 0.7%
3,300 Rexam Plc. ADR . . . . . . . . . . . . . . . . . 21,450
---------

RETAIL - 1.6%
9,000 Tesco Plc. Sponsored ADR . . . . . . . . . . . . 45,520
---------

TELECOMMUNICATIONS - 1.0%
1,400 Cable & Wireless Plc. ADR. . . . . . . . . . . . 27,475
---------

TEXTILES/APPAREL - 1.4%
4,200 Coats Viyella Plc. Sponsored ADR*. . . . . . . . 40,794
---------

TOBACCO/BEVERAGES/FOOD PRODUCTS - 1.9%
1,368 Bass Plc. Sponsored ADR. . . . . . . . . . . . . 27,873
1,750 BAT Industries Plc. ADR. . . . . . . . . . . . . 27,563
---------
55,436
---------
378,500
---------
TOTAL COMMON STOCKS
(cost--$2,491,724) . . . . . . . . . . . . . .$2,472,062
---------

</TABLE>

B-15

<PAGE>

- -------------------------------------------------------------------------------
THE SARATOGA ADVANTAGE TRUST
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULES OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- -------------------------------------------------------------------------------

CONTRACTS VALUE
- ----------------- ---------
<S> <C> <C> <C>
PURCHASED PUT OPTION ON CURRENCY
OUTSTANDING - 2.1%
16 Philadelphia Stock Exchange Japanese Yen Put
expiring Dec. '95, @109.00
(cost - $36,745) . . . . . . . . . . . . . . . $59,600
---------

Total Investments
(cost--$2,528,469) . . . . . . . . . . . . . . . . 87.1% $2,531,662

Other Assets in Excess of
Other Liabilities. . . . . . . . . . . . . . . . . 12.9 375,093
--------- ---------

TOTAL NET ASSETS . . . . . . . . . . . . . . . . . . 100.0% $2,906,755
--------- ---------
--------- ---------
</TABLE>
- -------------------------------------------------------
* Non-income producing security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

B-16

<PAGE>

AUGUST 31, 1995
STATEMENTS OF ASSETS AND LIABILITIES

U.S. LARGE
GOVERNMENT INVESTMENT MUNICIPAL CAPITALIZATION
MONEY MARKET QUALITY BOND BOND VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ --------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value (cost--$5,200,106,
$4,221,596, $1,319,182, $5,135,498,
$9,420,199, $12,998,146 and
$2,528,469, respectively).............................. $5,200,106 $4,268,398 $1,342,027 $5,670,144
Cash.................................................... 1,065 78,056 80,498 12,693
Receivable from manager................................. 93,942 88,930 87,328 97,390
Deferred organization expenses.......................... 58,620 58,620 58,620 58,620
Receivable for shares of beneficial
interest sold......................................... 57,878 81,774 27,193 66,993
Receivable for investments sold......................... -- -- -- --
Interest receivable..................................... 6,460 69,425 20,218 --
Dividends receivable.................................... -- -- -- 6,259
Foreign tax receivable.................................. -- -- -- --
Prepaid expenses........................................ 382 383 382 382
------------ ------------ ------------ ------------
Total Assets....................................... 5,418,453 4,645,586 1,616,266 5,912,481
------------ ------------ ------------ ------------

LIABILITIES
Deferred organization payable to manager................ 66,199 66,199 66,199 66,199
Administration fee payable.............................. 42,000 42,000 42,000 42,000
Payable for shares of beneficial
interest redeemed..................................... -- -- -- 6,450
Payable for investments purchased....................... 200,000 -- -- 241,642
Other payables and accrued expenses..................... 38,228 34,553 30,643 41,500
------------ ------------ ------------ ------------
Total Liabilities.................................. 346,427 142,752 138,842 397,791
------------ ------------ ------------ ------------

NET ASSETS
Shares of beneficial interest at par value.............. 5,072 447 149 448
Paid-in-surplus......................................... 5,066,953 4,456,534 1,458,706 4,847,477
Accumulated undistributed net investment
income................................................ -- -- -- 46,159
Accumulated net realized gain(loss)
on investments........................................ 1 (949) (4,276) 85,960
Net unrealized appreciation on investments.............. -- 46,802 22,845 534,646
------------ ------------ ------------ ------------
Total Net Assets................................... $5,072,026 $4,502,834 $1,477,424 $5,514,690
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Shares of beneficial interest outstanding.............. 5,072,025 446,874 148,780 448,434
------------ ------------ ------------ ------------
Net asset value and offering price per share........... $1.00 $10.08 $9.93 $12.30
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

<CAPTION>
LARGE
CAPITALIZATION SMALL INTERNATIONAL
GROWTH CAPITALIZATION EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Investments, at value (cost--$5,200,106,
$4,221,596, $1,319,182, $5,135,498,
$9,420,199, $12,998,146 and
$2,528,469, respectively).............................. $10,618,728 $15,306,875 $2,531,662
Cash.................................................... 682,207 2,213 307,904
Receivable from manager................................. 96,120 123,458 91,865
Deferred organization expenses.......................... 58,620 58,620 58,620
Receivable for shares of beneficial
interest sold......................................... 190,703 77,432 18,586
Receivable for investments sold......................... 193,445 -- 46,873
Interest receivable..................................... -- -- --
Dividends receivable.................................... 9,703 1,615 3,865
Foreign tax receivable.................................. -- -- 814
Prepaid expenses........................................ 383 414 382
------------ ------------ ------------
Total Assets....................................... 11,849,909 15,570,627 3,060,571
------------ ------------ ------------

LIABILITIES
Deferred organization payable to manager................ 66,199 66,199 66,199
Administration fee payable.............................. 42,000 42,000 42,000
Payable for shares of beneficial
interest redeemed..................................... 9,014 12,825 9,476
Payable for investments purchased....................... 580,192 283,052 --
Other payables and accrued expenses..................... 45,253 63,160 36,141
------------ ------------ ------------
Total Liabilities.................................. 742,658 467,236 153,816
------------ ------------ ------------

NET ASSETS
Shares of beneficial interest at par value.............. 864 1,197 312
Paid-in-surplus......................................... 9,868,817 12,300,096 2,934,011
Accumulated undistributed net investment
income................................................ 8,991 1,294 13,971
Accumulated net realized gain(loss)
on investments........................................ 30,050 492,075 (44,732)
Net unrealized appreciation on investments.............. 1,198,529 2,308,729 3,193
------------ ------------ ------------
Total Net Assets................................... $11,107,251 $15,103,391 $2,906,755
------------ ------------ ------------
------------ ------------ ------------

Shares of beneficial interest outstanding.............. 863,712 1,197,210 311,650
------------ ------------ ------------
Net asset value and offering price per share........... $12.86 $12.62 $9.33
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

B-17

<PAGE>

FOR THE PERIOD SEPTEMBER 2, 1994 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 1995
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
U.S. LARGE
GOVERNMENT INVESTMENT MUNICIPAL CAPITALIZATION
MONEY MARKET QUALITY BOND BOND VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ --------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................................... $ -- $ -- $ -- $33,252 (1)
Interest................................................ 109,268 98,854 28,133 28,810
------------ ------------ ------------ -----------
Total investment income................................ 109,268 98,854 28,133 62,062
------------ ------------ ------------ -----------

OPERATING EXPENSES
Management fees (note 2a)............................... 8,979 8,751 2,994 14,958
Administration fees (note 2c)........................... 42,000 42,000 42,000 42,000
Transfer and dividend disbursing agent fees............. 26,891 26,976 10,347 39,538
Custodian fees.......................................... 15,881 16,034 22,032 20,445
Amortization of deferred organization
expenses (note 1c)..................................... 14,604 14,604 14,604 14,604
Auditing fees........................................... 7,586 7,585 8,485 8,486
Reports and notices to shareholders..................... 5,000 5,000 5,000 5,000
Legal fees.............................................. 2,002 2,002 2,002 2,002
Registration fees....................................... 1,673 1,503 493 1,662
Miscellaneous........................................... 1,766 1,766 1,766 1,766
------------ ------------ ------------ -----------
Total operating expenses............................... 126,382 126,221 109,723 150,461
Less: Management fees waived and
expenses assumed (note 2a)........................... (118,876) (119,110) (107,694) (141,203)
------------ ------------ ------------ -----------
Net operating expenses............................... 7,506 7,111 2,029 9,258
------------ ------------ ------------ -----------
Net investment income............................... 101,762 91,743 26,104 52,804
------------ ------------ ------------ -----------

REALIZED AND UNREALIZED
GAIN(LOSS) ON INVESTMENTS-NET
Net realized gain (loss) on securities.................. 1 (949) (4,276) 85,960
Net realized gain on options............................ -- -- -- --
------------ ------------ ------------ -----------
Net realized gain (loss) on investments................ 1 (949) (4,276) 85,960

Net unrealized appreciation on investments.............. -- 46,802 22,845 534,646
------------ ------------ ------------ -----------

Net realized gain (loss) and unrealized
appreciation on investments........................... 1 45,853 18,569 620,606
------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations............................. $101,763 $137,596 $44,673 $673,410
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------

<CAPTION>
LARGE
CAPITALIZATION SMALL INTERNATIONAL
GROWTH CAPITALIZATION EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................ $28,280 $11,257 $20,661 (1)
Interest................................................. -- 20,698 --
------------ ------------ ------------
Total investment income................................. 28,280 31,955 20,661
------------ ------------ ------------

OPERATING EXPENSES
Management fees (note 2a)............................... 22,118 42,603 10,987
Administration fees (note 2c)........................... 42,000 42,000 42,000
Transfer and dividend disbursing agent fees............. 43,498 84,290 30,880
Custodian fees.......................................... 28,254 30,051 13,385
Amortization of deferred organization
expenses (note 1c)..................................... 14,604 14,604 14,604
Auditing fees........................................... 7,585 7,586 9,586
Reports and notices to shareholders..................... 5,000 5,000 5,000
Legal fees.............................................. 2,002 2,002 2,002
Registration fees....................................... 3,382 4,228 1,013
Miscellaneous........................................... 1,769 1,791 1,766
------------ ------------ ------------
Total operating expenses............................... 170,212 234,155 131,223
Less: Management fees waived and
expenses assumed (note 2a)........................... (152,746) (206,628) (125,648)
------------ ------------ ------------
Net operating expenses............................... 17,466 27,527 5,575
------------ ------------ ------------

Net investment income............................... 10,814 4,428 15,086
------------ ------------ ------------

REALIZED AND UNREALIZED
GAIN(LOSS) ON INVESTMENTS-NET
Net realized gain (loss) on securities.................. 30,050 492,075 (64,082)
Net realized gain on options............................ -- -- 19,350
------------ ------------ ------------
Net realized gain (loss) on investments................ 30,050 492,075 (44,732)

Net unrealized appreciation on investments.............. 1,198,529 2,308,729 3,193
------------ ------------ ------------

Net realized gain (loss) and unrealized
appreciation on investments........................... 1,228,579 2,800,804 (41,539)
------------ ------------ ------------

Net increase (decrease) in net assets
resulting from operations.............................. $1,239,393 $2,805,232 ($26,453)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

(1) Net of foreign withholding taxes of $96 and $2,934 for Large
Capitalization Value and International Equity, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

B-18

<PAGE>

FOR THE PERIOD SEPTEMBER 2, 1994 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 1995
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
U.S. LARGE
GOVERNMENT INVESTMENT MUNICIPAL CAPITALIZATION
MONEY MARKET QUALITY BOND BOND VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ --------- --------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income................................. $101,762 $91,743 $26,104 $52,804
Net realized gain (loss) on investments............... 1 (949) (4,276) 85,960
Net unrealized appreciation on investments............ -- 46,802 22,845 534,646
------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations........................... 101,763 137,596 44,673 673,410
------------ ------------ ------------ -----------

DIVIDENDS TO SHAREHOLDERS
Net investment income................................. (101,762) (91,743) (26,104) (6,645)
------------ ------------ ------------ -----------

SHARE TRANSACTIONS OF
BENEFICIAL INTEREST
Net proceeds from sales............................... 5,475,388 4,973,274 1,680,554 6,169,560
Reinvestment of dividends............................. 100,393 89,810 25,671 6,623
Cost of shares redeemed............................... (603,756) (606,103) (247,370) (1,328,258)
------------ ------------ ------------ -----------
Net increase in net assets from share
transactions of beneficial interest................. 4,972,025 4,456,981 1,458,855 4,847,925

Total increase in net assets...................... 4,972,026 4,502,834 1,477,424 5,514,690
------------ ------------ ------------ -----------
NET ASSETS
Beginning of period................................... 100,000 0 0 0
------------ ------------ ------------ -----------
End of period (including undistributed net
investment income of $0, $0, $0, $46,159,
$8,991, $1,294 and $13,971, respectively)............ $5,072,026 $4,502,834 $1,477,424 $5,514,690
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------

SHARES OF BENEFICIAL INTEREST
ISSUED AND REDEEMED
Issued................................................ 5,475,388 499,131 172,119 568,685
Issued from reinvestment of dividends................. 100,393 9,006 2,624 669
Redeemed.............................................. (603,756) (61,263) (25,963) (120,920)
------------ ------------ ------------ -----------
Net increase......................................... 4,972,025 446,874 148,780 448,434
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------

DIVIDENDS PER SHARE
Net investment income................................. $0.052 $0.603 $0.510 $0.047
------------ ------------ ------------ -----------

<CAPTION>
LARGE
CAPITALIZATION SMALL INTERNATIONAL
GROWTH CAPITALIZATION EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------
<S> <C> <C> <C>

OPERATIONS
Net investment income................................. $10,814 $4,428 $15,086
Net realized gain (loss) on investments............... 30,050 492,075 (44,732)
Net unrealized appreciation on investments............ 1,198,529 2,308,729 3,193
------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations........................... 1,239,393 2,805,232 (26,453)
------------ ------------ ------------

DIVIDENDS TO SHAREHOLDERS
Net investment income................................. (1,823) (3,134) (1,115)
------------ ------------ ------------

SHARE TRANSACTIONS OF
BENEFICIAL INTEREST
Net proceeds from sales............................... 11,032,593 13,426,783 3,393,938
Reinvestment of dividends............................. 1,816 2,991 1,113
Cost of shares redeemed............................... (1,164,728) (1,128,481) (460,728)
------------ ------------ ------------
Net increase in net assets from share
transactions of beneficial interest................. 9,869,681 12,301,293 2,934,323
------------ ------------ ------------

Total increase in net assets...................... 11,107,251 15,103,391 2,906,755

NET ASSETS
Beginning of period................................... 0 0 0
------------ ------------ ------------
End of period (including undistributed net
investment income of $0, $0, $0, $46,159,
$8,991, $1,294 and $13,971, respectively)............ $11,107,251 $15,103,391 $2,906,755
------------ ------------ ------------
------------ ------------ ------------

SHARES OF BENEFICIAL INTEREST
ISSUED AND REDEEMED
Issued................................................ 968,006 1,300,430 361,971
Issued from reinvestment of dividends................. 182 308 118
Redeemed.............................................. (104,476) (103,528) (50,439)
------------ ------------ ------------
Net increase......................................... 863,712 1,197,210 311,650
------------ ------------ ------------
------------ ------------ ------------

DIVIDENDS PER SHARE
Net investment income................................. $0.013 $0.014 $0.009
------------ ------------ ------------

</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

B-19

<PAGE>

AUGUST 31, 1995
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The Saratoga Advantage Trust (the "Trust") was organized on April 8, 1994
as a Delaware Business Trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust commenced investment operations on September 2, 1994. The Trust
consists of seven portfolios: the U.S. Government Money Market Portfolio; the
Investment Quality Bond Portfolio; the Municipal Bond Portfolio; the Large
Capitalization Value Portfolio; the Large Capitalization Growth Portfolio; the
Small Capitalization Portfolio and the International Equity Portfolio. Saratoga
Capital Management (the "Manager") serves as the Trusts' manager. Each of the
Portfolios are provided with discretionary advisory services of an Adviser
identified, retained, supervised and compensated by the Manager. The following
serve as Advisers (the "Advisers") to their respective portfolio(s): Quest for
Value Advisors: Municipal Bond and Large Capitalization Value; Fox Asset
Management, Inc.: Investment Quality Bond; Harris Bretall Sullivan and Smith,
Inc.: Large Capitalization Growth; Axe-Houghton Associates, Inc.: Small
Capitalization; Sterling Capital Management Co.: U.S. Government Money Market
and Ivory & Sime International, Inc.: International Equity. Quest for Value
Advisors (the "Administrator") provides the Trust with administrative services.
Quest for Value Distributors (the "Distributor") serves as the Trusts'
distributor. The Manager, Administrator and Distributor are all affiliates of
Oppenheimer Capital. On August 19, 1994, U.S. Government Money Market issued
100,000 shares to the manager for $100,000 to provide initial capital for the
Trust.

The following is a summary of significant accounting policies consistently
followed by each Portfolio in the preparation of its financial statements:

(a) VALUATION OF INVESTMENTS

Investment securities listed on a national securities exchange and
securities traded in the over-the-counter National Market System are valued at
the last reported sale price on the valuation date; if there are no such
reported sales, the securities are valued at the last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short -term obligations) are valued each day by an independent pricing service
approved by the Board of Trustees using methods which include current market
quotations from a major market maker in the securities and trader-reviewed
"matrix" prices. Short-term debt securities having a remaining maturity of sixty
days or less are valued at amortized cost or amortized value, which approximates
market value. Any securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by the Board of Trustees. The ability of issuers of
debt securities held by the portfolios to meet their obligations may be affected
by economic or political developments in a specific state, industry or region.
U.S. Government Money Market values all of its securities on the basis of
amortized cost which approximates market value. Investments in countries in
which International Equity may invest may involve certain considerations and
risks not typically associated with domestic investments as a result of, among
others, the possibility of future political and economic developments and the
level of governmental supervision and regulation of foreign securities markets.

(b) FEDERAL INCOME TAX

It is each Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantally all of its taxable and tax-exempt income to
shareholders; accordingly, no federal income tax provision is required.

In connection with the Trust's organization, each Portfolio incurred
approximately $73,000 in costs. These costs have been deferred and are being
amortized to expense on a straight-line basis over sixty months from
commencement of operations.

(d) SECURITY TRANSACTIONS AND OTHER INCOME

Security transactions are accounted for on the trade date. In determining
the gain or loss from the sale of securities, the cost of securities sold is
determined on the basis of identified cost. Dividend income is recorded on the
ex-dividend date and interest income is accrued as earned. Discounts or premiums
on debt securities purchased are accreted or amortized to interest income over
the lives of the respective securities.

(e) DIVIDENDS AND DISTRIBUTIONS

The following table summarizes each Portfolio's dividend and capital gain
declaration policy:

INCOME SHORT-TERM LONG-TERM
DIVIDENDS CAPITAL GAINS CAPITAL GAINS
---------------------------------------
U.S. Government Money Market daily * annually annually
Investment Quality Bond daily * annually annually
Municipal Bond daily * annually annually
Large Capitalization Value annually annually annually
Large Capitalization Growth annually annually annually
Small Capitalization annually annually annually
International Equity annually annually annually
* paid monthly

Each Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized gains are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either permanent or
temporary in nature. To the extent these differnces are permanent in nature,
such amounts are reclassified within the net asset accounts based on their
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized gains for financial reporting purposes but not for tax purposes
are reported as dividends in excess of net investment income or distributions in
excess of net realized gains, respectively. To the extent distributions exceed
current and accumulated earnings and profits for federal income tax purposes,
they are reported as distributions of paid-in-surplus or tax return of capital.
For the period September 2, 1994 (commencement of operations) to August 31,
1995, there were no permanent book-tax differences relating to shareholder
distributions. Net investment income, net realized gain(loss) and net assets
were not affected.

B-20

<PAGE>

AUGUST 31, 1995
NOTES TO FINANCIAL STATEMENTS

(f) PURCHASED PUT OPTION ACCOUNTING POLICY

When a Portfolio purchases a put option, it pays a premium and an amount
equal to the premium is recorded as an investment. The option is
subsequently marked-to-market to reflect it's current market value. The
Portfolio, as purchaser of an option, has control over whether the option is
exercised. If an option expires unexercised, the Portfolio realizes a loss in
the amount of the premium paid. If an option is exercised, the premium paid
is an adjustment to the proceeds from the sale in determining whether the
Portfolio has realized a gain or loss. The difference between the premium
paid and the amount received on effecting a closing sale transaction is the
realized gain or loss.

The Portfolio, as a purchaser of an option, bears the risk of the potential
inability of the counter parties to meet the terms of their contracts.

(g) ALLOCATION OF EXPENSES

Expenses specifically identifiable to a particular Portfolio are borne by
that Portfolio. Other expenses are allocated to each Portfolio based on its
net assets in relation to the total net assets of all the applicable Portfolios
or another reasonable basis.

2. MANAGEMENT FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS WITH AFFILIATES

(a) The management fees, payable monthly to the Manager, are computed daily
at the following annual rates of each Portfolios' average daily net assets:
.475% for U.S. Government Money Market; .55% for Investment Quality Bond and
Municipal Bond; .65% for Large Capitalization Value, Large Capitalization Growth
and Small Capitalization and .75% for International Equity.

For the period September 2, 1994 (commencement of operations) to August 31,
1995, the Manager has voluntarily waived all management fees and assumed
$109,897, $110,359, $104,700, $126,245, $130,628, $164,025 and $114,661, in
other operating expenses for U.S. Government Money Market, Investment Quality
Bond, Municipal Bond, Large Capitalization Value, Large Capitalization Growth,
Small Capitalization and International Equity, respectively.

(b) The Manager pays a portion of its management fees to the Advisers at
the following annual rates of each Portfolios' average daily net assets:
.125% for U.S. Government Money Market; .20% for Investment Quality Bond and
Municipal Bond; .30% for Large Capitalization Value, Large Capitalization Growth
and Small Capitalization and .40% for International Equity. For the period
September 2, 1994 (commencement of operations) to June 30, 1995 the Advisers
waived this fee.

(c) The administration fee is accrued daily and payable monthly to the
Administrator at an annual rate of $42,000 for each Portfolio, provided that
each Portfolio's net assets do not exceed $80 million. In the event that a
Portfolio's net assets exceed $80 million, an additional fee of .05% of net
assets in excess of $80 million shall be payable by the Portfolio.

For the period September 2, 1994 (commencement of operations) to August 31,
1995 each Portfolio accrued $42,000 in administrative fees.

(d) Total brokerage commissions paid by Investment Quality Bond, Large
Capitalization Value and Small Capitalization were $567, $8,087 and $14,454,
respectively. Oppenheimer & Co., Inc., an affiliate of the Manager, received
$5,953 and $578 from Large Capitalization Value and Small Capitalization,
respectively, and Hoeing & Co., Inc. an affiliate of Axe-Houghton Associates,
Inc., received $188 and $5,860 from Investment Quality Bond and Small
Capitalization, respectively, for the period September 2, 1994 (commencement of
operations) to August 31, 1995.

3. PURCHASE AND SALES OF SECURITIES

For the period September 2, 1994 (commencement of operations) to August 31,
1995, purchases and sales of investment securities, other than
short-term securities were as follows:

PURCHASES SALES
-------------------------------
Investment Quality Bond $ 4,498,169 $ 280,246
Municipal Bond 1,261,019 137,701
Large Capitalization Value 4,578,562 647,640
Large Capitalization Growth 10,191,867 801,718
Small Capitalization 19,040,439 7,464,849
International Equity 3,047,699 474,498

For the period September 2, 1994 (commencement of operations) to August 31,
1995, U.S. Government Money Market had purchases and sales/maturities of
short-term securities of $34,513,140 and $29,419,784, respectively.

4. UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES

At August 31, 1995, the composition of unrealized appreciation
(depreciation) of investment securities and the cost of investments for Federal
income tax purposes were as follows:

Appreciation (Depreciation) Net Tax Cost
----------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Quality Bond $ 46,443 ($426) $ 46,017 $4,222,381
Municipal Bond 24,248 (1,403) 22,845 1,319,182
Large Capitalization Value 560,284 (25,638) 534,646 5,135,498
Large Capitalization Growth 1,354,529 (156,000) 1,198,529 9,420,199
Small Capitalization 2,444,848 (136,454) 2,308,394 12,998,481
International Equity 97,887 (119,139) (21,252) 2,552,914
</TABLE>

5. AUTHORIZED SHARES OF BENEFICIAL INTEREST AND PAR VALUE PER SHARE

Each Portfolio has unlimited shares of beneficial interest authorized with
$.001 par value per share.

6. CAPITAL LOSS CARRYFORWARD

For the period September 2, 1994 (commencement of operations) to August 31,
1995, International Equity had capital loss carryfowards of $821, which will be
available, to the extent provided by regulations, to offset future net capital
gains realized through the fiscal year ending 2003 and reduce amounts
distributable to shareholders.

B-21

<PAGE>

FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

INCOME FROM
INVESTMENT OPERATIONS DIVIDENDS
------------------------------------------ ---------
NET
REALIZED DIVIDENDS TO
NET ASSET AND TOTAL SHAREHOLDERS NET ASSET
VALUE, NET UNREALIZED FROM FROM NET VALUE,
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMEN INVESTMENT END OF
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME PERIOD

U.S. GOVERNMENT MONEY MARKET PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 $1.000 (4) $0.052 $0.000 $0.052 ($0.052) $1.000

<CAPTION>
RATIOS
--------------------------------------------
RATIO OF NET RATIO OF NET
NET ASSETS OPERATING INVESTMENT
END OF EXPENSES INCOME PORTFOLIO
TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER
RETURN* (000'S) NET ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C> <C>
SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 5.36% $5,072 0.40%(1) 5.38%(1) --

<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS DIVIDENDS
------------------------------------------ ---------
NET
REALIZED DIVIDENDS TO
NET ASSET AND TOTAL SHAREHOLDERS NET ASSET
VALUE, NET UNREALIZED FROM FROM NET VALUE,
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMEN INVESTMENT END OF
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME PERIOD

INVESTMENT QUALITY BOND PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 $10.00 (4) $0.60 $0.08 $0.68 ($0.60) $10.08

RATIOS
--------------------------------------------
RATIO OF NET RATIO OF NET
NET ASSETS OPERATING INVESTMENT
END OF EXPENSES INCOME PORTFOLIO
TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER
RETURN* (000'S) NET ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C> <C>
SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 7.12% $4,503 0.45%(1) 5.77%(1) 18%

MUNICIPAL BOND PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 $10.00 (4) $0.51 ($0.07) $0.44 ($0.51) $9.93

LARGE CAPITALIZATION VALUE PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 $10.00 (4) $0.15 $2.20 $2.35 ($0.05) $12.30

LARGE CAPITALIZATION GROWTH PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 $10.00 (4) $0.02 $2.85 $2.87 ($0.01) $12.86

SMALL CAPITALIZATION PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 $10.00 (4) $0.02 $2.61 $2.63 ($0.01) $12.62

SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 26.38% $15,103 0.42%(1) 0.07%(1) 111%

INTERNATIONAL EQUITY PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 $10.00 (4) $0.05 ($0.71) ($0.66) ($0.01) $9.33

SEPTEMBER 2, 1994 (3)
TO AUGUST 31, 1995 (6.61%) $2,907 0.38%(1) 1.03%(1) 36%

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

(2) AVERAGE DAILY NET ASSETS FOR THE PERIOD SEPTEMBER 2, 1994 (COMMENCEMENT OF
OPERATIONS) TO AUGUST 31, 1995 WERE $1,895,581, $1,595,477, $545,904,
$2,307,493, $3,412,058, $6,572,389 AND $1,469,003 FOR U.S. GOVERNMENT MONEY
MARKET, INVESTMENT QUALITY BOND, MUNICIPAL BOND, LARGE CAPITALIZATION VALUE,
LARGE CAPITALIZATION GROWTH, SMALL CAPITALIZATION AND INTERNATIONAL EQUITY,
RESPECTIVELY.
(3) COMMENCEMENT OF OPERATIONS.
(4) OFFERING PRICE.
(5) ANNUALIZED.

* Assumes reinvestment of all dividends. Aggregate (not annualized) total
return is shown for any period shorter than one year.

B-22
<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Shareholders and Board of Trustees of
The Saratoga Advantage Trust:

We have audited the accompanying statements of assets and liabilities including
the schedules of investments of The Saratoga Advantage Trust (comprising,
respectively, the U.S. Government Money Market, Investment Quality Bond,
Municipal Bond, Large Capitalization Value, Large Capitalization Growth, Small
Capitalization and International Equity Portfolios), as of August 31, 1995, and
the related statements of operations, changes in net assets and financial
highlights for the period September 2, 1994 (commencement of operations) to
August 31, 1995. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsiblity is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting The Saratoga Advantage Trust as of
August 31, 1995, the results of their operations, the changes in their net
assets and the financial highlights for the period September 2, 1994
(commencement of operations) to August 31, 1995, in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

New York, New York
October 13, 1995

B-23