THE SARATOGA ADVANTAGE TRUST
ANNUAL REPORT
AS OF AUGUST 31, 1997
TABLE OF CONTENTS
Chairman's Page 1
Letter..........................................................................
Investment Page 3
Review..........................................................................
Schedules of Page 17
Investments.....................................................................
Statements of Assets and Page 36
Liabilities.....................................................................
Statements of Page 37
Operations......................................................................
Page 38
Statements of Changes in Net Assets.............................................
Notes to Financial Page 40
Statements......................................................................
Financial Page 43
Highlights......................................................................
Independent Auditor's Page 45
Report..........................................................................
Tax Page 46
Information.....................................................................
Page 47
Saratoga Shareholders' Meeting/Votes............................................
This report is authorized for distribution only to shareholders
and to others who have received a copy of the prospectus.
<PAGE>
TRUSTEES AND OFFICERS
Bruce E. Ventimiglia Trustee, Chairman, President & CEO
Patrick H. McCollough Trustee
Udo W. Koopmann Trustee
Floyd E. Seal Trustee
Scott C. Kane Vice President & Secretary
Stephen Ventimiglia Vice President
William Marra Treasurer & Chief Financial Officer
Michael Durham Assistant Treasurer
Carol Highsmith Assistant Secretary
Investment Manager Distributor
Saratoga Capital Management Unified Management Corporation
1501 Franklin Avenue 429 North Pennsylvania Street
Mineola, NY 11501-4803 Indianapolis, IN 46204
Transfer and Shareholder Servicing Agent Custodian
State Street Bank and Trust Company State Street Bank and Trust Company
P.O. Box 8514 P.O. Box 351
Boston, MA 02266 Boston, MA 02101
<PAGE>
THE SARATOGA ADVANTAGE TRUST
Annual Report to Shareholders
October 23, 1997
Dear Shareholder:
We are pleased to provide you with this annual report on the investment
strategies and performance of the portfolios in the Saratoga Advantage Trust.
This report covers the twelve months from September 1, 1996 through August 31,
1997, a period of positive domestic stock and bond investment returns. During
this period of time, U.S. stocks provided a total return of 40.7%, as measured
by the Standard and Poor's 500 Index, while the total return for bonds was 8.4%,
as gauged by the Lehman Intermediate Government/Corporate Bond Index.
International stocks also produced positive returns during the period, gaining
9.1% as reported by the Morgan Stanley Europe, Australia and Far East (EAFE)
Index.
Asset Allocation - The Investment "Compass" That Provides Investors
-------------------------------------------------------------------
With An Opportunity To Remove Investment Extremes
-------------------------------------------------
Asset allocation is an investor's investment balance between stocks, bonds,
money market funds and other assets. A key goal of asset allocation is to
establish a "comfortable" blend of investments that helps keep investors
invested long-term to try to achieve their investment goals, such as: college
education funding or supporting a dignified retirement. To help investors
establish a comfortable blend of investments, many asset allocation programs
will assist them in evaluating their risk tolerances, income needs and
investment time horizons.
A well designed asset allocation strategy often times results in investors
investing in a blend of asset classes (for example, a combination of stock, bond
and money market mutual funds). By investing in a blend of various asset classes
instead of investing at the extremes in only one asset class (such as only
investing in money market funds - a relatively conservative investment approach,
or only investing in stock funds - a relatively aggressive investment posture),
investors should expect to get blended rates of return and risk over the long
haul. On the other hand, investors investing at the extremes should expect to
get extreme rates of return and risk over the long run (that is, low rates of
return accompanied by low risk, or high rates of return along with high risk).
Using asset allocation as an investment "compass" can help investors find a
comfortable blend of investments that matches their risk tolerances. A well
established asset allocation strategy can help investors to stay disciplined and
patient through full market cycles (i.e., through both market declines and
advances). To achieve long-term investment goals, it is important that investors
establish the proper asset allocation strategies for themselves so that they
stay invested over the long haul - they don't quit on their investment plans.
The Saratoga Advantage Trust has been designed to help investors effectively
implement their asset allocation strategies. As I mentioned in last year's
Annual Report to Shareholders, to try to achieve good long-term investment
results, don't let short-term stock and bond market fluctuations change your
investment strategy. Your financial advisor can help you establish a sensible
asset allocation strategy to help you pursue your long-term investment goals.
Following you will find specific information on the investment strategy and
performance of each of the portfolios. Please speak with your financial advisor
if you have any questions about your investment in the Saratoga Advantage Trust
or your allocation of assets among the portfolios.
We remain dedicated to serving your investment needs. Thank you for investing
with us.
Best wishes,
Bruce E. Ventimiglia
Chairman, President and
Chief Executive Officer
<PAGE>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
Advised by:
Sterling Capital Management
Charlotte, North Carolina
Objective: Seeks maximum current income, consistent with the maintenance of
liquidity and the preservation of capital. The Portfolio invests exclusively in
short-term securities and related repurchase agreements issued by the United
States Government, its agencies and instrumentalities.
<TABLE>
<S> <C> <C> <C> <C>
U.S. Government Money 90 Day T-Bills
7-Day Market Portfolio Average Discount
Compound Yield Yield
- --------------------------------- ------------------------ ------------------------
8/31/97 4.5% 5.1%
Total Aggregate U.S. Government Money Lipper U.S.
Return for the Period Market Portfolio Treasury Money
Ended August 31, 1997 Market Average1 90 Day T-Bills
- --------------------------------- ------------------------ ------------------------ --------------------
Since Inception (9/1/94)* 4.8% 4.8% 5.2%
9/1/96 - 8/31/97 4.4% 4.4% 5.1%
3/1/97 - 8/31/97 2.3% 2.1% 2.5%
</TABLE>
*Annualized performance for periods greater than one year
By taking advantage of changes in short-term interest rates and utilizing a
variety of sectors within the short-term government market, Sterling Capital
Management seeks to maximize the Portfolio's yield while maintaining a constant
net asset value of $1.00 per share.
The Portfolio was invested primarily in U.S. Government Agency Notes as of
August 31, 1997, due to the higher yields versus Treasury Bills. The average
dollar-weighted portfolio maturity was 65 days, compared with a maximum
allowable average maturity of 90 days.
As the Federal Reserve's targeted funds rate remained at 5.25% through the
second half of 1996, Sterling maintained an average Portfolio maturity of
between 55 and 65 days. By the close of the first quarter of 1997 the target
rate had been increased by .25%, and the Portfolio was invested in a greater
percentage of shorter-term securities. After potential threats of further rate
increases were removed, longer-term securities were purchased to lock in more
attractive yields. With stable-to-declining short term rates and a
non-inflationary economy, we have maintained an average maturity of
approximately 65 days compared to a maximum of 90 days.
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.
1. The Lipper U.S. Treasury Money Market Fund Average consists of the 30 largest
mutual funds that invest principally in U.S. Treasury obligations with
dollar-weighted average maturities of less than 90 days. These funds intend to
keep a constant net asset value.
Past performance is not predictive of future performance.
<PAGE>
INVESTMENT QUALITY BOND PORTFOLIO
Advised by:
Fox Asset Management, Inc.
Little Silver, New Jersey
Objective: Seeks current income and reasonable stability of principal through
investment in a diversified portfolio of investment quality, actively managed
fixed income securities.
<TABLE>
<S> <C> <C> <C> <C>
Lipper
Short-Intermediate Lehman
Investment Intermediate
Total Aggregate Investment Quality Grade Debt Funds Government/
Return for the Period Bond Portfolio Average1 Corporate
Ended August 31, 1997 Bond Index2
- ---------------------------------- -------------------- -------------------- --------------------
Since Inception (9/1/94)* 5.8% 6.7% 7.4%
9/1/96 - 8/31/97 7.2% 7.4% 8.4%
3/1/97 - 8/31/97 3.2% 3.2% 3.8%
</TABLE>
*Annualized performance for periods greater than one year
The Portfolio seeks to provide high income by investing primarily in investment
grade bonds with maturities between 2 and 10 years. In the annual period ended
August 31, 1997, the Portfolio distributed dividends of $0.51 per share.
Investments are normally divided approximately evenly between U.S. Government
and corporate securities. Due to the current phenomenon of tight supply and only
a slight yield advantage available in corporate securities, there is greater
emphasis on U.S. Government holdings in the Portfolio at this time.
Fox Asset Management will continue to focus on those instruments that offer
improving credit quality and liquidity. Due to the challenge of trying to
preserve principal in the current volatile market environment, Fox is
maintaining a conservative investment posture with an average maturity of 3.5
years, and an average duration of 3.0 years in the Portfolio.
Other portfolio statistics as of August 31, 1997 are as follows: Average
yield-to-maturity was 6.3%, average coupon was 6.4%, and the average Moody's
Rating was Aa1 with 20 fixed income issues held.
<PAGE>
INVESTMENT QUALITY BOND PORTFOLIO
Advised by:
Fox Asset Management, Inc.
Little Silver, New Jersey
- --------------------------------------------------------------------------------
(Line graph comparing the initial account value and subsequent account values
at the end of each fiscal year since inception of the registrant, assuming
a $10,000 investment in the Portfolio at the beginning of the first fiscal
year, to the same investment over the same periods in The Lipper Short -
Intermediate Investment Grade Debt Funds Average and The Lehman Intermediate
Government/Corporate Bond Index)
- --------------------------------------------------------------------------------
1. The Lipper Short-Intermediate Investment Grade Debt Funds Average
consists of the 30 largest mutual funds that invest at least 65% of their
assets in investment grade debt issues (rated in the top four grades) with
dollar-weighted average maturities of 1 to 5 years.
2. The Lehman Intermediate Government/Corporate Bond Index is composed of
the bonds in the Lehman Government/Corporate Bond Index that have
maturities between 1 and 9.99 years. The Lehman Government/Corporate Bond
Index consists of approximately 5,400 issues. The securities must be
investment grade (BAA or higher) with amounts outstanding in excess of $1
million and have at least one year to maturity. Total return comprises
price appreciation/depreciation and income as a percentage of the original
investment. The indexes are rebalanced monthly by market capitalization.
Past performance is not predictive of future performance.
MUNICIPAL BOND PORTFOLIO
Advised by:
OpCap Advisors
New York, New York
Objective: Seeks a high level of interest income exempt from federal income
taxation, consistent with prudent investment management and the
preservation of capital.
<TABLE>
<S> <C> <C> <C> <C>
Lipper General
Total Aggregate Municipal Lehman
Return for the Period Municipal Bond Debt Funds Average1 Municipal
Ended August 31, 1997 Portfolio Bond Index2
- ------------------------------------ -------------------- ---------------------- -------------------
Since Inception (9/1/94)* 5.7% 7.1% 7.8%
9/1/96 - 8/31/97 7.7% 8.8% 9.3%
3/1/97 - 8/31/97 3.4% 3.9% 3.9%
*Annualized performance for periods greater than one year
</TABLE>
Though the economy continued to show impressive strength over the past
twelve months, inflation has remained very much under control. In fact,
inflation has actually declined over the past year which has led some of
the investment community to believe that the U.S. can sustain rapid growth
without major price pressures. This new "paradigm" thinking has propelled
the bond market towards considerably lower yields. It is safe to say that
the current economic boom would have been sufficient to send the bond
market reeling only a few years ago. The Federal Reserve, after raising the
Fed Funds earlier in the year, has been on permanent hold as they attempt
to understand this new economic environment. The municipal market's
performance has moderately lagged behind the taxable market for no apparent
reason other than occasional supply pressures. The political environment
for municipals is favorable as there is no major legislation on the table
which threatens the viability of the municipal market.
As of August 31, 1997, the Portfolio was invested in a diversified group of
municipals with an average weighted maturity of 17 years, while 95% of the
Portfolio's investments were rated A or better by Standard & Poor's or
Moody's indicating the high quality of the Fund. The four largest sectors
represented in the Portfolio were: general obligations 33%, power 14%,
education 12% and health & hospital 12%. The largest holdings by state
included: Georgia, 15%; New York, 14%; Texas, 10%; and California, 7%.
MUNICIPAL BOND PORTFOLIO
Advised by:
OpCap Advisors
New York, New York
- --------------------------------------------------------------------------------
( Line graph comparing the initial account value and subsequent account values
at the end of each fiscal year since inception of the Registrant, assuming a
$10,000 investment in the Portfolio at the beginning of the first fiscal year,
to the same investment over the same periods in The Lipper General Municipal
Debt Funds Average and The Lehman Brothers Municipal Bond Index)
- --------------------------------------------------------------------------------
1. The Lipper General Municipal Debt Funds Average consists of the 30
largest mutual funds that invest at least 65% of their assets in municipal
debt issues in the top four credit ratings.
2. The Lehman Brothers Municipal Bond Index consists of approximately
25,000 municipal bonds which are selected to be representative of the
long-term, investment grade tax-exempt bond market. The bonds selected for
the index have the following characteristics: a minimum credit rating of at
least Baa; an original issue of at least $50 million; at least $3 million
of the issue outstanding; issued within the last five years; and a maturity
of at least one year.
Past performance is not predictive of future performance.
<PAGE>
LARGE CAPITALIZATION VALUE PORTFOLIO
Advised by:
OpCap Advisors
New York, New York
Objective: Seeks total return consisting of capital appreciation and
dividend income by investing in a diversified portfolio of common stocks
that are believed to be undervalued in the market and offer above-average
price appreciation potential.
<TABLE>
<S> <C> <C> <C> <C> <C>
Large Lipper Capital
Total Aggregate Capitalization Appreciation S & P/Barra
Return for the Period Value Portfolio Funds Average1 S &P 500 Value
Ended August 31, 1997 Index2 Index3
- ---------------------------------- ------------------- ------------------- ------------------- --------------------
Since Inception (9/1/94)* 24.8% 19.1% 26.6% 24.3%
9/1/96 - 8/31/97 31.4% 25.0% 40.7% 37.1%
3/1/97 - 8/31/97 14.3% 15.0% 14.8% 14.0%
*Annualized performance for periods greater than one year
</TABLE>
The Saratoga Large Capitalization Value Portfolio is designed for the
long-term investor who seeks to preserve capital and make it grow. As
disciplined value investors, we seek to invest in superior companies at
reasonable prices. Our philosophy is based on the concept that the single
most important determinant of whether a stock will increase in value is the
rate of return on invested capital within the company. We believe companies
with high returns can increase their value for extended periods. Therefore,
we look for companies with above-average returns where those returns are
protected by strong competitive positions, and we want to buy those
companies at what we consider to be reasonable prices.
Strong contributors to the portfolio performance included ACE Ltd., EXEL
Ltd., Caterpillar Inc., AFLAC Inc., and Citicorp. The Portfolio owned the
common stocks of 41 companies as of August 31, 1997. The five largest
holdings were: ACE Ltd., one of the leading providers of excess liability
insurance in the world; EXEL Ltd., a strongly capitalized specialty
insurance company; Lockheed Martin Corporation, a major aeronautics and
technology company; Caterpillar Inc., the world's largest producer of
construction equipment; and General Re Corp.
<PAGE>
LARGE CAPITALIZATION VALUE PORTFOLIO
Advised by:
OpCap Advisors
New York, New York
- --------------------------------------------------------------------------------
(Line graph comparing the initial account value and subsequent account values
at'''; end of each fiscal year simnce inception of the Resistrant, assuming a
$10,000 investment in the Portfolio at the beginning of the first fiscal year,
to the same investment over the same periods in The Lipper Capital Appreciation
Funds Average, The Standard & Poor's 500 and The S&P/Barra Value Index)
- --------------------------------------------------------------------------------
1. The Lipper Capital Appreciation Funds Average consists of the 30 largest
mutual funds that aim at maximum capital appreciation, frequently by means
of 100% or more portfolio turnover, leveraging, purchasing unregistered
securities, purchasing options, etc. (the funds may take large cash
positions).
2. The Standard & Poor's 500 is a capital weighted index representing the
aggregate market value of the common equity of 500 stocks primarily traded
on the NYSE. These 500 stocks are composed of 400 industrial, 40 utility,
40 financial, and 20 transportation companies. The weight of each stock in
the index is proportional to its price times its shares outstanding. The
Standard & Poor's 500 is an unmanaged index and includes the reinvestment
of all dividends.
3. The S&P/Barra Value Index is constructed by dividing the stocks in the
S&P 500 Index according to price-to-book ratios. This unmanaged Index
contains stocks with lower price-to-book ratios and is market
capitalization weighted.
Past performance is not predictive of future performance.
LARGE CAPITALIZATION GROWTH PORTFOLIO
Advised by:
Harris Bretall Sullivan & Smith, Inc.
San Francisco, California
Objective: Seeks capital appreciation by investing in a diversified
portfolio of common stocks that, in the advisor's opinion, have faster
earnings growth potential than the Standard & Poor's 500.
<TABLE>
<S> <C> <C> <C> <C> <C>
Large
Total Aggregate Capitalization Lipper Growth S & P/Barra
Return for the Period Growth Portfolio Funds Average1 S & P 500 Growth
Ended August 31, 1997 Index2 Index3
- --------------------------------- ------------------- -------------------- -------------------- --------------------
Since Inception (9/1/94)* 21.5% 22.3% 26.6% 28.7%
9/1/96 - 8/31/97 35.8% 34.5% 40.7% 44.0%
3/1/97 - 8/31/97 14.1% 15.2% 14.8% 15.4%
*Annualized performance for periods greater than one year
</TABLE>
Harris Bretall Sullivan & Smith, Inc. (HBSS) analyzes a universe of
approximately 300 established, high-quality, growth-oriented companies. The
Portfolio is invested in stocks that rank in the top one-third of this
universe. The HBSS Strategy Team meets daily and makes all firm investment
decisions. The Strategy Team sets the firm's economic framework, reviews
specific holdings and monitors recent news announcements and company data.
Harris Bretall's proven philosophy is that the price of a stock will follow
the corporate earnings of that company----PRICE FOLLOWS EARNINGS. To that
end, the firm seeks to build a portfolio of high quality, U.S. based
companies growing corporate earnings at better than 15% per year. .
Harris Bretall forecasts that the economy is likely to continue at a 3%-4%
rate of GDP expansion, while inflation will remain below 3% and long-term
interest rates will be stable to lower. Harris Bretall also believes that
stock prices will continue to appreciate without a significant correction
through the end of the decade, and that the large U.S. based growth
companies will lead the markets charge upward.
As of August 31, 1997, the Portfolio was invested 99% in stocks with
concentrations in technology, health care, financial services and consumer
companies with global franchises.
<PAGE>
LARGE CAPITALIZATION GROWTH PORTFOLIO
Advised by:
Harris Bretall Sullivan & Smith, Inc.
San Francisco, California
- --------------------------------------------------------------------------------
(Line graph comparing the initial account value and subsequent account values at
the end of each fiscal year since inception of the Registrant, assuming a
$10,000 investment in the Portfolio at the beginning of the first fiscal year,
to the same investment over the same periods in The Lipper Growth Funds Average,
The Standard & Poor's 500 and The S&P/Barrra Growth Index)
- --------------------------------------------------------------------------------
1. The Lipper Growth Funds Average consists of the 30 largest mutual funds
that normally invest in companies whose long-term earnings are expected to
grow significantly faster than the earnings of the stocks represented in
the major unmanaged stock indices.
2. The Standard & Poor's 500 is a capital weighted index representing the
aggregate market value of the common equity of 500 stocks primarily traded
on the NYSE. These 500 stocks are composed of 400 industrial, 40 utility,
40 financial, and 20 transportation companies. The weight of each stock in
the index is proportional to its price times its shares outstanding. The
Standard & Poor's 500 is an unmanaged index and includes the reinvestment
of all dividends.
3. The S&P/Barra Growth Index is constructed by dividing the stocks in the
S&P 500 Index according to price-to-book ratios. This unmanaged Index
contains stocks with higher price-to-book ratios and is market
capitalization weighted.
Past performance is not predictive of future performance.
<PAGE>
SMALL CAPITALIZATION PORTFOLIO
Advised by:
Thorsell, Parker Partners, Inc.
Westport, Connecticut
Objective: Seeks maximum capital appreciation by investing in a diversified
portfolio of common stocks of small capitalization growth companies.
<TABLE>
<S> <C> <C> <C> <C>
Total Aggregate Small Lipper Small
Return for the Period Capitalization Cap Funds Russell 2000
Ended August 31, 1997 Portfolio Average1 Index2
- --------------------------------- --------------------- ---------------------- -----------------------
Since Inception (9/1/94)* 18.3% 19.9% 20.0%
9/1/96 - 8/31/97 18.1% 18.8% 29.0%
3/1/97 - 8/31/97 30.1% 17.7% 18.5%
*Annualized performance for periods greater than one year
</TABLE>
During the third quarter of 1997 stock prices rose in a backdrop of
declining bond yields, fresh flows of capital into mutual funds, declining
federal deficits, and a capital gains tax reduction. Investors shifted away
from large cap stocks into the smaller issues perhaps to avoid the
excessive valuation levels associated with the most visible large caps and
to attempt to capture the superior long-term performance of smaller stocks.
Additionally, the U.S. Small Cap asset class is less vulnerable to foreign
earnings translation losses owing to the strength of the U.S. dollar.
The Portfolio's holdings in the consumer durable, producer durables,
producer services, regional banks and finance sectors were particularly
strong. Within consumer durables, Champion Enterprises builds manufactured
housing with regional plant sites in twenty-four states. The company enjoys
a strong market share and high margins relative to industry averages.
Champion recently authorized a share repurchase program of up to four
million shares of its common stock. In the producer services sector,
Houghton Mifflin publishes textbooks for colleges and all school grade
levels. The company is currently into a textbook adoption cycle including
the large school population states of California, Florida, and Texas. The
U.S. Department of Education reports that schools of all grades are
experiencing record enrollments as a result of the current baby boomlet.
Textbook sales are projected to increase 24% nationally by the year 2000.
In the regional bank sector, Commercial Federal Corporation is an Omaha,
Nebraska based thrift institution which has employed a highly effective
acquisition strategy of buying local thrifts and branches located within a
six Midwest state area. These acquisitions have increased Commercial
Federal's market capitalization by over 300% in four years.
Looking forward, we believe the next few years will be a very constructive
period for the Small Cap stock investor. Earnings in this group continue to
be stronger than large cap issues and are accompanied by valuation levels
that are below the most visible large stocks.
SMALL CAPITALIZATION PORTFOLIO
Advised by:
Thorsell,Parker Partners, Inc.
Westport, Connecticut
- --------------------------------------------------------------------------------
(Line graph comparing the initial account value and subsequent account values
at the end of each fiscal year since inception of the Registrant, assuming a
$10,000 investment in the Portfolio at the beginning of the first fiscal year,
to the same investment over the same periods in The Lipper Small Cap Funds
Average and The Russell 2000 Index)
- --------------------------------------------------------------------------------
1. The Lipper Small Cap Funds Average consists of the 30 largest mutual
funds that by prospectus or portfolio practice invest primarily in
companies with market capitalizations less than $1 billion at the time of
purchase.
2. The Russell 2000 Index is comprised of the 2,000 smallest U.S. domiciled
publicly traded commons stocks which are included the Russell 3000 Index.
The common stocks included in the Russell 2000 Index represent
approximately 10% of the U.S. equity market as measured by market
capitalization. The Russell 3000 Index is an unmanaged index of the 3,000
largest U.S. domiciled publicly traded common stocks by market
capitalization representing approximately 98% of the U.S. publicly traded
equity market. The Russell 2000 Index is an unmanaged index whose
performance reflects reinvested dividends.
Past performance is not predictive of future performance.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
Advised by:
Ivory & Sime Inc.
Edinburgh, Scotland
Objective: Seeks capital appreciation by investing primarily in a
diversified portfolio of securities of companies headquartered outside the
United States.
<TABLE>
<S> <C> <C> <C>
Morgan Stanley
Total Aggregate International EAFE Index
Return for the Period Equity Portfolio (U.S. Dollars)1
Ended August 31, 1997
- ------------------------------------- ------------------- ----------------
Since Inception (9/1/94)* 3.5% 5.7%
9/1/96 - 8/31/97 14.4% 9.1%
3/1/97 - 8/31/97 7.3% 6.6%
*Annualized performance for periods greater than one year
</TABLE>
International stockmarkets have been volatile over the six months
ended August 31, 1997. Europe continued to perform well as signs
of self-sustaining economic recovery became apparent, and fears
of an increase in German interest rates proved unfounded. Japan
surged ahead through June, but retreated in the last few months
as a result of disappointing economic growth. Southeast Asia was
a serious underperformer as politicians proved unable to tackle
the region's structural economic problems. In contrast, Latin
America continued to perform extremely well due to buoyant
economies, the absence of inflation and political stability.
In Japan, the well-balanced economic recovery that was emerging
earlier this year has become lopsided: exports remain strong, but
the introduction of a new consumption tax in April has suffocated
growth in the domestic economy. In addition, the recent decline
of the long bond yield below 2% has raised concerns that the
economy might fall back into recession. Consequently, we are
intent on reducing the Portfolio's exposure to Japan from current
levels. Nevertheless, the Japanese market does contain a number
of high quality, world class international companies which are
fairly priced, and for this reason it remains prudent to maintain
a meaningful exposure. We anticipate continued volatility in
Southeast Asian stockmarkets, resulting from political and
economic instability. In contrast, the outlook for stockmarkets
in Continental Europe, the UK and Latin America has improved
recently, and these are the most attractive international equity
markets.
As of August 31, 1997, major weightings in the Portfolio were as
follows: 30.7% in Japan, 32.5% in Continental Europe, 15.8% in
the UK, 7.4% in Asia (ex Japan) and 4.1% in Latin America.
INTERNATIONAL EQUITY PORTFOLIO
Advised by:
Ivory & Sime Inc.
Edinburgh, Scotland
- --------------------------------------------------------------------------------
Line graph comparing the initial account value and subsequent account values at
the end of each fiscal year since inception of the Registrant, assuming a
$10,000 investment in the Portfolio at the beginning of the first fiscal year,
to the same investment over the same periods in The Europe, Australia, Far East
Index (EAFE))
- --------------------------------------------------------------------------------
1. The Europe, Australia, Far East Index (EAFE) is a widely
recognized index prepared by Morgan Stanley Capital
International. This unmanaged index consists of non-U.S.
companies which are listed on one of twenty foreign markets and
assumes the reinvestment of dividends. The Gross Domestic Product
(GDP) version of the index is used above.
Past performance is not predictive of future performance.
<PAGE>
This page intentionally left blank.
<PAGE>
<TABLE>
August 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------
<S> C> <C> <C> <C>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
Principal
Amount Value
----------------- -----------------
Federal Farm Credit Bank Discount Notes - 2.79%
$300,000 5.45%, 9/09/97 .....................................................$299,637
500,000 5.43%, 10/09/97 .....................................................497,134
-----------------
Total Federal Farm Credit Bank
(cost--$796,771) .................................................$796,771
-----------------
Federal Home Loan Bank - 21.28%
$710,000 5.35%, 9/02/97 .....................................................$709,894
300,000 5.43%, 9/16/97 ......................................................299,321
1,325,000 5.40%, 10/07/97 ...................................................1,317,845
1,000,000 5.40%, 10/10/97 .....................................................994,150
1,200,000 5.625%, 12/03/97 ..................................................1,200,000
1,560,000 5.715%, 7/21/98 ...................................................1,559,586
-----------------
Total Federal Home Loan Bank
(cost--$6,080,796) .............................................$6,080,796
-----------------
Federal Home Loan Mortgage Corporation - 37.88%
$700,000 5.46%, 9/05/97 ......................................................$699,575
250,000 5.45%, 9/08/97 ...................................................... 249,735
1,850,000 5.45%, 9/11/97 .....................................................1,847,199
1,000,000 5.45%, 9/12/97 .......................................................998,334
2,400,000 5.39%, 9/15/97 .....................................................2,394,969
315,000 5.45%, 9/16/97 .......................................................314,284
900,000 5.36%, 9/22/97 .......................................................897,186
260,000 5.45%, 9/22/97........................................................259,173
780,000 5.40%, 9/24/97 .......................................................777,309
390,000 5.36%, 10/14/97 ......................................................387,503
2,000,000 5.30%, 1/02/98 .....................................................1,998,932
-----------------
Total Federal Home Loan Mortgage Corporation
(cost--$10,824,199) ...............................................$10,824,199
-----------------
Federal National Mortgage Association - 37.97%
$1,490,000 5.46%, 9/08/97 .....................................................$1,488,418
100,000 5.42%, 9/16/97 .........................................................99,774
175,000 5.36%, 9/18/97 ........................................................174,557
80,000 5.42%, 9/18/97 .........................................................79,795
250,000 5.45%, 9/18/97 ........................................................249,365
1,705,000 5.40%, 9/19/97 ......................................................1,700,396
1,335,000 5.45%, 9/19/97 ......................................................1,331,362
60,000 5.52%, 9/19/97 .........................................................59,834
135,000 5.36%, 9/26/97 ........................................................134,497
220,000 5.42%, 9/26/97 ........................................................219,171
1,095,000 5.40%, 9/29/97 ......................................................1,090,401
200,000 5.45%, 10/02/97 .......................................................199,061
20,000 5.40%, 10/20/97 ........................................................19,853
2,025,000 5.40%, 11/17/97 .....................................................2,001,611
1,000,000 5.60%, 1/16/98 ........................................................999,550
1,000,000 5.89%, 5/21/98 ........................................................999,638
Total Federal National Mortgage Association
(cost--$10,847,283) ...............................................$10,847,283
-----------------
Total Investments
(cost--$28,549,049) .....................................99.92%....$28,549,049
Other Assets in Excess of
Other Liabilities .........................................0.08%.........22,721
-----------------------------
Total Net Assets .........................................100.......$28,571,770
=========== ===============
---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
17
</TABLE>
<PAGE>
<TABLE>
August 31, 1997
--------------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
--------------------------------------------------------------------------------------------------------------------------------
INVESTMENT QUALITY BOND PORTFOLIO
<S> <C> <C> <C>
Principal
Amount Value
----------------- -----------------
U.S. TREASURY NOTES - 61.30%
$5,800,000 6.125%, 9/30/00 ....................................................$5,801,798
3,500,000 5.625%, 11/30/00 ....................................................3,448,585
4,500,000 6.5%, 8/31/01 .......................................................4,547,115
----------------
Total U.S. Treasury Notes
(cost--$13,683,144) ...............................................$13,797,498
----------------
CORPORATE NOTES & BONDS - 34.22%
Automotive - 2.84%
$225,000 Ford Motor Credit Corp.
7.75%, 10/01/99 ......................................................$231,235
400,000 General Motors Acceptance Corp.
7.75%, 1/15/99 ........................................................407,664
----------------
638,899
----------------
Banking - 2.60%
600,000 Nationsbank Corp.
5.375%, 4/15/00 .......................................................585,348
----------------
Chemicals - 2.58%
550,000 du Pont (E.I.) de Nemours & Co.
8.50%, 2/15/03 ........................................................580,096
----------------
Computers - 1.78%
400,000 International Business Machines Corp.
6.375%, 6/15/00 .......................................................400,868
----------------
Conglomerates - 1.07%
250,000 General Electric Capital Corp.
5.50%, 11/01/01 .......................................................240,418
Entertainment - 2.22%
500,000 The Walt Disney Co.
6.375%, 3/30/01 ...................................................499,125
-----------------
Health & Hospitals - 3.27%
700,000 Tenet Healthcare Corp.
8.625%, 12/01/03...................................................735,000
-----------------
Miscellaneous Financial Services - 10.24%
350,000 Associates Corp. of North America
6.25%, 9/15/00 ....................................................347,987
Bear Stearns & Co.
250,000 5.75%, 2/15/01 ........................................................243,577
350,000 7.625%, 9/15/99 .......................................................358,904
1,050,000 Dean Witter Discover & Co.
6.75%, 8/15/00 ..................................................1,057,088
50,000 Lehman Brothers, Inc.
9.875%, 10/15/00 ...................................................54,354
250,000 Morgan Stanley Group
5.75%, 2/15/01 ....................................................243,915
-----------------
2,305,825
-----------------
Oil/Gas - 1.19%
260,000 Amoco Canada Petroleum Co. Ltd.
7.25%, 12/01/02 ..................................................268,099
----------------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 18
<TABLE>
August 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Power/Utility - 3.05%
700,000 Southern California Edison Co.
5.875%, 1/15/01 .......................................................686,616
----------------
Resource Recovery - 3.38%
750,000 WMX Technologies, Inc.
7.125%, 6/15/01 .......................................................761,527
-----------------
Total Corporate Notes & Bonds
(cost--$7,697,386) .................................................$7,701,821
-----------------
Total Investments
(cost--$21,380,530) ......................................................95.52%.........$21,499,319
Other Assets in Excess of
Other Liabilities ........................................................4.48%............1,008,095
----------- -----------------
Total Net Assets ............................................................100.0%..........$22,507,414
=========== =================
</TABLE>
<PAGE>
<TABLE>
August 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
-----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
Principal
Amount Value
----------------- -----------------
MUNICIPAL NOTES & BONDS - 98.26%
CALIFORNIA - 7.35%
Education - 4.15%
$50,000 California State Public Works Board Lease Revenue
California State University Projects
6.00%, 9/01/15 ........................................................$51,634.......
250,000 California State Public Works Board Lease Revenue
California State University Projects
5.375%, 10/01/17 ......................................................248,015.......
-----------------
299,649
-----------------
Power/Utility - 2.12%
150,000 Southern California Public Power Authority
Power Project Revenue (Series A)
5.50%, 7/01/12 (AMBAC insured) ........................................153,341.......
-----------------
Water/Sewer - 1.08%
75,000 San Francisco, California City & County Public Utilities
Community Water Revenue (Series A)
6.00%, 11/01/15 ........................................................77,753.......
-----------------
530,743
-----------------
COLORADO - 2.16%
Health/Hospital
150,000 Denver, Colorado City & County Revenue
Childrens Hospital Association Project
6.00%, 10/01/15 .......................................................156,025.......
-----------------
CONNECTICUT - 4.42%
General Obligation - 4.13%
300,000 Hartford, Connecticut General Obligation Bonds
5.30%, 12/15/15 .......................................................298,239.......
-----------------
Housing - .29%
20,000 Connecticut State Housing Finance Authority
Housing Mortgage Financing Program (Series B)
6.50%, 5/15/18 .........................................................20,986.......
-----------------
319,225
-----------------
FLORIDA - 2.21%
Education - .50%
35,000 Dade County, Florida School Board
Certificates of Participation (Series A)
5.75%, 5/01/12 (MBIA insured) ..........................................36,319.......
-----------------
General Obligation - 1.0%
Florida State Board of Education Capital Outlay
75,000 5.25%, 6/01/23 (Series D) ..............................................72,029.......
-----------------
Sales Tax - .71%
50,000 St. Petersburg, Florida Professional Sports Facilities
Sales Tax Revenue
5.60%, 10/01/15 (MBIA insured) .........................................51,018.......
-----------------
159,366
-----------------
See accompanying notes to financial statements.
20
<PAGE>
August 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
-----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO (cont'd)
Principal
Amount Value
----------------- -----------------
GEORGIA - 15.20%
Airport - 4.41%
$305,000 Atlanta, Georgia Airport Facilities
6.25%, 1/01/21 ......................................................$318,725
-----------------
Education - 3.13%
215,000 Jackson County, Georgia School District
6.00%, 7/01/14 (MBIA insured) .........................................226,268
-----------------
General Obligation - 3.10%
200,000 Georgia State General Obligation Bonds (Series B)
6.25%, 4/01/07 ........................................................223,700
-----------------
Power/Utility - 4.56%
350,000 Municipal Electric Authority Georgia
General Resolution (Series A)
5.00%, 1/01/20 .......................................................329,340
-----------------
1,098,033
-----------------
IOWA - .76%
Water/Sewer
50,000 West Des Moines, Iowa Water Revenue
6.80%, 12/01/13 (AMBAC insured) ........................................54,786
-----------------
KENTUCKY - 1.41%
Turnpike/Toll
100,000 Kentucky State Turnpike Authority
Economic Development Road Revenue
5.625%, 7/01/15 (AMBAC insured) .......................................101,921
-----------------
LOUISIANA - 2.21%
General Obligation
150,000 New Orleans, Louisiana General Obligation Bonds
6.125%, 10/01/16 ......................................................159,493
-----------------
MARYLAND - 4.43%
Resource Recovery
300,000 Maryland State Energy Financing Administration
Solid Waste Disposal Revenue Wheelabrator Water Projects
6.30%, 12/01/10 .......................................................319,728
-----------------
MASSACHUSETTS - 1.48%
General Obligation - .73%
50,000 Lowell, Massachusetts General Obligation Bonds
6.05%, 4/01/11 .........................................................53,066
-----------------
Transportation - .75%
50,000 Massachusetts Bay Transportation Authority
General Transportation System (Series B)
5.90%, 3/01/24 .........................................................54,275
-----------------
107,341
-----------------
See accompanying notes to financial statements.
21
</TABLE>
<PAGE>
<TABLE>
August 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
-----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO (cont'd)
<S> <C> <C> <C>
Principal
Amount Value
----------------- -----------------
MICHIGAN - 5.62%
General Obligation - 3.90%
$250,000 Michigan Municipal Bond Authority
General Obligation Bonds
6.50%, 10/01/09 ......................................................$281,580
-----------------
Pollution Control - 1.72%
125,000 Michigan State Environmental Protection Program
5.40%, 11/01/19 .......................................................124,670
-----------------
406,250
-----------------
MISSOURI - .66%
Housing
45,000 Missouri State Housing Development Community
Single Family Mortgage Revenue
6.90%, 7/01/18 .........................................................47,572
-----------------
NEBRASKA - 0.57%
Power/Utility
40,000 Omaha Public Power Distribution (Series C)
5.50%, 2/01/14 .........................................................41,492
-----------------
NEVADA - 3.91%
General Obligation - 1.77%
50,000 Clark County, Nevada General Obligation Bonds (Series B)
6.00%, 6/01/16 (AMBAC insured) .........................................53,285
75,000 Nevada State General Obligation Bonds
Municipal Bond Bank (Series A)
5.50%, 11/01/20 ........................................................74,605
-----------------
127,890
-----------------
Housing - 2.14%
150,000 Nevada Housing Division
Single Family Program (Series A1)
6.15%, 4/01/17 ........................................................154,700.
-----------------
282,590
-----------------
NEW YORK - 13.51%
Education - 1.86%
125,000 Consolidated City University System
5.75%, 7/01/09 ........................................................134,450
-----------------
General Obligation - 7.63%
300,000 New York City General Obligation Bonds (Series H)
6.50%, 3/15/05 ........................................................327,198
200,000 New York State General Obligation Bonds (Series A)
6.50%, 7/15/06 ........................................................224,176
-----------------
551,374
-----------------
Housing - 1.08%
New York State Mortgage Agency Revenue
75,000 Homeowner Mortgage (Series 54)
6.10%, 10/01/15 ........................................................77,718
-----------------
Pollution Control - .58%
40,000 New York State Environmental Facilities Corp.
Pollution Control Revenue
5.875%, 6/15/14 ........................................................41,883
-----------------
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
<TABLE>
August 31, 1997
------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO (cont'd)
<S> <C> <C> <C>
Principal
Amount Value
----------------- -----------------
NEW YORK - (Cont'd)
Transportation - 1.46%
100,000 Metropolitan Transit Authority
5.50%, 7/01/08 (FGIC insured) .........................................105,078
-----------------
Water/Sewer - .90%
$65,000 New York City Municipal Water Finance Authority
Water and Sewer Systems Revenue (Series F)
5.50%, 6/15/15 (MBIA insured) .........................................$65,354
-----------------
975,857
-----------------
OHIO - .82%
Health/Hospital
50,000 Lorain County, Ohio Hospital Revenue
7.75%, 11/01/13 (AMBAC insured) ........................................59,274
-----------------
PENNSYLVANIA - 7.94%
Education - 2.11%
150,000 Pennsylvania State Higher Educational Facilities Authority
Health Services Revenue University of Pennsylvania (Series B)
5.75%, 1/01/17 ........................................................152,559
-----------------
General Obligation - 4.07%
300,000 Pennsylvania State
General Obligation Bonds (Second Series)
5.00%, 11/15/12 .......................................................293,724
-----------------
Tax Allocation - 1.06%
75,000 Philadelphia, Pennsylvania Municipal Authority Revenue
5.625%, 11/15/14 (FGIC insured) ........................................76,349
-----------------
Water/Sewer - .70%
50,000 Pittsburgh, Pennsylvania Water & Sewer Authority
Water & Sewer Systems Revenue (Series B)
5.60%, 9/01/15 .........................................................50,630
-----------------
573,262
-----------------
PUERTO RICO - .94%
Power/Utility
65,000 Puerto Rico Electric Power Authority
Power Revenue (Series X)
6.00%, 7/01/15 .........................................................68,296
----------------
SOUTH CAROLINA - 3.30%
Health & Hospitals
250,000 Spartanburg County, South Carolina
Health Services (Series B)
5.125%, 4/15/17 .......................................................238,210
----------------
TEXAS - 9.64%
General Obligation - 3.74%
75,000 Houston, Texas General Obligation Bonds (Series C)
5.25%, 4/01/14 .........................................................74,341
175,000 Mesquite, Texas Independent School District
General Obligation Bonds
5.00%, 8/15/15 ........................................................167,982
25,000 San Antonio, Texas General Obligation Bonds
6.625%, 8/01/14 ........................................................27,924
----------------
270,247
-----------------
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
<TABLE>
August 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
-----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO (cont'd)
<S> <C> <C> <C>
Principal
Amount Value
----------------- -----------------
TEXAS - (Cont'd)
Power/Utility - .70%
50,000 Brazos River Authority Texas Revenue
Houston Light & Power Company
5.80%, 8/01/15 (MBIA insured) ..........................................50,938
----------------
Turnpike/Toll - 5.20%
$400,000 Harris County, Texas
Toll Road Sub Lien
5.00%, 8/15/21 .......................................................$375,560
----------------
696,745
-----------------
UTAH - 4.43%
Power/Utility
300,000 Intermountain Power Agency (Series C)
6.00%, 7/01/02 .......................................................319,755
-----------------
WASHINGTON - .65%
Power/Utility
35,000 Seattle, Washington Municipal Light & Power Revenue
5.75%, 8/01/11 (Series A) ..............................................36,167.
10,000 Washington State Public Power Supply Systems
Nuclear Project Revenue (Series B)
7.25%, 7/01/12 (FGIC insured) ..........................................10,960
-----------------
47,127
-----------------
WISCONSIN - 4.27%
Housing
300,000 Wisconsin Housing & Economic Development
6.20%, 3/01/27 ........................................................308,433
-----------------
WYOMING - 0.36%
Housing
25,000 Wyoming Community Development
Authority Housing Revenue (Series 1)
6.65%, 12/01/06 ........................................................26,280
-----------------
Total Investments
(cost--$6,916,088).............................................................98.26%...........$7,097,804
Other Assets in Excess of
Other Liabilities..............................................................1.74%...............125,370
----------- -----------------
Total Net Assets..................................................................100.0%...........$7,223,174
=========== =================
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
August 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
-----------------------------------------------------------------------------------------------------------------------------
LARGE CAPITALIZATION VALUE PORTFOLIO
<S> <C> <C> <C>
Principal
Amount Value
----------------- -----------------
SHORT-TERM CORPORATE NOTES - 11.44%
Computers - .73%
$218,000 International Business Machines Corp.
5.48%, 10/14/97 ......................................................$216,573
-----------------
Miscellaneous Financial Services - 6.27%
87,000 American Express Corp.
5.48%, 9/10/97 .........................................................86,881
1,200,000 American Express Corp.
5.45%, 9/24/97 ......................................................1,195,822
580,000 Household Finance Corp.
5.51%, 9/15/97 ........................................................578,757
1,861,460
-----------------
Machinery/Engineering - .83%
John Deere Capital Corp.
136,000 5.47%, 9/02/97 ........................................................135,979
111,000 5.50%, 9/30/97 ........................................................110,508
-----------------
246,487
-----------------
Federal Home Loan Bank - 3.61%
1,080,000 5.37%, 10/21/97 .....................................................1,071,945
-----------------
Total Short-Term Corporate Notes
(cost--$3,396,465)..................................................$3,396,465
----------
==========
Shares
-----------------
COMMON STOCKS - 88.65%
Advertising - 1.08%
7,000 WPP Group PLC ...........................................................$322,000
----------------
Aerospace - 7.05%
15,600 Boeing Co. ..............................................................849,225
12,000 Lockheed Martin Corp. .................................................1,244,250
----------------
2,093,475
----------------
Airlines - 2.38%
7,000 AMR Corp.*................................................................705,250
----------------
Automotive - 2.51%
23,526 Lucasvarity PLC...........................................................745,480
----------------
Banking - 6.26%
3,000 Bank of Boston Corp. .....................................................249,375
6,300 Citicorp .................................................................804,038
3,166 Wells Fargo & Co. .......................................................804,955
----------------
1,858,368
----------------
Building & Construction - 3.00%
13,000 Armstrong World Industries Inc............................................889,688
----------------
Chemicals - 3.38%
7,400 du Pont (E.I.) de Nemours & Co. .........................................461,112
6,000 Hercules, Inc. ..........................................................310,125
5,250 Monsanto Co. ............................................................230,672
----------------
1,001,909
----------------
Computers - 3.75%
16,000 Gateway 2000 Inc.* ......................................................626,000
25,000 Wang Labs Inc.* .........................................................487,500
----------------
1,113,500
----------------
See accompanying notes to financial statements.
25
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
August 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
-----------------------------------------------------------------------------------------------------------------------------
LARGE CAPITALIZATION VALUE PORTFOLIO (cont'd)
Shares Value
----------------- ----------------
Conglomerates - 3.68%
5,800 General Electric Co. ...................................................$362,500
15,000 Tenneco, Inc. ...........................................................728,438
----------------
1,090,938
----------------
Drugs & Medical Products - 2.37%
14,680 Becton, Dickinson & Co. .................................................703,722
----------------
Electronics - 3.94%
5,000 Adaptec, Inc.*............................................................240,000
8,080 Arrow Electronics, Inc.*..................................................496,415
25,000 Commscope Inc.* ..........................................................431,250
----------------
1,167,665
----------------
Food Services - 1.60%
10,000 McDonalds Corp. ..........................................................473,125
----------------
Healthcare Services - 2.87%
31,250 Tenet Healthcare Corp.*...................................................851,563
----------------
Insurance - 22.74%
18,700 Ace Ltd. .............................................................$1,554,438
16,950 AFLAC, Inc. .............................................................933,309
3,225 American International Group, Inc. ......................................304,359
14,000 Everest Re Holdings, Inc. ..............................................506,625
28,620 EXEL Ltd. .............................................................1,570,522
4,700 General Re Corp. ........................................................911,213
4,180 Progressive Corp., Ohio ..................................................413,820
13,000 RenaissanceRe Holdings Ltd. .............................................552,500
----------------
6,746,786
----------------
Leisure - 2.36%
16,000 Carnival Corp. ..........................................................701,000
----------------
Machinery/Engineering - 4.22%
21,600 Caterpillar, Inc. .....................................................1,254,150
----------------
Miscellaneous Financial Services - 5.09%
22,200 Countrywide Credit Industries, Inc. .....................................747,862
23,400 Federal Home Loan Mortgage Corp. ........................................761,963
----------------
1,509,825
----------------
Oil/Gas - 1.10%
8,500 Triton Energy Ltd. * .....................................................327,250
----------------
Printing/Publishing - 2.17%
16,500 R.R. Donnelley & Sons Co. ...............................................642,469
----------------
Retail - 2.83%
15,650 May Department Stores Co.* ..............................................842,166
----------------
Telecommunications - 1.27%
8,000 Sprint Corp. ............................................................376,000
----------------
Textiles - .49%
13,000 Shaw Industries, Inc. ...................................................145,437
----------------
See accompanying notes to financial statements.
26
</TABLE>
<PAGE>
<TABLE>
August 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
-----------------------------------------------------------------------------------------------------------------------------
LARGE CAPITALIZATION VALUE PORTFOLIO (cont'd)
<S> <C> <C> <C>
Shares Value
----------------- ----------------
Transportation - 2.51%
15,000 Canadian Pacific Ltd ...................................................$437,812
10,000 Sabre Group Holdings Inc.* ..............................................307,500
----------------
745,312
----------------
Total Common Stocks
(cost--$18,918,651) ...............................................$26,307,078
----------------
Total Investments
(cost--$22,315,417) ...........................................................100.09%.........$29,703,543
Other Assets in Excess of
Other Liabilities .............................................................(.09%)..............(27,726)
-----------------
Total Net Assets .................................................................100.0%..........$29,675,817
=========== =================
--------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
</TABLE>
<PAGE>
August 31, 1997
SCHEDULES OF INVESTMENTS (continued)
LARGE CAPITALIZATION GROWTH PORTFOLIO
<TABLE>
<S> <C> <C> <C>
Shares Value
COMMON STOCKS - 98.91%
Advertising - 2.87%
27,750 Interpublic Group of Companies, Inc. ............................................ $1,352,813
----------
Banking - 7.15%
17,000 BankAmerica Corp. .............................................................. 1,118,812
9,000 Citicorp ....................................................................... 1,148,625
19,300 Norwest Corp. .................................................................. 1,108,544
---------
3,375,981
---------
Computers - 3.64%
26,250 Compaq Computer Corp. .......................................................... 1,719,375
---------
Computer Services - 4.31%
20,300 Automatic Data Processing, Inc. ....................................... ........ 924,919
14,700 Cisco Systems, Inc.*............................................................. 1,108,012
---------
2,032,931
---------
Computer Software - 5.07%
17,600 Microsoft Corp.*................................................................ 1,189,688
17,000 Oracle Systems Corp.*........................................................... 1,200,937
---------
Conglomerate - 4.04%
9,000 General Electric Co. ........................................................... 1,100,000
34,600 Kimberly Clark Corp. ........................................................... 806,438
---------
1,906,438
---------
Cosmetics/Toiletries - 1.91%
10,900 Gillette Co. ................................................................... 902,656
----------
Drugs & Medical Products - 18.42%
16,100 Abbott Laboratories .............................................................. 964,994
14,500 American Home Products Corp. .....................................................1,044,000
15,500 Amgen, Inc.*....................................................................... 768,219
12,000 Bristol Myers Squibb Co............................................................ 912,000
18,000 Johnson & Johnson .................................................................1,020,375
10,500 Medtronic Inc. .................................................................... 948,938
10,600 Merck & Co., Inc. ................................................................ 973,212
20,400 Pfizer Inc. ......................................................................1,129,650
19,400 Schering Plough Corp. ............................................................ 931,200
---------
8,692,588
---------
Electronics - 4.94%
12,000 Applied Materials, Inc.*........................................................ 1,132,500
13,000 Intel Corp. ................................................................... 1,197,625
-----------
2,330,125
-----------
Entertainment - 2.12%
13,000 The Walt Disney Co. ............................................................ 998,563
----------
Finance - 1.79%
10,900 Franklin Inc. ................................................................... 843,388
--------
Food Service - 3.94%
19,000 McDonalds Corp. ................................................................. 898,938
27,000 Sysco Corp. .................................................................... 958,500
-------
1,857,438
---------
Health & Hospitals - 2.25%
14,500 Oxford Health Plans Inc.* ..................................................... 1,060,313
---------
Healthcare Services - 2.06%
20,000 United Healthcare Corp. ........................................................ 972,500
----------
See accompanying notes to financial statements.
28
</TABLE>
<PAGE>
August 31, 1997
SCHEDULES OF INVESTMENTS (continued)
LARGE CAPITALIZATION GROWTH PORTFOLIO (cont'd)
<TABLE>
<S> <C> <C> <C>
Shares Value
------ -----
Hotels/Motels - 1.18%
10,000 HFS Inc.* ................................................................. $556,875
--------
Household Products - 2.53%
19,000 Colgate-Palmolive Co. .................................................... 1,192,250
---------
Insurance - 2.35%
11,775 American International Group, Inc. ...................................... 1,111,265
---------
Manufacturing - 5.82%
6,500 Dover Corp. ........................................................... 448,906
22,400 Illinois Tool Works, Inc. ............................................... 1,083,600
15,500 Tyco International Ltd. ................................................. 1,215,781
--------
2,748,287
---------
Miscellaneous Financial Services - 2.02%
15,500 Merrill Lynch & Co. Inc. ................................................... 953,250
-------
Railroads - 1.96%
14,300 Union Pacific Corp. ........................................................ 928,606
-------
Retail - 4.52%
18,900 Safeway Inc.* ............................................................. 962,718
33,000 Wal-Mart Stores, Inc. ...................................................... 1,171,500
---------
2,134,218
---------
Telecommunications - 5.48%
17,900 Lucent Technologies, Inc. .................................................. 1,393,962
20,000 Tellabs, Inc.*............................................................... 1,193,750
---------
2,587,712
---------
Tobacco/Beverages/Food Products - 6.34%
13,600 Coca Cola Co. ............................................................ 779,450
16,000 Conagra Inc. ............................................................. 1,029,000
33,000 PepsiCo, Inc. ............................................................. 1,188,000
---------
2,996,450
---------
Toys/Games/Hobby - 2.20%
31,100 Mattel, Inc. ............................................................ 1,039,906
---------
Total Common Stocks
(cost--$34,622,404).................................................... $46,684,553
-----------
Total Investments
(cost--$34,622,404) ..................................................... 98.91% $46,684,553
Other Assets in Excess of
Other Liabilities ...................................................... 1.09% 513,940
---- -------
Total Net Assets ........................................................ 100.0% $47,198,493
===== ===========
</TABLE>
*Non - income producing security.
See accompanying notes to financial statements.
29
<PAGE>
-------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
-------------------------------------------------------------------------
SMALL CAPITALIZATION PORTFOLIO
<TABLE>
<S> <C> <C> <C>
Shares Value
----------------- -----------------
COMMON STOCKS - 98.95%
Banking - 9.84%
5,000 Centura Banks Inc. .....................................................$284,375
20,000 Commercial Federal Corp. ................................................841,250
52,000 North American Mortgage Co. ...........................................1,345,500
6,700 Queens County Bancorp ...................................................360,963
----------------
2,832,088
----------------
Building & Construction - 3.77%
40,000 Oakwood Homes Corp. ....................................................1,085,000
----------------
Computers - 3.27%
33,400 Sequent Computer Systems Inc.* ..........................................941,463
----------------
Computer Software - 3.81%
32,000 Sterling Software Inc.* ................................................1,098,000
----------------
Electronics - 12.00%
50,000 Exide Electrics Group Inc.* ............................................1,181,250
34,000 Harman International Industries Inc. ...................................1,521,500
28,100 Vishay Intertechnology Inc. ..............................................749,919
----------------
----------------
3,452,669
----------------
Food Services - 3.92%
20,000 Hannaford Bros. Co. ......................................................680,000
26,000 Lone Star Steakhouse & Saloon * .........................................446,875
----------------
1,126,875
----------------
Machinery/Engineering - 4.14%
44,000 Albany International Corp. ...........................................$1,190,750
----------------
Manufacturing - 16.85%
172,100 BEC Group Inc.* .........................................................871,256
57,000 Champion Enterprises Inc.* ..............................................983,250
31,356 Flowserve Corp. .......................................................1,105,299
13,000 Silicon Valley Group Inc.* ..............................................438,750
13,000 Teleflex Inc. ...........................................................411,937
28,000 Toro Co. ..............................................................1,039,500
----------------
4,849,992
----------------
Measuring Instruments - 1.92%
26,000 EG & G Inc. ..............................................................552,500
----------------
Media/Broadcasting - 2.30%
18,000 Media General Inc. .......................................................661,500
----------------
Metals/Mining - 4.77%
51,000 Oregon Steel Mills Inc. ................................................1,373,812
----------------
Miscellaneous Financial Services - 4.28%
17,000 Astoria Financial Corp. .................................................818,125
15,000 T R Financial Corp. .....................................................414,375
----------------
1,232,500
----------------
Oil/Gas - 9.20%
19,000 Triton Energy Ltd.* .....................................................731,500
55,000 Enserch Exploring Inc.* .................................................495,000
21,500 Pride International Inc.* ...............................................688,000
22,000 Valerorefining & Marketing Co. ..........................................732,875
----------------
2,647,375
----------------
See accompanying notes to financial statements.
</TABLE>
30
<PAGE>
<TABLE>
August 31, 1996
----------------------------------------------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SMALL CAPITALIZATION PORTFOLIO (cont'd)
Shares Value
----------------- -----------------
Pipelines - 4.66%
62,000 Shaw Group Inc.* .......................................................1,340,750
-----------------
Printing & Publishing - 2.65%
22,000 Houghton Mifflin Co. ....................................................$763,125
-----------------
Retail - 8.03%
25,000 American Homestar Corp.* .................................................596,875
32,000 Carson Pirie Scott & Co.* ..............................................1,136,000
24,000 Outback Steakhouse Inc.* ................................................579,000
-----------------
Tobacco, Beverage/Food Products - 3.54%
25,000 Canandaigua Wine Inc.* .................................................1,018,750
-----------------
Total Common Stocks
(cost--$22,932,866) ...............................................$28,479,024
-----------------
Total Investments
(cost--$22,932,866) ............................................................98.95%.........$28,479,024
Other Assets in Excess of
Other Liabilities ...............................................................1.05%.............302,380
----------- -----------------
Total Net Assets .................................................................100.0%..........$28,781,404
=========== =================
-------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
</TABLE>
<PAGE>
August 31, 1997
---------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
---------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<S> <C> <C> <C>
Shares Value
----------------- -----------------
COMMON STOCKS - 91.54%
ARGENTINA - 1.17%
Telecommunications
3,500 Telefonica de Argentina S.A. Sponsored ADR ..............................$121,406
-----------------
AUSTRALIA - 1.02%
Conglomerates -
7,500 CSR Ltd. Sponsored ADR ...................................................106,199
-----------------
BRAZIL - 1.08%
Utilities
2,500 Companhia Energetica De Minas Sponsored ADR ..............................112,409
-----------------
FINLAND - 1.87%
Conglomerates
2,500 Nokia Corp. Sponsored ADR ................................................193,750
-----------------
FRANCE - 5.84%
Chemicals - 1.71%
4,600 Rhone-Poulenc S.A. Sponsored ADR .........................................177,255
-----------------
Electronics - 2.14%
2,400 SGS Thomson Microelectronics* ............................................222,900
-----------------
Oil/Gas - 1.99%
3,700 Elf Aquitane S.A. Sponsored ADR ..........................................206,275
-----------------
606,430
-----------------
GERMANY - 5.84%
Automotive - 2.08%
1,500 Volkswagen AG Sponsored ADR .......................................... 215,814
-----------------
Banking - 1.97%
3,500 Deutsche Bank AG Sponsored ADR ...........................................205,120
-----------------
Machinery/Engineering - 1.79%
400 Mannesmann AG Sponsored ADR ..............................................185,761
-----------------
606,695
-----------------
HONG KONG - .85%
Real Estate
11,500 Swire Pacific Ltd Sponsored ADR ......................................... 87,930
-----------------
INDIA - 1.10%
Utility
6,650 BSES ....................................................................114,713
-----------------
ITALY - 3.99%
Oil/Gas - 1.60%
3,000 ENI SpA Sponsored ADR ....................................................166,500
-----------------
Telecommunications - 2.39%
4,200 Telecom Italia S.P.A.* ...................................................247,800
-----------------
414,300
-----------------
JAPAN - 30.71%
Automotive - 1.42%
2,800 Toyota Motor Corp. ADR ...................................................147,700
-----------------
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
August 31, 1997
---------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
---------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (cont'd)
<TABLE>
<S> <C> <C> <C>
Shares Value
----------------- -----------------
JAPAN (cont'd)
Banking - 3.79%
7,000 Bank of Tokyo-Mitsubishi ADR ............................................$129,500
900 Mitsubishi Trust & Banking Corp. Sponsored ADR ...........................126,444
930 Sumitomo Bank Ltd. Japan ADR .............................................137,617
-----------------
393,561
-----------------
Conglomerate - 1.14%
6,000 Mitsubishi Corp. Sponsored ADR ...........................................118,713
-----------------
Drugs & Medical Products - 1.74%
9,470 Eisai Co. Ltd. Sponsored ADR .............................................180,282
-----------------
Electronics - 9.73%
4,202 Fujitsu Ltd,. ADR ........................................................251,512
1,200 Kyocera Corp. Sponsored ADR ..............................................155,400
7,600 Pioneer Electric Corp. Sponsored ADR* ....................................160,075
2,984 Sony Corp. Sponsored ADR .................................................262,965
1,200 Sumitomo Electric Industries Ltd. ADR ....................................181,561
-----------------
1,011,513
-----------------
Manufacturing - 2.40%
1,123 Bridgestone Corp. ADR ....................................................249,265
-----------------
Merchandising - 2.69%
8,799 Marui Co. Ltd. ADR ......................................................279,426
-----------------
Photography - 1.74%
1,300 Canon, Inc. Sponsored ADR ................................................180,863
-----------------
Printing/Publishing - 2.02%
1,000 Dai Nippon Printing Ltd. ADR ............................................209,494
-----------------
Real Estate - 2.09%
1,550 Mitsubishi Estate Co. Ltd. ADR ...........................................217,765
-----------------
Telecommunication - 1.95%
4,300 Nippon Telegraph & Telephone Corp. Sponsored ADR ........................202,100
-----------------
3,190,682
-----------------
MALAYSIA - .57%
Entertainment
25,000 Sime Darby Holdings Ltd. ADR .............................................59,165
-----------------
MEXICO - 1.82%
Banking -
11,800 Empresas Ica Sociedad Control Sponsored ADR .............................188,800
-----------------
NETHERLANDS - 2.94%
Building & Construction - .03%
312 Hunter Douglas Sponsored ADR .............................................3,276
-----------------
Chemicals - 1.66%
2,200 Akzo Nobel Sponsored ADR .................................................172,150
-----------------
Printing/Publishing - 1.25%
6,200 VNU - Ver Ned Bezit Sponsored ADR ........................................129,724
-----------------
305,150
-----------------
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
August 31, 1997
---------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
---------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (cont'd)
<TABLE>
<S> <C> <C> <C>
Shares Value
----------------- -----------------
PHILIPPINES - 1.44%
Food Services - .23%
1,430 San Miguel Corp. Sponsored ADR ..........................................$23,520
-----------------
Telecommunications - 1.21%
5,000 Philippine Long Distance Telephone Co. Sponsored ADR .....................126,250
-----------------
149,770
-----------------
SINGAPORE - 2.28%
Banking - 1.34%
3,300 Development Bank Singapore Ltd. ADR .....................................139,634
-----------------
Real Estate - .94%
15,500 City Developments Ltd. ....................................................97,864
-----------------
237,498
-----------------
SOUTH KOREA - 1.18%
Metals/Mining
4,760 Pohang Iron & Steel Ltd. Sponsored ADR ...................................123,165
-----------------
SPAIN - 1.50%
Telecommunications
2,000 Telefonica De Espana S A Sponsored ADR ..................................155,500
-----------------
SWEDEN - 7.12%
Automotive - 1.78%
7,200 Volvo Aktiebolaget ADR ...................................................185,400
-----------------
Machinery/Engineering - 3.41%
7,000 SKF AB Sponsored ADR .....................................................188,125
5,500 Sandvik AB Sponsored ADR .................................................165,679
353,804
-----------------
Telecommunications - 1.93%
4,800 Telefonaktiebolaget LM Ericsson Sponsored ADR ............................200,100
-----------------
739,304
-----------------
SWITZERLAND - 3.42%
Drugs & Medical Products
2,000 Roche Holdings Ltd. ADR .................................................169,127
2,600 Novartis AG Sponsored ADR ................................................185,900
-----------------
355,027
-----------------
UNITED KINGDOM - 15.80%
Airports - .87%
10,000 BAA Plc. Sponsored ADR ....................................................89,927
-----------------
Banking - 1.58%
1,800 Barclays Plc. Sponsored ADR ..............................................164,250
-----------------
Building & Construction - .49%
11,000 Redland Plc. Sponsored ADR ................................................51,735
-----------------
Conglomerate - 1.31%
8,000 BAT Industries Plc. Sponsored ADR ........................................136,500
-----------------
Drugs & Medical Products - 2.18%
3,000 BOC Group Plc. Sponsored ADR .............................................107,250
3,000 Glaxo Wellcome Plc. Sponsored ADR ........................................119,625
-----------------
226,875
-----------------
Entertainment - .21%
1,820 Rank Group Plc. Sponsored ADR .............................................21,385
-----------------
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
August 31, 1997
---------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
---------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (cont'd)
<TABLE>
<S> <C> <C> <C>
Shares Value
----------------- -----------------
UNITED KINGDOM - (CONT'D)
Food Services - 1.05%
3,000 Grand Met Plc. Sponsored ADR ............................................$109,125
-----------------
Leisure - 1.01%
25,000 Ladbroke Group Ltd. Sponsored ADR .......................................105,010
-----------------
Manufacturing - 1.24%
6,500 Tomkins Plc. Sponsored ADR ...............................................128,781
-----------------
Media/Broadcasting - 1.17%
3,000 Carlton Communications Plc. Sponsored ADR ................................121,125
-----------------
Merchandising - 1.45%
5,800 Boots Plc. ADR ..........................................................150,221
-----------------
Oil/Gas - 1.57%
4,000 Shell Transport & Trading Co. ADR ........................................162,750
-----------------
Power/Utility - .71%
12,000 General Electric Ltd. ADR ................................................74,245
-----------------
Tobacco/Beverages/Food Products - .96%
3,700 Bass Plc. Sponsored ADR ..................................................100,131
1,642,060
-----------------
Total Common Stocks
(cost--$8,623,468) .................................................$9,509,953
-----------------
Total Investments
(cost--$8,623,468) ............................................................91.54%...........$9,509,953
Other Assets in Excess of
Other Liabilities ..............................................................8.46%..............878,954
---------- -----------------
Total Net Assets .................................................................100.0%..........$10,388,907
========== =================
--------------------------------------------------------------------------------------------------------------
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
<TABLE>
August 31, 1997
---------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> C> <C> <C>
------------ ------------ ------------ -------------- -------------- ------------- --------------
U.S. Large Large
Government Investment Municipal Capitalization Capitalization Small International
Money Market Quality Bond Bond Value Growth Capitalization Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------- ------------- ---------- -------------- -------------- ---------------- ------------
Assets
Investments, at value (cost--$28,549,049;
$21,380,530; $6,916,088; $22,315,417;
$34,622,404; $22,932,866 and
$8,623,468, respectively) ......$28,549,049...$21,499,319..$7,097,804 $703,543 46,684,553 $28,479,024 $9,509,953
Cash ..............................6,138........541,579.....3,907...........--......... 524,951 -- 752,469
Receivable for shares of beneficial
interest sold .................... 56,139........77,199.....16,140..........79,332 117,118 45,144 31,723
Deferred organization expenses ....25,497........25,497.....25,497..........25,497....... .25,497........... 25,497......... 25,497
Interest receivable ..............101,594.......460,413....109,490...........--............ --................ --............. --
Receivable from manager .............-- ....... --....... 3,367.......... --.............--............ ....--..............--
Dividends receivable ................--.............--........--........... 35,714........ 39,194........... 17,515......... 17,671
Receivable for investments sold .....--.............--........--..............--............ -- 1,026,431 96,517
Prepaid expenses and other assets ..8,332.........7,375......5,162...........8,000.........10,731..... 7,657 13,703
- ------------------- ------------- ------------- ------------- ----------- ----------- ----------- ------------
Total Assets ..................28,746,749.....22,611,382....7,261,367......29,852,086.....47,402,044 29,601,268 10,447,533
- ------------------- ------------- ------------- -------------- ----------- ----------- ----------- ------------
Liabilities
Payable to manager .............6,072......... 6,917....... --......... ..14,136........ 17,556......... 12,678......... 5,781
Administration fee payable .. ..2,804..........2,275.......... 738 ...........3,047......... 4,942.......... 2,901 .........1,098
Payable for overdrafts ........... --............ -- ......... -- .......... 11,966......... -- ............482,756......... --
Payable for shares of beneficial
interest redeemed .............. 79,452....... .34,380........3,000...........73,948........74,439 .........58,948 ..........2,950
Dividends payable ................2,340..........363........... 823............ 217......... --............ 391 ..................
Payable for investments purchased .--............--.............--..............--............--........... 188,363........... --
Other payables and accrued
expenses ........................84,311........60,033.........33,632..........72,955..... 106,614............73,827........ 48,797
- ------------------- ---------- ------------- ----------- ----------- --------- ---------- ------------
Total Liabilities ...............174,979........103,968.......38,193..........176,269 203,551 819,864 58,626
- ------------------- ---------- ------------- ----------- ----------- --------- ------------ ------------
Net Assets
Shares of beneficial interest
at par value...................285,720..........22,303...... 6,992 ........15,982........26,418 ............ 19,128....... 9,671
Paid-in-surplus..............28,286,183......22,397,476.....7,021,489........21,425,971...33,371,192...... 21,265,680....9,508,048
Accumulated undistributed net investment
income (loss) ...................--.............1,533..........1,073.......... 100,766..... 1,896......... 1,896....... (6,422)
Accumulated net realized gain (loss)
on investments and foreign
currency transactions...........(133)..........(31,102).......11,905.......... 744,971..... 1,790,838......1,948,542...... (8,875)
Net unrealized appreciation (depreciation)
on investments .................--.............118,886....... 181,716......... 7,388,127 ..12,062,149........ 5,546,158....886,485
- ------------------- --------------- -------------- -------------- -------------- --------------- ------------ ---------
Total Net Assets............$28,571,770......$22,507,414....$7,223,174......$29,675,817....$47,198,493.... $28,781,404 $10,388,907
============ ============ =========== ============ ============ =========== ===========
Shares of beneficial
interest outstanding.......28,571,903......... 2,230,159...... 699,140....... 1,598,234.... .2,641,730 ......1,912,785 ....967,065
------------- -------------- ------------- ------------- -------------- ---------- -----------
Net asset value and
offering price per share......$1.00...... ...$10.09..........$10.33..........$18.57.........$17.87.........$15.05...... $10.74
=================== ============== ============== ============= ============= ============= ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Year Ended August 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-------------- -------------- -------------- ------------- --------------- ------------- ----------------
U.S. Large Large
Government Investment Municipal Capitalization Capitalization Small International
Money Market Quality Bond Bond Value Growth Capitalization Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- -------------- ------------- ------------- -------------- --------------- --------------
Investment Income
Dividends ......................--.............--............. --....... $310,496.(1).. $421,786 ........$95,795...... $150,388 (1)
Interest ..................$1,423,573......$1,270,594........$337,208.....154,085........ 57,434......... 43,779........... --
--------------- -------------- ------------- ------------- ------------- --------------- --------------
Total investment income ....1,423,573.......1,270,594....... .337,208.....464,581........ 479,220 ........139,574........ 150,388
--------------- -------------- ------------- ------------- ------------- ------------- ---------------
Operating Expenses
Management fees (note 2a) ....124,468.........112,373..........34,612.....159,137........ 270,047........ 150,753.......... 64,249
Administration fees (note 2c) .39,242..........36,802..........30,728......38,957..........46,248...... ...37,893.......... 31,899
Transfer and dividend
disbursing agent fees .........72,785..........51,290..........16,903......65,704.........102,444..........65,173.......... 31,087
Custodian fees (note 2a) ......48,974..........50,809..........56,670......53,334......... 56,267......... 67,794.......... 55,460
Registration fees .............19,224..........18,869..........14,266..... 18,972......... 18,773......... 17,696.......... 15,573
Amortization of deferred organization
expenses (note 1c) ........... 12,749..........12,749..........12,749......12,749..........12,749......... 12,749.......... 12,749
Auditing fees .................10,300..........10,300..........11,200......10,300......... 10,300......... 10,107.......... 14,600
Reports and notices to
shareholders ...................9,080...........7,568...........2,564.......9,464..........16,564.......... 8,784........... 3,476
Legal fees .....................4,691...........3,834...........1,151...... 4,774.......... 8,192.......... 4,456........... 1,574
Trustees' fees .................7,388.............900............ 900........ 900.......... 9,750............ 900............. 900
Miscellaneous ..................4,315...........4,174...........3,434...... 4,999...........9,126.......... 5,970........... 3,881
--------------- -------------- ------------- ------------ -------------- ------------- ----------
Total operating expenses .....353,216.........309,668..........185,177.... 379,290........ 560,460....... 382,275......... 235,448
Less: Management fees waived and/or
expenses assumed (note 2a) ...(57,918)....... (48,881)....... (108,075)....(59,601)......... -- ....... (80,307)........ (95,444)
Expense offset
arrangement (note 2a) ..........(572).........(15,609)......... (1,586)....(1,414)........ (33,050)....... (565).......... (20,072)
--------------- --------------- ------------- ------------ ------------- ------------- ----------
Net operating expenses .......294,726.........245,178...........75,516......318,275......... 527,410..... 301,403.......... 119,932
--------------- --------------- ------------- ------------- -------------- ----------- ----------
Net investment income (loss).1,128,847.......1,025,416..........261,692.... 146,306......... (48,190).... (161,829)......... 30,456
-------------- --------------- -------------- ------------- --------------- ----------- ---------
Realized and Unrealized
Gain(Loss) on Investments-Net
Net realized gain (loss)
on securities ................(101)...........(24,955)..........24,803...... 818,090........ 2,749,355 ....3,054,526........ 53,835
Net realized gain on foreign currency
transactions ..................--...............--...............--............ --............. -- ...........-- ...............--
-------------- -------------- -------------- --------------- ------------- ------------ ------------
Net realized gain (loss)
on investments ...............(101)...........(24,955)..........24,803.......818,090........ 2,749,355...3,054,526......... 53,835
Net change in unrealized appreciation
(depreciation) on investments ...--............385,534..........179,068..... 5,463,243... . 9,619,691 1,552,671 933,958
--------------- --------------- --------------- -------------- -------------- ------------- -----------
Net realized gain (loss) and change in
unrealized appreciation (depreciation)
on investments ...............(101)...........360,579...........203,871...... 6,281,333...... 12,369,046.... 4,607,197..... 987,793
----------------- --------------- ----------------- ------------- --------------- ------------ ------------
Net increase in net assets resulting from
operations .................$1,128,746.......$1,385,995........$465,563......$6,427,639...... $12,320,856.. $4,445,368... $1,018,249
================= ================ ================= ============== ============== ============= ===========
(1) Net of foreign withholding taxes of $2,238 and $20,651 for Large Capitalization Value and International Equity, respectively.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------ -------------------------------------- ----------------------------
U.S. Government Money Market Investment Quality Bond Municipal Bond
Portfolio Portfolio Portfolio
------------------------------ -------------------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, 1997 August 31,1996 August 31, 1997 August 31, 1996 August 31, 1997 August 31, 1996
------------------ ---------------- ------------------- ------------------- ---------------- ----------------
Operations
Net investment
income (loss) .........$1,128,847............$631,895...........$1,025,416..... $526,035............ $261,692........... $123,660
Net realized gain
(loss) on investments ...(101).................(32)..............(24,955)......... 22,362............ ...24,803............. (7,549)
Net change in unrealized appreciation
(depreciation) on
investments ..............--.....................--..............385,534......... (313,450) .............179,068 ......... (20,197)
------------------ ------------------ ----------------- ------------------- ------------------- ---------------
Net increase (decrease) in
net assets resulting
from operations .......1,128,746................631,863.........1,385,995...........234,947.............465,563.......... ...95,914
------------------- ------------------ ----------------- ------------------- ------------------- --------------
Dividends and Distributions to
Shareholders
Net investment income (.1,128,847)..............(631,896)........(1,046,193)....... (526,035)........... (260,619)....... (123,660)
Net realized gain ........--.....................--.............. --............... (6,932)............... (1,073) ............--
-------------------- ----------------- ------------------ ----------------- ------------------- --------------
Total dividends and distributions
to shareholders ......(1,128,847)..............(631,896)........ (1,046,193)....... (532,967).......... (261,692)......... (123,660)
-------------------- ------------------ ----------------- ----------------- ------------------- --------------
Share Transactions of
Beneficial Interest
Net proceeds from sales...29,208,442..........24,971,593.........11,370,735...... 14,478,935......... 3,823,165........... 3,903,159
Reinvestment of dividends
and distributions ........1,098,942............618,794...........1,022,378...........526,071.......... 259,144............. 121,243
Cost of shares redeemed .(24,641,813)........(7,756,080)..........(7,089,550).......2,345,771) (1,770,754)......... (766,332)
-------------------- -------------------- ------------------- ---------------- ------------------- -------------
Net increase in net assets
from share transactions
of beneficial interest ...5,665,571..........17,834,307....... . 5,303,563....... 12,659,235........ 2,311,555......... 3,258,070
-------------------- -------------------- ------------------- ---------------- ------------------- -------------
Total increase in net
assets ....................5,665,470..........17,834,274...........5,643,365........12,361,215......... 2,515,426......... 3,230,324
Net Assets
Beginning of period ......22,906,300...........5,072,026..........16,864,049.........4,502,834......... 4,707,748......... 1,477,424
-------------------- -------------------- ------------------- ------------------- ------------------- ----------
End of period (including undistributed net
investment income of $0, $0; 1,533,$0, $1,073; $0,
$100,767, $81,988; $1,896,($31,012), $1,896, ($151,486);
($6,422) and d $11,612,
respectively) .............$28,571,770........$22,906,300........$22,507,414....... $16,864,049......... $7,223,174...... $4,707,748
==================== ==================== =================== =================== =================== =========
Shares of Beneficial Interest
Issued and Redeemed
Issued ..................29,208,442...........24,971,593...........1,132,061........... 1,435,999 ..........376,537 ........386,019
Issued from reinvestment of dividends
and distributions ........1,098,942..............618,794........ ... 101,660.............. 52,358......... 25,376......... 12,042
Redeemed ................(24,641,813).........(7,756,080).......... (705,446)........... (233,347)......... (173,590)...... (76,024)
-------------------- -------------------- ------------------- ------------------- ------------------- ---------
Net increase ............5,665,571............17,834,307.............528,275............1,255,010............ 228,323...... 322,037
==================== ==================== =================== =================== =================== =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------ --------------------------------- ----------------------------- -----------------------------
Large Capitalization Value Large Capitalization Growth Small Capitalization International Equity
Portfolio Portfolio Portfolio Portfolio
- ------------------------------ -------------------------------- ------------------------------ -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31,1997 August 31,1996 August 31,1997 August 31, 1996 August 31, 1997 August 31, 1996 August 31, 1997 August 31, 1996
- --------------- --------------- ---------------- ---------------- ---------------- --------------- ---------------- ---------------
$146,306 $112,608 ($48,190) ($30,995) ($161,829) ($151,465) $30,456 $11,618
818,090 317,589 2,749,355 (958,517) 3,054,526 442,165 53,835 117,637
5,463,243 1,390,237 9,619,691 1,243,929 1,552,671 1,684,758 933,958 (50,666)
- --------------- --------------- ----------------- ---------------- ---------------- --------------- --------------- --------------
6,427,639 1,820,434 12,320,856 254,417 4,445,368 1,975,458 1,018,249 78,589
- --------------- --------------- ----------------- ---------------- ---------------- --------------- --------------- --------------
(127,527) (76,779) -- (9,008) -- (1,315) (1,988) (13,977)
(390,714) (85,953) -- (30,096) (1,384,063) (492,415) (160,861) (21,256)
- -------------- --------------- ----------------- ----------------- ---------------- --------------- --------------- -------------
(518,241) (162,732) -- (39,104) (1,384,063) (493,730) (162,849) (35,233)
- -------------- --------------- ------------------ ----------------- ---------------- -------------- -------------- ------------
13,038,032 13,591,164 18,266,314 27,913,201 8,766,703 8,411,846 4,769,883 5,504,760
512,658 161,529 -- 38,924 1,374,155 493,046 159,504 34,444
(8,058,730) (2,650,626) (17,350,873) (5,312,493) (6,492,135) (3,418,635) (2,252,818) (1,632,377)
- -------------- --------------- ----------------- ---------------- --------------- ---------------- --------------- --------------
5,491,960 11,102,067 915,441 22,639,632 3,648,723 5,486,257 2,676,569 3,906,827
- -------------- ---------------- ----------------- ---------------- --------------- ---------------- --------------- --------------
11,401,358 12,759,769 13,236,297 22,854,945 6,710,028 6,967,985 3,531,969 3,950,183
18,274,459 5,514,690 33,962,196 11,107,251 22,071,376 15,103,391 6,856,938 2,906,755
- -------------- ---------------- ----------------- ---------------- -------------- --------------- --------------- -------------
$29,675,817 $18,274,459 $47,198,493 $33,962,196 $28,781,404 $22,071,376 $10,388,907 $6,856,938
=============== ================ ================== ================ ============= =============== =============== =============
797,161 996,818 1,172,529 2,115,299 671,535 654,637 456,093 567,890
32,655 12,415 -- 2,926 107,862 39,783 15,919 3,577
(496,095) (193,154) (1,112,030) (400,706) (492,311) (265,931) (219,913) (168,151)
- --------------- ------------------ ---------------- ------------------- ------------- ---------------- --------------- -----------
333,721 816,079 60,499 1,717,519 287,086 428,489 252,099 403,316
=============== ================== ================= =================== ============= ================ =============== ===========
</TABLE>
<PAGE>
August 31, 1997
-------------------------------------------------------------------------
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): OpCap
Advisors (formerly 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; Thorsell, Parker
Partners, Inc.: Small Capitalization; Sterling Capital Management Co.: U.S.
Government Money Market and Ivory & Sime International, Inc.: International
Equity. Unified Advisers, Inc. (the "Administrator") provides the Trust with
administrative services. Unified Management Corporation serves as the Trust's
distributor. 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:
(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.
(c) Deferred Organization Expenses
In connection with the Trust's organization, each Portfolio incurred
approximately $66,000 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:
<TABLE>
<S> <C> <C> <C> <C>
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
</TABLE>
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 differences 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. To the extent distributions exceed current and accumulated
earnings and profits for federal income tax purposes, they reported as
distributions of paid-in-surplus or tax return of capital. For the year ended
August 31, 1997, Large Capitalization Growth Portfolio, and Investment Quality
Bond Portfolio, increased both accumlated net realized gain (loss) on
investments by $46 and $149 and accumulated undistributed net investment income
(loss) by $81,099 and $1,533, respectively. For each Portfolio, additional paid
in capital was decreased by $81,145 and $1,682 respectively. Municipal Bond and
International Equity Portfolio increased accumulated undistributed net
investment income (loss) and decreased accumulated net realized gain (loss) on
investments in the amounts of $1,073 and $46,502, respectively. In addition,
Small Capitalization Portfolio increased accumulated undistributed net income
(loss) by $315,211 and decreased accumulated realized gain (loss) and additional
paid in capital by $163,746 an there were $151,465, respectively. Net assets
were not affected by these adjustments. 40
<PAGE>
August 31, 1997
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(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 its current market value. The Portfolio, as
purchaser of an option, has control over whether the option is exercised. If an
option expires, 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.
If a Portfolio enters into a closing sale transaction, the difference between
the premium paid and the amount received from the sale 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.
No options were outstanding as of August 31, 1997.
(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.
(h) Other
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts and disclosures in the financial
statements.
2. MANAGEMENT FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(a) The management fees are payable monthly to the Manager and are computed
daily at the following annual rates of each Portfolio's 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 year ended August 31, 1997, the Manager voluntarily waived all of
its management fees and assumed $73,464 and $31,195 in other operating expenses
for Municipal Bond and International Equity, respectively. The Manager also
voluntary waived $57,918, $48,882, $59,602 and $80,307 in management fees for
U.S. Governament Money Market, Investment Quality Bond, Large Capitalization
Value and Small Capitalization, respectively, for the year ended August 31,
1997.
The Portfolios also benefit from a expense offset arrangement with their
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing assets, they
would have generated income for their respective Portfolios.
(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 year ended August 31,
1997, the Manager paid the Advisers $32,755; $40,863; $12,586; $73,448;
$124,637; $69,578 and $34,266 for U.S. Government Money Market, Investment
Quality, Municipal Bond, Large Capitalization Value, Large Capitalization
Growth, Small Capitalization and International Equity, respectively.
(c) The administration fee is accrued daily and payable monthly to the
Administrator. The administration fee for the period from September 1,1996
through April 30,1997 was accrued 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. The administration fees for the period from May 1, 1997 through
August 31,1997 was accrued at an annual rate of the lesser of .12% of each
Portfolio's average daily net assets or $234,000 for the Trust. For the year
ended August 31, 1997 each Portfolio accrued the following in administrative
fees:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Money Market $ 39,242
Investment Quality Bond 36,802
Municipal Bond 30,728
Large Capitalization Value 38,957
Large Capitalization Growth 46,248
Small Capitalization 37,893
International Equity 31,899
</TABLE>
(d) Total brokerage commissions paid by Large Capitalization Value, Large
Capitalization Growth, Small Capitalization and International Equity were
$15,327; $47,480; $89,624 and $25,261, respectively. Oppenheimer & Co., Inc., an
affiliate of the Manager, received $275 from Large Capitalization Value and
Hoeing & Co., Inc., an affiliate of Axe-Houghton Associates, Inc., received
$3,300 from Small Capitalization, for the year ended August 31, 1997.
3. PURCHASES AND SALES OF SECURITIES
For the year ended August 31, 1997 purchases and sales of investment
securities, other than short-term securities were as follows:
<TABLE>
<S> <C> <C> <C>
Purchases Sales
--------------------------------------
Investment Quality Bond $10,065,149 $5,882,076
Municipal Bond 3,998,741 1,133,136
Large Capitalization Value 11,063,028 5,474,198
Large Capitalization Growth 23,785,028 20,924,962
Small Capitalization 40,456,839 37,828,919
International Equity 6,920,966 4,623,032
</TABLE>
For the year ended August 31, 1997, U.S. Government Money Market had
purchases and sales/maturities of short-term securities of $340,332,860 and
$335,752,138, respectively.
4. UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR
FEDERAL INCOME TAX PURPOSES
At August 31, 1997, the composition of unrealized appreciation
(depreciation) of investment securities and the cost of investments for Federal
income tax purposes were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Appreciation (Depreciation) Net Tax Cost
----------------------------------------------------------------------
Investment Quality Bond $145,026 ($26,140) $118,886 $21,380,433
Municipal Bond 194,823 (13,107) 181,716 6,916,088
Large Capitalization Value 7,521,267 (133,140) 7,388,127 22,315,417
Large Capitalization Growth 12,480,113 (417,964) 12,062,149 34,622,404
Small Capitalization 5,623,005 (76,867) 5,546,158 22,932,866
International Equity 1,391,633 (505,148) 886,485 8,623,468
</TABLE>
41
<PAGE>
August 31, 1997
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS
When a Portfolio purchases a put option, it is generally to hedge
against adverse movements in the value of Portfolio holdings. The risk of
buying an option is that the Portfolio will pay a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not
being able to enter into a closing transaction if an illiquid secondary
market exists.
7. CAPITAL LOSS CARRYFOWARDS
At August 31, 1997, the following portfolios had, for Federal income tax
purposes, unused capital loss carryforwards available to offset future capital
gains through the following fiscal years ended August 31:
<TABLE>
<S> <C> <C> <C> <C> <C>
Name of Portfolio Total 2003 2004 2005
----------------- ----- ---- ---- ----
U.S. Government Money Market Portfolio $32 -- -- --
Investment Quality Bond Portfolio $6,147 -- -- --
International Equity Portfolio $8,875 -- -- --
</TABLE>
additionally, during the fiscal year ended August 31, 1997, the following
Portfolio elected to defer capital and currency lossses incurred after October
31, 1996 as follows:
<TABLE>
<S> <C> <C>
Name of Portfolio Capital Currency
----------------- ------- --------
U.S. Government Money Market Portfolio $101 --
Investment Quality Bond Portfolio 24,908 --
International Equity Portfolio -- --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS
----------------------------------- ----------------------- -----------------------------------------
Distributions
to
Net Realized Shareholders
and Dividends to from Net Net Net Ratio of Net Ratio of Net
Net Asset Unrealized Total Shareholders Realized Asset Assets Operating Investment
Value, Net Gain(Loss) from from Net Gain Value, End of Expenses Income(Loss) Portfolio Average
Beginning Investment on Investment Investment on End of Total Period to Average to Average Turnover Commission
of Period Income(Loss) Investments Operations Income Investments Period Return*(000's) Net Assets Net Assets Rate Rate
U.S. Government Money Market Portfolio
Year Ended August 31,
1997
$1.000 $0.043 $0.000 0.043 ($0.043) -- $1.000 4.41% $28,572 1.12%(1,2,6) 4.31%(1,2) -- --
Year Ended August 31,
1996
1.000 0.044 0.000 0.044 (0.044) -- 1.000 4.47% 22,906 1.12%(1,2,6) 4.30%(1,2) -- --
September 2, 1994 (3)
to August 31, 1995
1.000(4) 0.052 0.000 0.052 (0.052) -- 1.000 5.36% 5,072 0.40%(1,5) 5.38%(1,5) -- --
</TABLE>
(1) During the fiscal year ended August 31,1997, Saratoga Capital
Management waived a portion of its management fees. During all other
time periods presented above, Saratoga Capital Management waived all
of its fees and assumed a portion of the operating expenses.
Additionally, for the periods presented above, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such
waivers, assumptions and expense offsets had not been in effect for
the respective periods, the ratios of net operating expenses to
average daily net assets and the rations of net investment income
(loss) to average daily net assets would have been 1.35% and 4.08%,
respectively, for the year ended August 31, 1997, 1.79% and 3.64%,
respectively, for the year ended August 31,1996 and 6.69% and (0.91%),
annualized, respectively, for the period September 2, 1994
(commencement of operations) to August 31,1995.
Investment Quality Bond Portfolio
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Ended August 31,
1997
$9.91 $0.51 $0.18 $0.69 ($0.51) $0.00 $10.09 7.16% $22,507 1.28(1,2,6) 5.03%(1,2) 30% --
Year Ended August 31,
1996
10.08 0.48 (0.16) 0.32 (0.48) (0.01) 9.91 3.23% 16,864 1.31%(1,2,6) 4.84%(1,2) 55% --
September 2, 1994 (3)
to August 31, 1995
10.00(4) 0.60 0.08 0.68 (0.60) -- 10.08 7.12% 4,503 0.45%(1,5) 5.(1,5) 18% --
</TABLE>
(1) During the fiscal year ended August 31,1997, Saratoga Capital
Management waived a portion of its management fees. During all other
time periods presented above, Saratoga Capital Management waived all
of its fees and assumed a portion of the operating expenses.
Additionally, for the periods presented above, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such
waivers, assumptions and expense offsets had not been in effect for
the respective periods, the ratios of net operating expenses to
average daily net assets and the rations of net investment income
(loss) to average daily net assets would have been 1.52% and 4.71%,
respectively, for the year ended August 31, 1997, 2.12% and 3.90%,
respectively, for the year ended August 31,1996 and 7.93% and (1.71%),
annualized, respectively, for the period September 2, 1994
(commencement of operations) to August 31,1995.
Municipal Bond Portfolio
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Ended August 31,
1997
$10.00 $0.43 $0.33 $0.76 ($0.43) -- $10.33 7.67% $7,223 1.21%(1,2,6) 4.19%(1,2) 20% --
Year Ended August 31,
1996
9.93 0.41 0.07 0.48 (0.41) -- 10.00 4.88% 4,708 1.23%(1,2,6) 4.03%(1,2) 12% --
September 2, 1994 (3)
to August 31, 1995
10.00(4) 0.51 (0.07) 0.44 (0.51) -- 9.93 4.65 % 1,477 0.37%(1,5) 4.79%(1,5) 27% --
</TABLE>
(1) During the periods presented above, Saratoga Capital Management waived
all of its fees and assumed a portion of the operating expenses.
Additionally, for the period presented above, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such
waivers, assumptions and expense offsets had not been in effect for
the respective periods, the ratios of net operating expenses to
average daily net assets and the ratios of net investment income
(loss) to average daily net assets would have been 2.96% and 2.43%,
respectively, for the year ended August 31, 1997, 5.32% and (0.12)%,
respectively, for the year ended August 31, 1996 and 20.15% and
(14.99%), annualized, respectively, for the period September 2, 1994
(commencement of operations) to August 31,1995.
Large Capitalization Value Portfolio
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Ended August 31,
1997
$14.45 $0.09 $4.37 4.46 ($0.08) ($0.26) $18.57 31.37% $29,676 1.31%(1,2,6) 0.60%(1,2) 25% $0.06
Year Ended August 31,
1996
12.30 0.07 2.33 2.40 (0.11) (0.14) 14.45 19.73% 18,274 1.28%(1,2,6) 0.97%(1,2) 26% 0.06
September 2, 1994 (3)
to August 31, 1995
10.00(4) 0.15 2.20 2.35 (0.05) -- 12.30 23.60% 5,515 0.40%(1,5) 2.29%(1,5) 33% --
</TABLE>
(1) During the fiscal year ended August 31,1997, Saratoga Capital
Management waived a portion of its management fees. During all other
time periods presented above, Saratoga Capital Management waived all
of its fees and assumed a portion of the operating expenses.
Additionally, for the periods presented above, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such
waivers, assumptions and expense offsets had not been in effect for
the respective periods, the ratios of net operating expenses to
average daily net assets and the ratios of net investment income
(loss) to average daily net assets would have been 1.56% and 0.35%,
respectively, for the year ended August 31, 1997, 2.19% and 0.04%,
respectively, for the year ended August 31,1996 and 6.54% and (3.85%),
annualized, respectively, for the period September 2, 1994
(commencement of operations) to August 31,1995.
Large Capitalization Growth Portfolio
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Ended August 31,
1997
$13.16 ($0.02) $4.73 $4.71 -- -- $17.87 35.79% $47,197 1.36%(1,2,6) (0.12%)(1,2) 53% $0.07
Year Ended August 31,
1996
12.86 (0.02) 0.35 0.33 (0.01) (0.02) 13.16 2.56% $33,962 1.34%(1,2,6) (0.13%)(1,2) 50% 0.07
September 2, 1994 (3)
to August 31, 1995
10.00(4) 0.02 2.85 2.87 (0.01) -- 12.86 28.77% 11,107 0.51%(1,5) 0.32% (1,5) 23% --
</TABLE>
(1) During the fiscal year ended August 31,1997, Saratoga Capital
Management waived a portion of its management fees. During all other
time periods presented above, Saratoga Capital Management waived all
of its fees and assumed a portion of the operating expenses.
Additionally, for the periods presented above, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such
waivers, assumptions and expense offsets had not been in effect for
the respective periods, the ratios of net operating expenses to
average daily net assets and the ratios of net investment income
(loss) to average daily net assets would have been 1.36% and (0.20%),
respectively, for the year ended August 31, 1997, 1.67% and (0.60%),
respectively, for the year ended August 31,1996 and 5.00% and (4.17%),
annualized, respectively, for the period September 2, 1994
(commencement of operations) to August 31,1995.
Small Capitalization Portfolio
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Ended August 31,
1997
$13.58 ($0.07) $2.37 $2.30 -- ($0.83) $15.05 18.07% 28,781 1.30%(1,2,6) (0.70%(1,2) 162% $0.06
Year Ended August 31,
1996
12.62 (0.09) 1.44 1.35 ($0.00) (0.39) 13.58 11.03% 22,071 1.25%(1,2,6) (0.83%(1,2) 95% 0.06
September 2, 1994 (3)
to August 31, 1995
10.00(4) 0.02 2.61 2.63 (0.01) -- 12.62 26.38% 15,103 0.42%(1,5) 0.07(1,5) 111% --
</TABLE>
(1) During the fiscal year ended August 31,1997, Saratoga Capital
Management waived a portion of its management fees. During all other
time periods presented above, Saratoga Capital Management waived all
of its fees and assumed a portion of the operating expenses.
Additionally, for the periods presented above, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such
waivers, assumptions and expense offsets had not been in effect for
the respective periods, the ratios of net operating expenses to
average daily net assets and the ratios of net investment income
(loss) to average daily net assets would have been 1.64% and (1.04%),
respectively, for the year ended August 31, 1997, 1.84% and (1.42%),
respectively, for the year ended August 31,1996 and 3.57% and (3.08%),
annualized, respectively, for the period September 2, 1994
(commencement of operations) to August 31,1995.
International Equity Portfolio
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Ended August 31,
1997
$9.59 $0.23 $1.12 $1.35 (0.20) -- $10.74 14.39% $10,389 1.64%(1,2,6) 0.32%(1,2) 58% $0.06
Year Ended August 31,
1996
9.33 0.00 0.34 0.34 (0.05) -- 9.59 3.68% 6,857 1.65%(1,2,6) 0.23%(1,2) 58% 0.09
September 2, 1994 (3)
to August 31, 1995
10.00(4) 0.05 (0.71) (0.66) -- (0.01) 9.33 (6.61%) 2,907 0.38%(1,5) 1.03%(1,5) 36% --
</TABLE>
(1) During the periods presented above, Saratoga Capital Management waived
all of its fees and assumed a portion of the operating expenses.
Additionally, for the periods presented above, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such
waivers, assumptions and expense offsets had not been in effect for
the respective periods, the ratios of net operating expenses to
average daily net assets and the ratios of net investment income
(loss) to average daily net assets would have been 2.76% and (1.00%),
respectively, for the year ended August 31, 1997, 3.91% and (2.33)%,
respectively, for the year ended August 31, 1996 and 8.96% and
(7.55%), annualized, respectively, for the period September 2, 1994
(commencement of operations) to August 31,1995.
----------------------------------------------------------------------
(2) Average daily net assets for the year ended August 31, 1997 were
$26,214,812; $20,394,151; $6,248,007; $24,370,240; $41,259,956;
$23,254,384 and $8,539,603 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) Initial offering price.
(5) Annualized.
(6) Does not reflect expense offsets.
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
<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, 1997, and
the related statement of operations, for the year then ended, the statements of
changes in net assets for each of the years in the two year period then ended
and financial highlights for each of the years in the two year period then ended
and for the period September 2, 1994 (commemcement of operations) to August 31,
1995. These financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting The Saratoga Advantage Trust as of
August 31, 1997, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period ended and
the financial highlights for each of the two years in the period then ended and
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 27, 1997
<PAGE>
- --------------------------------------------------------------------------------
TAX INFORMATION (unaudited)
- --------------------------------------------------------------------------------
Federal and certain state and local tax rules require the Trust to advise its
shareholders with in 60 days of the Trust's fiscal year end ( August 31, 1997)
as to the tax status of the following dividends and distributions received by
shareholders during such fiscal year:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Percentage of Percentage of
Dividends Qualifying Dividends derived
for the Corporate Capital Percentage of from interest
Dividends Received Gain Exempt-Interest on U.S. Government
Deduction Dividend Dividends Obligations
--------- -------- --------- ------------
U.S. Government Money Market Portfolio -- -- -- 100.00%
Investment Quality Bond Portfolio -- -- -- 76.08%
Municipal Bond Portfolio * -- -- 99.59%(*) --
Large Capitalization Value Portfolio 62.49% $189,862 -- 3.37%
Large Capitalization Growth Portfolio -- -- -- --
Small Capitalization Portfolio 4.83% $1,138,309 -- 1.13%
International Equity Portfolio -- $164 -- --
</TABLE>
* With respect to the Municipal Bond Portfolio, 11.91% of the Portfolio's
dividends from net investment income will be considered a preference item for
the federal alternative minimum tax.
<PAGE>
Shareholder Votes
Due to a change in control of Saratoga Capital Management, manager of the
Saratoga Advantage Trust, the trust's management and advisory agreements
terminated as a matter of law. A special meeting of the shareholders of the
trust was held on April 10, 1997. In anticipation of the change in control, the
shareholders were asked to approve new management and advisory agreements which
were substantially identical to the agreements then in place. The new agreements
were approved, and took effect at the consummation of the transaction which
resulted in the change of control. The shareholders were also asked to elect
four trustees of the Trust, and to ratify or reject the selection of independent
accountants for the fiscal year ending August 31, 1997.
The information below gives a brief description of each matter voted upon at the
meeting and the number of votes cast for, against or withheld, as well as the
number of abstentions as to each matter.
1. Proposal: To approve a new management agreement between the Trust, on
behalf of each Portfolio, and Saratoga Capital Management (the "Manager")
<TABLE>
<S> <C> <C> <C> <C>
Portfolio For Against Abstain
U.S. Government
Money Market 15,512,592.2000 109,368,9500 611,544.1900
Investment
Quality Bond 1,095,250.7600 12,998.6410 40,458.8630
Municipal Bond 365,251.8880 875.7710 15,126.4890
Large Capitalization
Value 739,575.4940 8,011.2840 28,746.1650
Large Capitalization
Growth 1,199,907.2240 18,094.4240 52,387.5060
Small
Capitalization 1,108,268.3160 4,367.7880 7,363.1890
International
Equity 401,483.5100 1,455.8540 7,603.8150
</TABLE>
<PAGE>
2. Proposals: To approve new advisory agreements between the Manager and the
Advisor of each Portfolio
<TABLE>
<S> <C> <C> <C> <C>
Portfolio For Against Abstain
U.S. Government
Money Market 15,525,892.7200 109,368.9500 598,243.6700
Investment
Quality Bond 1,109,557.7650 836.4650 38,314.0340
Municipal Bond 365,251.8880 875.7710 15,126.4890
Large Capitalization
Value 743,507.7730 3,099.6280 29,725.5420
Large Capitalization
Growth 1,205,024.3930 6,371.3910 58,993.3700
Small
Capitalization 1,107,998.3790 2,339.0110 9,661.9030
International
Equity 402,870.1380 0 7,673.0410
</TABLE>
3. Proposal: To elect four trustees of the Trust
<TABLE>
<S> <C> <C> <C> <C>
Nominee Portfolio For Withheld
Udo Koopman U.S. Government
Money Market 16,037,246.9700 196,258.3700
Investment Quality
Bond 1,135,851.5750 12,856.6890
Municipal Bond 375,121.9710 6,132.1770
Large Capitalization
Value 756,582.3290 19,750.6140
Large Capitalization
Growth 1,232,215.2930 38,173.8610
Small Capitalization 1,113,962.8530 6,036.4400
International Equity 404,380.3680 6,162.8110
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Nominee Portfolio For Withheld
Patrick McCollough U.S. Government
Money Market 16,067,263.9600 166,241.3800
Investment Quality
Bond 1,135,851.5750 12,856.6890
Municipal Bond 377,870.4800 3,383.6680
Large Capitalization
Value 757,829.9220 18,503.6140
Large Capitalization
Growth 1,233,059.9810 37,329.1730
Small Capitalization 1,114,316.0020 5,683.2910
International Equity 404,912.8940 5,630.2850
Floyd Seal U.S. Government
Money Market 16,037,246.9700 196,258.3700
Investment Quality
Bond 1,135,851.5750 12,856.6890
Municipal Bond 375,121.9710 6,132.1770
Large Capitalization
Value 756,582.3290 19,750.6140
Large Capitalization
Growth 1,232,215.2930 38,173.8610
Small Capitalization 1,113,962.8530 6,036.4400
International Equity 404,380.3680 6,162.8110
Bruce Ventimiglia U.S. Government
Money Market 16,086,006.2300 147,499.1100
Investment Quality
Bond 1,136,998.6520 11,709.6120
Municipal Bond 379,680.4960 1,573.6520
Large Capitalization
Value 759,553.9060 16,779.0370
Large Capitalization
Growth 1,236,449.2070 33,939.9470
Small Capitalization 1,114,997.7600 5,001.5330
International Equity 405,028.2910 5,514.8880
</TABLE>
4. Proposal: To ratify the selection of KPMG Peat Marwick LLP as independent
accountants for the Trust for the fiscal year ending August 31, 1997
<TABLE>
<S> <C> <C> <C> <C>
Portfolio For Against Abstain
U.S. Government
Money Market 15,800,567.2000 23,252.7900 409,685.3500
Investment
Quality Bond 1,114,991.0150 1,962.6600 31,754.5890
Municipal Bond 365,995.8880 875.7710 14,382.4890
Large Capitalization
Value 744,018.9020 4314.4700 27,999.5710
Large Capitalization
Growth 1,209,179.4790 2497.2420 58,712.4330
Small
Capitalization 1,108,311.4740 3302.1120 8385.7070
International
Equity 401,872.893 792.8920 7877.0410
</TABLE>
<PAGE>
