THE SARATOGA ADVANTAGE TRUST
ANNUAL REPORT
AS OF AUGUST 31, 1998
TABLE OF CONTENTS
Chairman's Page 1
Letter
Investment Page 3
Review
Schedules of Page 17
Investments
Statements of Assets and Page 37
Liabilities
Statements of Page 38
Operations
Statements of Changes in Net Assets Page 39
Notes to Financial Page 41
Statements
Financial Page 44
Highlights
Independent Auditor's Page 47
Report
Tax Information Page 48
This report is authorized for distribution only to
shareholders and to others who have received a copy of
the prospectus.
TRUSTEES AND OFFICERS
Bruce E. Ventimiglia Trustee, Chairman, President & CEO
Patrick H. McCollough Trustee
Udo W. Koopmann Trustee
Floyd E. Seal Trustee
Stephen Ventimiglia Vice President
Scott C. Kane Vice President & Secretary
William P. 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 431 North Pennsylvania Street
Mineola, NY 11501-4803 Indianapolis, IN 46204-1806
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
THE SARATOGA ADVANTAGE TRUST
Annual Report to Shareholders
October 19, 1998
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.
During my most recent appearance on CNN-fn on August 21, 1998, I discussed the
merits of using asset allocation strategies to achieve long-term investment
goals. The discussion seems particularly important in light of the recent market
volatility and the impact it may have had on those who did not utilize asset
allocation strategies. Please review the market returns for the period covered
by this annual report (the twelve months from September 1, 1997 through August
31, 1998), and then contrast them with the long term performance of the asset
classes shown in the chart below. During this annual report period the U.S.
stock market produced mixed results and the U.S. bond market experienced
positive performance. During this period of time, U.S. large capitalization
stocks provided a total return of 8.1%, as measured by the Standard and Poor's
500 Index and U.S. small capitalization stocks lost 19.4% as gauged by the
Russell 2000 Index. The total return for bonds for the year ended August 31,
1998 was 9.0%, as measured by the Lehman Intermediate Government/Corporate Bond
Index. International stocks produced slightly negative returns during the
period, losing 0.1% as reported by the Morgan Stanley Europe, Australia and Far
East (EAFE) Index.
ALLOCATION ALLOCATION ALLOCATION
Don't let the recent short-term stock and bond market fluctuations change your
investment strategy. Use a well established asset allocation strategy to help
you to stay disciplined and patient through full market cycles (i.e., through
both market declines and advances). A key goal of asset allocation is to
establish a "comfortable" blend of investments that can help you stay invested
long-term. Historically, staying invested long-term has produced impressive
results in some asset classes. According to data from Ibbotson Associates, from
January 1925 to January 1998, a $10,000 investment in the asset classes below
would have performed as follows:
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
ASSET CLASS INITIAL INVESTMENT INVESTMENT VALUE RATE OF RETURN
January 1925 January 1998
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
U.S. Small Stocks $10,000 $51.2 million 12.60%/year
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
U.S. Common Stocks $10,000 $18.4 million 11.01%/year
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
U.S. Intermediate-Term Government
Bonds $10,000 $403,100 5.27%/year
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
U.S. 30 Day Treasury-Bills $10,000 $142,600 3.76%/year
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
U.S. Inflation $10,000 $90,100 3.10%/year
- -------------------------------------- ---------------------------------- --------------------------------- --------------------
</TABLE>
As you can see, a small increase in your investment rate of return can make a
significant difference in the wealth that you may accumulate. In addition, the
equity (stock) based investments, especially small capitalization stocks,
outperformed the fixed income investments significantly. Obviously it paid to
have a portion of an investment portfolio in stocks if an investor wanted to
accumulate significant wealth through investing. But stocks carry the most risk
of the asset classes above, and past performance is not a guarantee of future
results. Consequently, it is important for you to work closely with your
financial advisor to establish a personalized asset allocation strategy that is
designed specifically for your individual investment objective, time horizon,
risk tolerance and investment preferences.
According to the Financial Analysts Journal, asset allocation is one of the most
important investment decisions that you can make. In fact, the Journal reported
that over 91% of the variation in investment returns is due to asset allocation.
The Saratoga Advantage Trust was established to work hand-in-hand with each
investors' asset allocation strategy. Once your asset allocation strategy has
been determined, it is critically important that it be properly implemented.
This is why the Saratoga Advantage Trust portfolios utilize institutional money
managers who manage money for some of the world's largest corporations, pension
plans, and municipalities. We chose these institutional managers for many of the
same reasons that many Fortune 500 companies choose them: consistency of
management style, adherence to investment philosophy, and national reputations
in their specialized investment disciplines. These benefits enable investors
using the Saratoga portfolios to create a balanced and diversified investment
portfolio using the same approach as many large institutional investors. Your
financial advisor can assist you in establishing and monitoring a sensible asset
allocation strategy that can help you meet your long-term investment goals.
Finally, regarding the Saratoga Advantage Trust International Equity Portfolio,
on May 5, 1998, each Saratoga Advantage Trust shareholder was sent an
Information Statement pertaining to the merger of Ivory & Sime Group, the parent
of Ivory & Sime International, Inc., and Ivory & Sime plc, with the FP Asset
Management Group, a subsidiary of Friends Provident Group. This merger resulted
in the formation of Friends Ivory & Sime plc, a subsidiary of Friends Provident
Group and Ivory & Sime International, Inc. became a wholly-owned subsidiary of
Friends Ivory & Sime plc. Friends Ivory and Sime plc manages approximately $40
billion for its institutional and high net worth clients. 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 are dedicated to serving your
investment needs. Thank you for investing with us.
Best wishes,
Bruce E. Ventimiglia
Chairman, President and
Chief Executive Officer
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 S &P 500 Value
Ended August 31, 1998 Index1 Index2 Index3
- ------------------------------------ ------------------- ------------------- ------------------- --------------------
Since Inception (9/1/94)* 18.4% 13.1% 21.7% 17.6%
9/1/97 - 8/31/98 1.0% (4.4)% 8.1% (0.4)%
3/1/98 - 8/31/98 (10.4)% (14.2)% (8.1)% (13.3)%
*Annualized performance for periods greater than one year
</TABLE>
The Saratoga Large Capitalization Value Portfolio invests in a diverse group of
companies chosen for their superior business characteristics and reasonable
stock market valuations. We remain disciplined in our philosophy of buying
undervalued companies that are dominant in their industries, generate high
returns and use their free cash flow to increase shareholder value. The strong
contributors to the portfolio performance included EXEL Ltd., Becton Dickinson,
Carnival Cruise Lines, Freddie Mac and McDonalds. The portfolio owned the common
stocks of 38 companies as of August 31, 1998. The five largest holdings were:
EXEL Ltd., a strongly capitalized specialty insurance company; Ace Ltd., one of
the leading providers of excess liability insurance in the world; Lockheed
Martin Corporation, a major aeronautics and technology company; Philip Morris
Companies Inc., a leading consumer products company with three major segments:
tobacco, brewing and food products; and Allied Signal Inc. which produces
aerospace components, automotive parts and engineered materials including
chemicals, plastics, polymers and fibers.
LARGE CAPITALIZATION VALUE PORTFOLIO
Advised by:
OpCap Advisors
New York, New York
1. The Lipper Capital Appreciation Funds Index 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 S & P 500 Growth
Ended August 31, 1998 Index1 Index2 Index3
- ----------------------------------- ------------------- -------------------- ------------------- --------------------
Since Inception (9/1/94)* 16.8% 16.7% 21.7% 25.5%
9/1/97 - 8/31/98 3.9% 2.2% 8.1% 16.4%
3/1/98 - 8/31/98 (11.9)% (10.9)% (8.1)% (3.2)%
*Annualized performance for periods greater than one year
</TABLE>
The Large Capitalization Growth Portfolio is a collection of high quality U.S.
companies, each one carefully analyzed from the bottom up to determine if it is
in a position to continue strong, double-digit earnings growth for our clients.
We know from experience that earnings growth is the product of a competent,
responsible management; competitive advantage through superior products or
service; a business plan that supports future growth; and a strong financial
position. Despite the market's current volatility, Harris Bretall remains
optimistic about the market's potential into the next century. Harris Bretall
believes we are in the midst of an unprecedented period for the broad market.
With the projection of continued growth through the remainder of the decade and
the Dow reaching the 10,000 level by the Year 2000, the portfolio for the future
should focus on large, U.S. based companies with a concentration in global
consumer franchises, high technology, health care and financial services.
Despite the present market sell-off, three powerful macro-economic trends remain
trends-demographics, technology and globalization, and the opportunities which
they produce for investors still exist. The stocks in the Large Capitalization
Growth Portfolio are an example of a portfolio prepared to lead the market's
charge upward.
LARGE CAPITALIZATION GROWTH PORTFOLIO
Advised by:
Harris Bretall Sullivan & Smith, Inc.
San Francisco, California
1. The Lipper Growth Funds Index 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.
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, 1998 Portfolio Index1 Index2
- ----------------------------------- -------------------- ---------------------- -----------------------
Since Inception (9/1/94)* 3.6% 8.4% 8.6%
9/1/97 - 8/31/98 (30.6)% (19.5)% (19.4)%
3/1/98 - 8/31/98 (39.3)% (25.1)% (26.5)%
*Annualized performance for periods greater than one year
</TABLE>
Since the peak for small cap stocks in late April, the Russell 2000 Index began
to decline even as the large cap S&P 500 Index moved to a new high in mid July.
Then, when the overall market correction began, small stocks continued to
decline as well. The low point for both markets in this year-to-date fell right
on the close of the Fund's fiscal year on August 31, 1998. Since then equity
markets have moved higher, although accompanied by increased volatility.
While no one can predict when this recent market volatility will abate, when it
does the huge compression in small cap stock values should finally begin to
lift. We believe that the wide disparity between large cap valuations at 25x
Price/Earnings vs. your portfolio's small cap valuations at 12x Price/Earnings
will ultimately be corrected. Smaller stock earnings are growing faster, their
valuations are lower, specific bargains proliferate and we believe the long-term
trend is in their favor. Our investment philosophy and process has been in place
for over thirty years and remains consistent. The approach has worked well over
the long term in all types of economic conditions. Our senior investment
research team, with an average of 25 years experience, conducts rigorous
research to identify companies with solid fundamentals, solid management and
realistic catalysts for change. In markets such as these all that work really
pays off. The potential returns in your portfolio today are the best we have
seen since the climactic third quarter bottom in 1990.
SMALL CAPITALIZATION PORTFOLIO
Advised by:
Thorsell,Parker Partners, Inc.
Westport, Connecticut
1. The Lipper Small Cap Funds Index 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
common 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.
INTERNATIONAL EQUITY PORTFOLIO
Advised by:
Friends Ivory & Sime plc
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, 1998
- -------------------------------------- ------------------- --------------------
Since Inception (9/1/94)* 3.1% 4.2%
9/1/97 - 8/31/98 2.0% (0.1)%
3/1/98 - 8/31/98 (5.5)% (7.8)%
*Annualized performance for periods greater than one year
</TABLE>
For most of this year there has been a marked divergence between the stock
markets of Western Europe, and those in other parts of the world outside North
America. Japan has continued to flounder, with the government seemingly
powerless to address the twin problems of a sluggish economy and a critically
weak financial system. Emerging markets have on the whole presented an even more
dismal picture. The difficulties that initially surfaced in Southeast Asia have
been transmitted to emerging markets in all other parts of the globe. Until
recently Europe continued to be a safe haven for the international equity
investor. Sound profits growth, falling long bond yields and reasonable
valuation levels provided immunity to external upheavals. The Russian crisis
has, however, brought emerging market turmoil to Europe's doorstep, and this has
led to a major reversal in performance recently. Nevertheless, the fundamental
outlook remains sound. Friends Ivory & Sime continues to avoid the combination
of high risk and low visibility offered by emerging markets, and remains
cautious on Japan. Europe is the favored region, although we remain alert to
potential opportunities brought up by recent volatility in world markets,
especially in Japan. As of August 31, 1998 major weightings in the Portfolio
were as follows: Europe 77.1%, UK 15.3% and Latin America 0.8%.
INTERNATIONAL EQUITY PORTFOLIO
Advised by:
Friends Ivory & Sime plc
Edinburgh, Scotland
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.
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 Index1 Corporate
Ended August 31, 1998 Bond Index2
- ------------------------------------ -------------------- -------------------- --------------------
Since Inception (9/1/94)* 6.2% 7.1% 7.8%
9/1/97 - 8/31/98 7.2% 7.7% 9.0%
3/1/98 - 8/31/98 3.3% 3.7% 4.2%
*Annualized performance for periods greater than one year
</TABLE>
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, 1998, 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 U.S. Treasuries, there is greater emphasis
on corporate bond 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 3.9 years, and an average
duration of 3.3 years in the Portfolio. Other Portfolio statistics as of August
31, 1998 are as follows: Average yield-to-maturity was 5.8%, average coupon was
6.5%, and the average Moody's Rating was A1 with 25 fixed income issues held.
INVESTMENT QUALITY BOND PORTFOLIO
Advised by:
Fox Asset Management, Inc.
Little Silver, New Jersey
1. The Lipper Short-Intermediate Investment Grade Debt Funds Index 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 Index1 Municipal
Ended August 31, 1998 Portfolio Bond Index2
- ------------------------------------- -------------------- ---------------------- -------------------
Since Inception (9/1/94)* 6.4% 7.6% 8.0%
9/1/97 - 8/31/98 8.4% 8.6% 8.7%
3/1/98 - 8/31/98 3.4% 3.3% 3.4%
*Annualized performance for periods greater than one year
</TABLE>
The global meltdown of equity markets during the summer has been the major
reason why the U.S. treasury market has soared to historical high prices and low
yields. Fears that emerging market economies are faltering as currency
devaluations, or expectations of devaluations, become the rule has impacted on
our own equity markets as corporate profitability comes into question. The
market has already priced in several Federal Reserve easings as it is assumed
that Mr. Greenspan will be forced to lower rates as a signal to the
international community that the U.S. is ready to add liquidity in a world where
the flow of money may begin to dry up. All other domestic fixed income markets
lagged behind treasuries for various reasons, but certainly no sector could
match the torrential flow of funds into the safe haven of the treasury market.
Though municipal yields are also at historic lows, tax-exempt bonds have never
been cheaper for such an extended period of time. Many high quality long
maturity municipals have nearly the same yield as treasuries which, taking into
consideration the tax advantages of municipals, have after tax yields which are
considerably higher than treasuries. We have remained fully invested in
municipals throughout the year. We have focused on improving the call protection
of the portfolio as yields plummeted during this period. We have also increased
the allocation to lower coupon municipals which typically perform better in
constructive markets such as this. The average weighted maturity of the
portfolio is 18 years. The largest sectors of the portfolio are: Health 16%,
General Obligiation 23%, Housing 17%, Water Sewer 9% and Power 6%. The largest
holdings by state are: New York 14%, Georgia 12%, Wisconsin 10%, California 8%,
and Texas 7%.
MUNICIPAL BOND PORTFOLIO
Advised by:
OpCap Advisors
New York, New York
1. The Lipper General Municipal Debt Funds Index 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.
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
- ----------------------------------- ------------------------ ------------------------
8/31/98 4.5% 4.9%
Total Aggregate U.S. Government Money Lipper U.S.
Return for the Period Market Portfolio Treasury Money
Ended August 31, 1998 Market Index1 90 Day T-Bills
- ----------------------------------- ------------------------ ------------------------ --------------------
Since Inception (9/1/94)* 4.7% 4.9% 5.1%
9/1/97 - 8/31/98 4.6% 4.9% 5.1%
3/1/98 - 8/31/98 2.3% 2.4% 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, 1998, due to the higher yields versus
Treasury Bills. The average dollar-weighted portfolio maturity was 60 days,
compared with a maximum allowable average maturity of 90 days. For the
year-ending August 31, 1998, the Federal Funds rate remained steady at a 5.50%
level. Though a formal bias toward higher interest rates was communicated
directly from the Federal Reserve Board, global market instability has driven
investors to anticipate an easier credit stance by year-end. The disinflationary
domestic economy combines with the allure of U.S. Treasury securities as an
international safe haven to support our constructive outlook for the fixed
income market. 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
Index 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>
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August 31,
1998
SCHEDULES OF INVESTMENTS (continued)
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
Principal
Amount Value
- -------------- -------------------
Federal Farm Credit Bank - 12.80%
$1,125,000 5.40%, 09/18/98 $1,122,131
120,000 5.41%, 09/30/98 119,477
1,420,000 5.34%, 11/06/98 1,406,098
500,000 5.33%, 12/07/98 492,819
800,000 5.32%, 01/06/99 784,986
1,000,000 5.55%, 07/01/99 1,000,017
Total Federal Farm Credit Bank
(cost--$4,925,528) $4,925,528
Federal Home Loan Bank Discount Notes - 9.41%
190,000 5.42%, 09/18/98 $189,514
2,170,000 5.37%, 10/02/98 2,159,966
1,300,000 5.38%, 01/20/98 1,272,607
Total Federal Home Loan Bank Discount Notes
(cost--$3,622,087) $3,622,087
Federal Home Loan Mortgage Discount Notes - 44.48%
490,000 5.30%, 09/04/98 $489,784
90,000 5.415%, 09/04/98 89,959
40,000 5.45%, 09/10/98 39,946
175,000 5.38%, 09/11/98 174,738
5.42%, 09/18/98 49,872
130,000 5.43%, 09/22/98 129,588
90,000 5.44%, 09/23/98 89,701
95,000 5.43%, 09/24/98 94,670
695,000 5.48%, 09/25/98 692,461
1,325,000 5.38%, 09/30/98 1,319,258
1,045,000 5.41%, 09/30/98 1,040,446
1,300,000 5.38%, 10/01/98 1,294,172
755,000 5.39%, 10/02/98 751,496
835,000 5.39%, 10/06/98 830,624
480,000 5.42%, 10/09/98 477,254
420,000 5.43%, 10/09/98 417,593
2,200,000 5.42%, 10/14/98 2,185,757
1,000,000 5.29%, 10/16/98 993,388
245,000 5.41%, 10/16/98 243,343
2,500,000 5.40%, 10/28/98 2,478,625
1,000,000 5.37%, 11/02/98 990,752
30,000 5.38%, 11/13/98 29,673
2,245,000 5.42%, 11/13/98 2,220,326
Total Federal Home Loan Mortgage Discount Notes
(cost--$17,123,426) $17,123,426
See accompanying notes to financial statements.
35
August 31, 1998
SCHEDULES OF INVESTMENTS (continued)
U.S. GOVERNMENT MONEY MARKET PORTFOLIO (cont'd)
Principal
Amount Value
Federal National Mortgage Association - 32.69%
$470,000 5.41%, 09/03/98 $469,859
1,365,000 5.36%, 09/14/98 1,362,358
160,000 5.40%, 09/14/98 159,688
30,000 5.41%, 09/15/98 29,937
570,000 5.34%, 09/17/98 568,647
195,000 5.38%, 09/17/98 194,534
550,000 5.39%, 09/21/98 548,353
1,580,000 5.33%, 09/23/98 1,574,854
10,000 5.42%, 10/05/98 9,949
240,000 5.43%, 10/05/98 238,769
300,000 5.43%, 10/08/98 298,326
155,000 5.43%, 10/16/98 153,947
1,010,000 5.44%, 10/22/98 1,002,216
660,000 5.38%, 11/02/98 653,884
295,000 5.35%, 11/03/98 292,238
990,000 5.40%, 11/16/98 978,714
1,610,000 5.32%, 12/07/98 1,586,921
2,500,000 5.36%, 12/16/98 2,460,544
Total Federal National Mortgage Association
(cost--$12,583,738) $12,583,738
Total Investments
99.38% $38,254,779
(cost--$38,254,779)
Other Assets in Excess of
Other 0.62% 237,594
Liabilities
Total Net 100.00% $38,492,373
Assets
See accompanying notes to financial statements.
36
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
INVESTMENT QUALITY BOND PORTFOLIO
Principal
Amount Value
U.S. TREASURY NOTES - 44.93%
$4,075,000 6.125%, 09/30/00 $4,167,951
3,000,000 5.625%, 11/30/00 3,040,770
8,500,000 6.500%, 08/31/01 8,842,635
Total U.S. Treasury Notes
(cost--$15,691,990) $16,051,356
CORPORATE NOTES & BONDS - 52.19%
Aerospace/Defense - 4.21%
1,500,000 Ratheon Co. 6.50%, 7/15/05 1,504,605
Automotive - 1.77%
225,000 Ford Motor Credit Corp.7.75%, 10/01/99 229,289
400,000 General Motors Acceptance Corp.7.75%, 01/15/99 402,676
631,965
Banking - 5.97%
1,500,000 ICI Wilmington Inc.6.95%, 09/15/04 1,536,720
600,000 Nationsbank Corp.5.375%, 04/15/00 596,898
2,133,618
Drugs/Medical Products - 3.06%
1,000,000 American Home Products Corp. 7.90%,2/15/05 1,095,130
Finance - 6.43%
750,000 BHP Financial USA Ltd.7.875%, 12/01/02 791,407
1,500,000 Merrill Lynch & Co. Inc.6.00%, 02/12/03 1,504,620
2,296,027
Health & Hospitals - 3.46%
1,200,000 Tenet Healthcare Corp.8.625%,12/01/03 1,236,000
Metals/Mining - 3.22%
1,200,000 Cyprus Amax Minerals Co.6.625%, 10/15/05 1,150,788
Miscellaneous Financial Services - 12.58%
Associates Corp. of North America
350,000 6.250%, 09/15/00 354,067
1,000,000 6.625%, 06/15/05 1,015,500
Bear Stearns & Co.
1,000,000 5.750%, 02/15/01 996,960
350,000 7.625%, 09/15/99 355,796
Morgan Stanley Group
250,000 5.750%,02/15/01 249,793
TRW Inc.
1,500,000 6.05%,01/15/05 1,521,405
4,493,521
See accompanying notes to financial statements.
27
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
INVESTMENT QUALITY BOND PORTFOLI0 (cont'd)
Principal
Amount CORPORATE NOTES & BONDS (cont'd) Value
- ----------------- ---------------
Oil/Gas - .81%
$275,000 Amoco Canada Petroleum Co. Ltd.7.250%, 12/01/02 $290,694
Power/Utility - 1.97%
700,000 Southern California Edison Co.5.875%, 01/15/01 702,877
Resource Recovery - 3.57%
WMX Technologies, Inc.
500,000 6.700%, 05/01/01 506,160
750,000 7.125%, 06/15/01 767,445
1,273,605
Telecommunication - 1.40%
500,000 Worldcom Inc.6.40%, 08/15/05 501,690
Transportation - 3.74%
1,300,000 Union Pacific RR Company6.120%, 02/01/04 1,334,697
Total Corporate Notes & Bonds
(cost--$18,493,686) $18,645,217
Total
Investments
97.12% $34,696,573
(cost--$34,185,676)
Other Assets in Excess of
Other 2.88% 1,027,126
Liabilities
Total Net 100.0% $35,723,699
Assets
See accompanying notes to financial statements.
28
August
31,1998
SCHEDULES OF INVESTMENTS (continued)
MUNICIPAL BOND PORTFOLIO
Principal
Amount Value
MUNICIPAL NOTES & BONDS - 98.18%
ALABAMA - 3.56%
Health Care
$350,000 Huntsville Alabama Health Care
(Series A)
5.00%, 6/01/17 $348,709
ARIZONA- 4.92%
Water/Sewer
500,000 Sedona, Arizona Waste Water Municipal Property
4.75%, 7/1/27
481,725
CALIFORNIA - 8.19%
Education - 3.24%
50,000 California State Public Works Board Lease Revenue
California State University Projects
6.00%, 9/01/15 56,183
250,000 California State Public Works Board Lease Revenue
California State University Projects
5.375%, 10/01/17 260,765
316,948
Housing - 4.14%
400,000 California Housing Finance Agency (Series A)
5.30%, 8/01/18 405,112
Water/Sewer - .81%
75,000 San Francisco, California City & County Public Utilities
Community Water Revenue (Series A)
6.00%, 11/01/15 79,753
801,813
COLORADO - 1.67%
Health/Hospital -
150,000 Denver, Colorado City & County Revenue
Children's Hospital Association Project
6.00%, 10/01/15 163,224
FLORIDA - .94%
Education - .39%
Dade County, Florida School Board
35,000
Certificates of Participation (Series A)
5.75%, 5/01/12 (MBIA insured)
38,412
See accompanying notes to financial statements.
29
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
MUNICIPAL BOND PORTFOLIO (cont'd)
Principal
Amount MUNICIPAL NOTES & BONDS (cont'd) Value
Sales Tax - .55%
$50,000 St. Petersburg, Florida Professional Sports Facilities
Sales Tax Revenue
5.60%, 10/01/15 (MBIA insured) $53,223
91,635
GEORGIA - 11.60%
Airport - 3.28%
305,000 Atlanta, Georgia Airport Facilities
6.25%, 1/01/21 321,128
Education - 2.42%
215,000 Jackson County, Georgia School District
6.00%, 7/01/14 (MBIA insured) 237,491
General Obligation - 2.35%
200,000 Georgia State General Obligation Bonds (Series B)
6.25%, 4/01/07 230,372
Power/Utility 3.55%
350,000 Municipal Electric Authority Georgia
General Resolution (Series A)
5.00%, 1/01/20. 347,256
1,136,247
IOWA - .57%
Water/Sewer
50,000 West Des Moines, Iowa Water Revenue
6.80%, 12/01/13 (AMBAC insured) 55,728
KENTUCKY - 1.09%
Turnpike/Toll
100,000 Kentucky State Turnpike Authority
Economic Development Road Revenue
5.625%, 7/01/15 (AMBAC insured) 106,766
LOUISIANA - 1.69%
General Obligation
150,000 New Orleans, Louisiana General Obligation Bonds
6.125%, 10/01/16 165,819
MARYLAND - 3.38%
Resource Recovery
300,000 Maryland State Energy Financing Administration
Solid Waste Disposal Revenue Wheelabrator Water
Projects
6.30%, 12/01/10
331,356
See accompanying notes to financial statements.
30
August
31,1998
SCHEDULES OF INVESTMENTS (continued)
MUNICIPAL BOND PORTFOLIO (cont'd)
Principal
Amount MUNICIPAL NOTES & BONDS (cont'd) Value
MASSACHUSETTS - 2.94%
Transportation - .57%
$50,000 Massachusetts Bay Transportation Authority
General Transportation System (Series B)
5.90%, 3/01/24 $55,400
Water/Sewer 2.37%
250,000 Massachusetts State Water Authority
General (Series B)
4.50%, 8/01/22 232,170
287,570
MICHIGAN - 2.93%
General Obligation
250,000 Michigan Municipal Bond Authority
General Obligation Bonds
6.50%, 10/01/09 286,932
MISSOURI - .49%
Housing
45,000 Missouri State Housing Development Community
Single Family Mortgage Revenue
6.90%, 7/01/18 47,868
NEBRASKA - .45%
Power/Utility
40,000 Omaha Public Power District (Series C)
5.50%, 2/01/14 43,618
NEVADA - 2.97%
General Obligation - 1.34%
50,000 Clark County, Nevada (Series B)
6.00%, 06/01/16 53,717
75,000 Nevada State General Obligation Bonds
Municipal Bond Bank (Series A)
5.50%, 11/01/20 77,840
131,557
Housing - 1.63%
150,000 Nevada Housing Division
Single Family Program (Series A1)
6.15%, 4/01/17 159,245
290,802
See accompanying notes to financial statements.
31
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
MUNICIPAL BOND PORTFOLIO (cont'd)
Principal
Amount MUNICIPAL NOTES & BONDS (cont'd) Value
NEW YORK 13.85%
Education - 1.43%
New York State Dormitory Authority
$125,000 Consolidated City University System
5.75%, 7/01/09 $139,868
General Obligation - 10.04%
300,000 New York City General Obligation Bonds (Series H)
6.50%, 3/15/05. 337,632
200,000 New York State General Obligation Bonds (Series A)
6.50%, 7/15/06 230,118
400,000 Oneida County, New York Industrial Development Agency
Mohawk Valley (Series A)
5.20%, 2/01/13 415,564
983,314
Housing - .82%
New York State Mortgage Agency Revenue
75,000 Homeowner Mortgage (Series 54)
6.10%, 10/01/15 80,685
Pollution Control - .44%
40,000 New York State Environmental Facilities Corp.
Pollution Control Revenue
5.875%, 6/15/14 43,541
Transportation - 1.12%
100,000 Metropolitan Transportation Authority
5.50%, 7/01/08 (FGIC insured) 109,282
1,356,690
NORTH DAKOTA - 6.70%
Housing
250,000 North Dakota State Housing Finance Agency
Housing Financial PG. Home Mortgage Fin (Series A)
5.25%, 7/01/18 251,680
400,000 North Dakota State Housing Finance Agency
Housing Financial PG. Home Mortgage Fin (Series C)
5.50%, 7/01/18 404,828
656,508
OHIO - .62%
Health/Hospital
50,000 Lorain County, Ohio Hospital Revenue
7.75%, 11/01/13 (AMBAC insured) 60,549
See accompanying notes to financial statements.
32
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
MUNICIPAL BOND PORTFOLIO (cont'd)
Principal
Amount MUNICIPAL NOTES & BONDS (cont'd) Value
PENNSYLVANIA - 6.16%
Education - 1.63%
$150,000 Pennsylvania State Higher Educational Facilities
Authority
Health Services Revenue University of Pennsylvania
(Series B)
5.75%, 1/01/17 $159,674
General Obligation - 3.15%
300,000 Pennsylvania State
General Obligation Bonds (Second Series)
5.00%, 11/15/12 308,679
Tax Allocation - .82%
Philadelphia, Pennsylvania Municipal Authority Revenue
75,000
5.625%, 11/15/14 (FGIC insured)
80,134
Water/Sewer - .56%
50,000 Pittsburgh, Pennsylvania Water & Sewer Authority
Water & Sewer Systems Revenue (Series B)
5.60%, 9/01/15 54,619
603,106
PUERTO RICO - .72%
Power/Utility
65,000 Puerto Rico Electric Power Authority
Power Revenue (Series X)
6.00%, 7/01/15 70,871
SOUTH CAROLINA - 2.57%
Health & Hospitals
250,000 Spartanburg County, South Carolina
Health Services (Series B)
5.125%, 4/15/17 251,780
TEXAS - 5.64%
General Obligation - 1.08%
75,000 Houston, Texas General Obligation Bonds (Series C)
5.25%, 4/01/14 77,224
25,000 San Antonio, Texas General Obligation Bonds
6.625%, 8/01/14 28,370
105,594
Power/Utility - .53%
50,000 Brazos River Authority Texas Revenue
Houston Light & Power Company
5.80%, 8/01/15 (MBIA insured) 52,453
Turnpike/Toll - 4.03%
400,000 Harris County, Texas
Toll Road Sub Lien
5.00%, 8/15/21 394,616
552,663
See accompanying notes to financial statements.
33
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
MUNICIPAL BOND PORTFOLIO (cont'd)
Principal
Amount MUNICIPAL NOTES & BONDS (cont'd) Value
UTAH - 3.29%
Power/Utility
$300,000 Intermountain Power Agency (Series C)
6.00%, 7/01/02 $322,212
WASHINGTON - .49%
Power/Utility
Seattle, Washington Municipal Light & Power Revenue
35,000
5.75%, 8/01/11 (Series A)
37,600
10,000 Washington State Public Power Supply Systems
Nuclear Project Revenue (Series B)
7.25%, 7/01/12 (FGIC insured) 10,806
48,406
WISCONSIN - 10.48%
Health & Hospitials - 7.24%
400,000 Wisconsin State Health & Educational Facilities
Waukesha Memorial Hospital (Series A)
5.25%,8/15/19
405,252
300,000 Wisconsin State Health & Educational Facilities
Aurora Health Care Inc.
5.25%, 8/15/27
303,735
708,987
Housing - 3.24%
300,000 Wisconsin Housing & Economic Development
6.20%, 3/01/27
317,646
1,026,633
WYOMING - .27%
Housing
25,000 Wyoming Community Development
Authority Housing Revenue (Series 1)
6.65%, 12/01/06 26,956
Total Long Term Investments
(cost--$9,152,882) $9,616,186
Total Investments
98.18% $9,616,186
(cost--$9,152,882).
Other Assets in Excess of
Other 1.82% 177,782
Liabilities.
Total Net 100.00% $9,793,968
Assets
MBIA - Municipal Bond Investors Assurance
FGIC - Financial Guaranty Insurance Company
AMBAC - American Municipal Bond Assurance Company
See accompanying notes to financial statements.
34
August 31,1998
SCHEDULES OF INVESTMENTS
LARGE CAPITALIZATION VALUE PORTFOLIO
Principal
Amount Value
SHORT-TERM CORPORATE/GOVERNMENT NOTES - 21.46%
Conglomerates - 3.67%
General Electric Capital Corp.
$1,566,000 5.54%, 09/08/98 $1,564,313
Miscellaneous Financial Services - 7.84%
Associates Corp. of North America
1,650,000 5.51%, 09/01/98 1,650,000
IBM Credit Corp.
365,000 5.50%, 09/01/98 365,000
American Express Credit Corp.
1,000,000 5.51%, 09/09/98 998,776
Ford Motor Credit Corp.
136,000 5.51%, 09/09/98 135,833
IBM Credit Corp.
195,000 5.50%, 09/11/98 194,702
3,344,311
Federal Home Loan Bank - 9.95%
530,000 5.41%, 09/09/98 529,363
1,920,000 5.43%, 09/09/98 1,917,683
1,800,000 5.39%, 09/25/98 1,793,532
4,240,578
Total Short-Term Corporate/Government Notes
$9,149,202
(cost--$9,149,202)
Shares
- ---------------
COMMON STOCKS - 78.63%
Advertising - 1.79%
14,000 WPP Group PLC $761,250
Aerospace - 3.28%
16,000 Lockheed Martin Corp. 1,399,000
Airlines - 2.56%
20,000 AMR Corp.* 1,090,000
Automotive - 1.94%
23,526 Lucasvarity PLC 826,351
Banking - 5.72%
20,000 Bank of Boston Corp. 713,750
10,300 Citicorp 1,113,687
2,166 Wells Fargo & Co. 610,541
2,437,978
See accompanying notes to financial statements.
17
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
LARGE CAPITALIZATION VALUE PORTFOLIO (cont'd)
Shares COMMON STOCKS (cont'd) Value
Chemicals - 1.68%
12,400 Du Pont (E.I.) de Nemours & Co. $715,325
Conglomerates - .97%
10,000 Solectron Corp. * 413,125
Defense - 4.24%
19,000 General Dynamics Corp. 903,688
25,000 Rockwell International Corp. 906,250
1,809,938
Drugs & Medical Products - 1.36%
17,360 Becton, Dickinson & Co. 578,305
Electronics - 1.11%
10,000 Avnet Inc. 472,500
Food Services - 2.37%
18,000 McDonalds Corp. 1,009,125
Healthcare Services - 1.89%
31,250 Tenet Healthcare Corp.* 806,641
Insurance - 18.01%
56,100 Ace Ltd. 1,626,900
23,900 AFLAC, Inc. 600,487
4,837 American International Group, Inc. 373,961
35,000 Everest Re Holdings, Inc. 1,225,000
36,792 EXEL Ltd. 2,458,166
4,700 General Re Corp. 975,250
10,000 Renaissance Re Holdings Ltd. 418,750
7,678,514
Leisure - 1.49%
22,000 Carnival Corp. 635,250
Machinery/Engineering - 1.74%
17,600 Caterpillar, Inc. 742,500
Manufacturing - 5.00%
46,000 Dover Corp. 1,253,500
14,000 Textron Inc. 878,500
2,132,000
Metals/Mining - 2.41%
15,000 Minnesota Mining & Manufacturing Co. * 1,027,500
Miscellaneous Financial Services - 6.31%
43,576 Conseco Inc. 1,203,787
17,200 Countrywide Credit Industries, Inc. 643,925
21,400 Federal Home Loan Mortgage Corp. 845,300
2,693,012
See accompanying notes to financial statements.
18
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
LARGE CAPITALIZATION VALUE PORTFOLIO (cont'd)
Shares COMMON STOCKS (cont'd) Value
Retail - 2.46%
18,650 May Department Stores Co. $1,049,063
Telecommunications - 4.23%
37,000 Allied Signal Inc. 1,269,562
8,000 Sprint Corp. 536,500
1,806,062
Textiles - .36%
7,000 Unifi, Inc. 155,750
Tobacco/Beverages/Food Products - 5.30%
23,000 International Flavours 891,250
33,000 Philip Morris Inc. 1,371,562
2,262,812
Transportation - 2.41%
29,000 Canadian Pacific Ltd 549,187
15,000 Sabre Group Holdings Inc. * 480,000
1,029,187
Total Common Stocks
(cost--$30,522,912) $33,531,188
Total Investments
100.09% $42,680,390
(cost--$39,672,114)
Other Liabilities in Excess of
Other (.09%) (39,653)
Assets
Total Net 100.0% $42,640,737
Assets
* Non-income producing security.
See accompanying notes to financial statements.
19
August
31,1998
SCHEDULES OF INVESTMENTS (continued)
LARGE CAPITALIZATION GROWTH PORTFOLIO
Shares Value
COMMON STOCKS - 98.76%
Advertising - 2.74%
32,000 Interpublic Group of Companies, $1,824,000
Inc.
Airlines - 2.21%
27,000 AMR Corp.* 1,471,500
Banking - 6.48%
23,000 BankAmerica Corp. 1,473,438
12,500 Citicorp 1,351,563
50,000 Norwest Corp. 1,487,500
4,312,501
Computers - 3.20%
58,800 Compaq Computers Corp. 1,642,725
10,000 Hewlett Packard 485,625
Co
2,128,350
Computer Services - 5.21%
28,000 Automatic Data Processing, Inc. 1,785,000
20,500 Cisco Systems,Inc.* 1,678,438
3,463,438
Computer Software - 4.75%
17,500 America OnlineInc.* 1,433,906
18,000 MicrosoftCorp.* 1,726,875
3,160,781
----------------
Conglomerates - 7.80%
39,000 Dayton Hudson Corp. 1,404,000
22,000 General Electric Co. 1,760,000
45,000 Kroger Co.* 2,025,000
5,189,000
Cosmetics/Toiletries - 2.10%
34,000 Gillette Co. 1,398,250
Drugs & Medical Products - 17.84%
43,000 Abbott Laboratories 1,655,500
17,000 Bristol Myers Squibb Co 1,663,875
27,000 Johnson & Johnson 1,863,000
29,000 Medtronic Inc. 1,489,875
16,000 Merck & Co., Inc. 1,855,000
18,000 Pfizer Inc. 1,674,000
19,400 Schering Plough Corp. 1,668,400
11,869,650
Electronics - 4.23%
42,000 Applied Materials,Inc.* 1,031,625
25,000 Intel Corp. 1,779,688
2,811,313
Entertainment - 2.23%
54,000 The Walt Disney Co. 1,481,625
Food Service - 1.99%
42,000 Starbucks Corp.* 1,325,625
Hotels - 1.04%
60,000 Cedant Corp.* 693,750
See accompanying notes to financial statements.
20
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
LARGE CAPITALIZATION GROWTH PORTFOLIO (cont'd)
Shares COMMON STOCKS (cont'd) Value
- -------------- ----------------
Household Products - 4.80%
21,000 Colgate Palmolive Co. $1,514,625
22,000 Proctor & Gamble Co. 1,683,000
3,197,625
Insurance - 2.44%
21,000 American International Group, 1,623,562
Inc.
Manufacturing - 6.94%
55,000 Dover Corp. 1,498,750
30,000 Illinois Tool Works, Inc. 1,453,125
30,000 Tyco International Ltd. 1,665,000
4,616,875
----------------
Miscellaneous Financial Services
- 3.99%
47,000 Charles Schwab & Co.* 1,404,125
19,000 Merrill Lynch & Co. Inc. 1,254,000
2,658,125
Retail - 8.18%
46,000 Home Depot Inc. 1,771,000
47,000 Safeway Inc.* 1,850,625
31,000 Wal-Mart Stores, Inc. 1,821,250
5,442,875
----------------
Telecommunications - 3.91%
5,600 Lucent Technologies Inc. 396,900
27,000 MCI Worldcom,Inc.* 1,105,312
26,000 Tellabs,Inc.* 1,098,500
2,600,712
Tobacco/Beverages/Food Products - 4.54%
23,000 Coca Cola Co. 1,497,875
55,000 PepsiCo, Inc. 1,522,812
3,020,687
Toys/Games/Hobby - 2.14%
44,000 Mattel, Inc. 1,424,500
1,379,300 Total Common Stocks $65,714,744
(cost--$56,698,613)
Total Investments 98.76% $65,714,744
(cost--$56,698,613)
Other Assets in Excess of
Other 1.24% 822,063
Liabilities
Total Net 100.0% $66,536,807
Assets
*Non - income producing security.
See accompanying notes to financial statements.
21
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
SMALL CAPITALIZATION PORTFOLIO
Shares Value
COMMON STOCKS - 97.83%
Banking - 2.37%
25,000 Commercial Federal Corp. $550,000
Building & Construction - 3.31%
54,000 Oakwood Homes Corp. 769,500
Computers - 5.21%
Apple South Inc. 335,800
29,200
136,000 Sequent Computer Systems Inc.* 875,500
1,211,300
Consumer Products - 2.16%
19,500 Shopko Stores Inc.* 500,906
Electronics - 15.08%
43,000 ETEC System Inc.* 1,037,375
36,500 Harman International Industries Inc. 1,279,781
113,000 Vishay Intertechnology Inc.* 1,186,500
3,503,656
Food Services - 5.72%
45,500 Foodmaker Inc.* 628,469
34,000 Richfood Holdings Inc. 699,125
1,327,594
Machinery/Engineering - 5.74%
69,576 Albany International Corp. 1,334,990
Manufacturing - 21.00%
10,000 Champion Enterprises Inc. * 233,750
100,000 Silicon Valley Group Inc.* 962,500
24,000 Steinway Musical Instruments Inc. * 588,000
18,000 Teleflex Inc. 567,000
46,000 Toro Co. 1,012,000
13,000 Varian Associates Inc. 442,813
41,000 West Inc. 1,073,687
4,879,750
Media/Broadcasting - 2.01%
11,000 Media General Inc. 467,500
Metals/Mining - 6.25%
46,000 Marine Drilling Cos Inc.* 414,000
110,000 Oregon Steel Mills Inc. 1,038,125
1,452,125
See accompanying notes to financial statements.
22
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
SMALL CAPITALIZATION PORTFOLIO (cont'd)
Shares COMMON STOCKS (cont'd) Value
Oil/Gas - 11.56%
130,000 EEX Corp.* $576,875
120,000 Oceaneering International Inc.* 1,117,500
80,000 Pride International Inc.* 635,000
31,000 Tritron Energy Ltd.* 356,500
2,685,875
Pipelines - .81%
23,300 Shaw Group Inc.* 187,856
Power/Utility - 1.96%
28,000 Helmerich and Payne Inc. 455,000
Retail - 7.74%
70,000 American Homestar Corp.* 1,076,250
24,000 Outback Steakhouse Inc.* 721,500
1,797,750
Tobacco/Beverage/Food Products - 5.21%
29,000 Canandaigua Wine Inc.* 1,210,750
Transportation - 1.70%
15,000 Coach USA Inc.* 394,688
1,574,576 Total Common Stocks
(cost--$33,392,122) $22,729,240
Repurchase Agreement - 4.88% Principal
Amount
$1,134,000 Repurchase Agreement dated 08/31/98, maturing 09/01/98
with State Street Bank & Trust Company, collateralized by
$800,000 U.S. Treasury Bonds, 9.00% due 11/15/18; proceeds
$1,131,134
(cost--$1,134,000) $1,134,000
Total Investments
102.71% $23,863,240
(cost--$34,526,122)
Other Liabilities in Excess of
Other Assets (2.71)% (628,524)
Total Net Assets 100.00% $23,234,716
* Non-income producing security.
See accompanying notes to financial statements.
23
August
31,1998
SCHEDULES OF INVESTMENTS (continued)
INTERNATIONAL EQUITY PORTFOLIO
Shares Value
- -------------- --------------
COMMON STOCKS - 93.08%
BELGIUM - 3.74%
Finance
39,700 Webs Index Fund Inc. $709,638
DENMARK - 3.53%
Telecommunications
13,000 Tele Danmark A/S Sponsored ADR * 669,500
FINLAND - 3.88%
Conglomerates
11,000 Nokia Corp. Sponsored ADR 734,938
FRANCE - 14.87%
Banking - 3.25%
17,500 Societe Generale France Sponsored ADR 615,903
Chemicals - 3.06%
12,600 Rhone-Poulenc S.A. Sponsored ADR 579,600
Food Services - 2.81%
10,500 Groupe Danone Sponsored ADR* 532,875
Oil/Gas - 2.73%
10,600 Elf Aquitane S.A. Sponsored ADR 518,075
Telecommunications - 3.02%
19,000 Alcatel Alsthom Sponsored ADR* 573,563
--------------
2,820,016
--------------
GERMANY - 9.25%
Automotive - 2.83%
12,800 Sap Aktiengesellschaft Sponsored ADR 536,000
Banking - 2.62%
8,000 Deutsche Bank AG Sponsored ADR 497,643
Machinery/Engineering - 3.80%
8,000 Mannesmann AG Sponsored ADR 721,288
1,754,931
--------------
GREECE - .54%
Telecommunications
3,500 Stet Hellas Telecommunications ADR* 102,375
IRELAND - 3.19%
Drugs & Medical Products
10,300 Elan PLC Sponsored ADR* 605,125
ITALY - 6.31%
Oil/Gas - 2.88%
10,800 ENI spa Sponsored ADR* 546,750
Telecommunications - 3.43%
9,000 Telecom Italia S.P.A. 650,250
1,197,000
--------------
See accompanying notes to financial statements.
24
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
INTERNATIONAL EQUITY PORTFOLIO (cont'd)
Shares COMMON STOCKS (cont'd) Value
- -------------- --------------
MEXICO - .78%
Automotive - .46%
5,700 Desc S A De C V Repstg Ser C SH ADR * $88,350
Banking - .32%
11,800 Empresas Ica Sociedad Control Sponsored 59,738
ADR*
148,088
--------------
NETHERLANDS - 11.97%
Banking - 3.13%
10,877 Ing Groep N V Sponsored ADR 592,796
Chemicals - 2.79%
13,400 Akzo Nobel Sponsored ADR 529,300
Printing/Publishing - 4.48%
20,200 N V Verenigd Bezit VNU Sponsored ADR 850,596
Software - 1.57%
10,500 BAAN Co NVF* 297,937
2,270,629
--------------
PORTUGAL - 2.78%
Telecommunications
12,700 Portugal Telecommunication S A Sponsored 527,844
ADR
SPAIN -5.83%
Banking - 2.78%
42,000 Banco Bilbao Vizcaya S A Sponsored ADR 527,625
Telecommunications - 3.05%
5,300 Telefonica De Espana S A Sponsored ADR* 578,363
1,105,988
--------------
SWEDEN - 4.74%
Drugs & Medical Products - 1.49%
17,500 Astra AB A SH Sponsored ADR 282,187
Telecommunications - 3.25%
16,600 Netcom Systems AB Sponsored ADR* 616,275
898,462
--------------
SWITZERLAND - 6.39%
Drugs & Medical Products - 3.12%
7,600 Novartis AG Sponsored 590,883
ADR
Food Services - 3.27%
6,700 Nestle S A Sponsored 621,201
ADR
1,212,084
See accompanying notes to financial statements.
25
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
INTERNATIONAL EQUITY PORTFOLIO (cont'd)
Shares COMMON STOCKS (cont'd) Value
- -------------- --------------
UNITED KINGDOM - 15.28%
Banking - 1.63%
3,440 Barclays Plc. Sponsored ADR $309,600
Conglomerate - 1.73%
17,500 BAT Industries Plc. Sponsored ADR 328,125
Drugs & Medical Products - 1.82%
6,200 Glaxo Wellcome Plc. Sponsored ADR 344,487
Insurance - 2.27%
6,000 Prudential PLC Sponsored ADR 430,514
Merchandising - 2.10%
11,900 Boots Plc. ADR 397,734
Oil/Gas - 1.50%
9,100 Shell Transport & Trading Co. ADR 283,806
Power/Utility - 1.14%
32,300 General Electric Ltd. ADR 214,992
Telecommunications - 2.09%
3,100 British Telecommunications Plc. ADR 396,606
Tobacco/Beverages/Food Products - 1.00%
14,707 Bass Plc. Sponsored ADR 191,191
2,897,055
--------------
Total Common Stocks
(cost--$17,492,952) $17,653,673
Total Investments
93.08% $17,653,673
(cost--$17,492,952)
Other Assets in Excess of
Other 6.92% 1,313,227
Liabilities
Total Net Assets 100.00% $18,966,900
* Non-income producing security.
See accompanying notes to financial statements.
26
August
31,1998
SCHEDULES OF INVESTMENTS (continued)
INTERNATIONAL EQUITY PORTFOLIO
Shares Value
- -------------- --------------
COMMON STOCKS - 93.08%
BELGIUM - 3.74%
Finance
39,700 Webs Index Fund Inc. $709,638
DENMARK - 3.53%
Telecommunications
13,000 Tele Danmark A/S Sponsored ADR * 669,500
FINLAND - 3.88%
Conglomerates
11,000 Nokia Corp. Sponsored ADR 734,938
FRANCE - 14.87%
Banking - 3.25%
17,500 Societe Generale France Sponsored ADR 615,903
Chemicals - 3.06%
12,600 Rhone-Poulenc S.A. Sponsored ADR 579,600
Food Services - 2.81%
10,500 Groupe Danone Sponsored ADR* 532,875
Oil/Gas - 2.73%
10,600 Elf Aquitane S.A. Sponsored ADR 518,075
Telecommunications - 3.02%
19,000 Alcatel Alsthom Sponsored ADR* 573,563
--------------
2,820,016
--------------
GERMANY - 9.25%
Automotive - 2.83%
12,800 Sap Aktiengesellschaft Sponsored ADR 536,000
Banking - 2.62%
8,000 Deutsche Bank AG Sponsored ADR 497,643
Machinery/Engineering - 3.80%
8,000 Mannesmann AG Sponsored ADR 721,288
1,754,931
--------------
GREECE - .54%
Telecommunications
3,500 Stet Hellas Telecommunications ADR* 102,375
IRELAND - 3.19%
Drugs & Medical Products
10,300 Elan PLC Sponsored ADR* 605,125
ITALY - 6.31%
Oil/Gas - 2.88%
10,800 ENI spa Sponsored ADR* 546,750
Telecommunications - 3.43%
9,000 Telecom Italia S.P.A. 650,250
1,197,000
--------------
See accompanying notes to financial statements.
24
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
INTERNATIONAL EQUITY PORTFOLIO (cont'd)
Shares COMMON STOCKS (cont'd) Value
- -------------- --------------
MEXICO - .78%
Automotive - .46%
5,700 Desc S A De C V Repstg Ser C SH ADR * $88,350
Banking - .32%
11,800 Empresas Ica Sociedad Control Sponsored 59,738
ADR*
148,088
--------------
NETHERLANDS - 11.97%
Banking - 3.13%
10,877 Ing Groep N V Sponsored ADR 592,796
Chemicals - 2.79%
13,400 Akzo Nobel Sponsored ADR 529,300
Printing/Publishing - 4.48%
20,200 N V Verenigd Bezit VNU Sponsored ADR 850,596
Software - 1.57%
10,500 BAAN Co NVF* 297,937
2,270,629
--------------
PORTUGAL - 2.78%
Telecommunications
12,700 Portugal Telecommunication S A Sponsored 527,844
ADR
SPAIN -5.83%
Banking - 2.78%
42,000 Banco Bilbao Vizcaya S A Sponsored ADR 527,625
Telecommunications - 3.05%
5,300 Telefonica De Espana S A Sponsored ADR* 578,363
1,105,988
--------------
SWEDEN - 4.74%
Drugs & Medical Products - 1.49%
17,500 Astra AB A SH Sponsored ADR 282,187
Telecommunications - 3.25%
16,600 Netcom Systems AB Sponsored ADR* 616,275
898,462
--------------
SWITZERLAND - 6.39%
Drugs & Medical Products - 3.12%
7,600 Novartis AG Sponsored 590,883
ADR
Food Services - 3.27%
6,700 Nestle S A Sponsored 621,201
ADR
1,212,084
See accompanying notes to financial statements.
25
August 31,1998
SCHEDULES OF INVESTMENTS (continued)
INTERNATIONAL EQUITY PORTFOLIO (cont'd)
Shares COMMON STOCKS (cont'd) Value
- -------------- --------------
UNITED KINGDOM - 15.28%
Banking - 1.63%
3,440 Barclays Plc. Sponsored ADR $309,600
Conglomerate - 1.73%
17,500 BAT Industries Plc. Sponsored ADR 328,125
Drugs & Medical Products - 1.82%
6,200 Glaxo Wellcome Plc. Sponsored ADR 344,487
Insurance - 2.27%
6,000 Prudential PLC Sponsored ADR 430,514
Merchandising - 2.10%
11,900 Boots Plc. ADR 397,734
Oil/Gas - 1.50%
9,100 Shell Transport & Trading Co. ADR 283,806
Power/Utility - 1.14%
32,300 General Electric Ltd. ADR 214,992
Telecommunications - 2.09%
3,100 British Telecommunications Plc. ADR 396,606
Tobacco/Beverages/Food Products - 1.00%
14,707 Bass Plc. Sponsored ADR 191,191
2,897,055
--------------
Total Common Stocks
(cost--$17,492,952) $17,653,673
Total Investments
93.08% $17,653,673
(cost--$17,492,952)
Other Assets in Excess of
Other 6.92% 1,313,227
Liabilities
Total Net Assets 100.00% $18,966,900
* Non-income producing security.
See accompanying notes to financial statements.
26
August 31,1998
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Large Large U.S.
CapitalizatCapitalizatiSmall InternatioInvestment Municipal Government
Value Growth CapitalizatiEquity Quality Bond Money
Bond Market
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------------
Assets
Investments, at value
(cost--$39,672,114;
$56,698,613; $34,526,122;
$17,492,952;
$34,185,676;
$9,152,882 and
$38,254,779, $42,680,390$65,714,74$23,863,240$17,653,67$34,696,573$9,616,186 $38,254,779
respectively)
Cash 10,779 844,745 606 1,281,909 660,248 97,307 949
Receivable for shares of beneficial
interest sold . 157,290 247,415 59,173 81,136 85,712 23,301 387,472
Deferred organization 12,651 12,747 12,747 12,747 10,290 12,747 12,747
expenses.
Interest receivable -- -- 134 -- 404,564 120,163 9,250
Receivable from manager -- 11 -- -- -- 3,177 --
Dividends receivable 41,395 46,525 5,570 34,494 -- -- --
Foreign taxes -- -- -- 15,398 -- -- --
receivable
Prepaid expenses and 14,450 18,595 14,108 10,100 12,534 11,294 14,351
other assets
--------------------------------------------------------------------------
Total Assets 42,916,955 66,884,78223,955,578 19,089,45735,869,921 9,884,175 38,679,548
--------------------------------------------------------------------------
Liabilities
Payable to manager 16,050 43,351 2,984 7,615 14,704 -- 5,768
Administration fee 6,089 10,244 3,747 2,736 4,540 1,254 4,692
payable
Payable for shares of
beneficial
interest redeemed 170,549 184,057 46,014 47,421 53,775 50,936 88,171
Payable for investments -- -- 578,104 -- -- -- --
purchased
Other payables and 83,530 110,323 90,013 64,785 73,203 38,017 88,544
accrued expenses.
--------------------------------------------------------------------------
Total Liabilities 276,218 347,975 720,862 122,557 146,222 90,207 187,175
--------------------------------------------------------------------------
Net Assets
Shares of beneficial 23,498 37,311 23,661 17,377 34,724 9,138 384,947
interest at par value
Paid-in-surplus. 36,820,879 55,949,01827,901,742 18,941,55835,070,373 9,292,607 38,107,755
Accumulated undistributed net
investment
Income 240,241 1,896 1,896 117,534 1,896 1,896 1,896
Accumulated net realized gain
(loss) on
Investments and 2,547,843 1,532,451 5,970,299 (270,290) 105,809 27,023 (2,225)
foreign currency
transactions.....
Net unrealized appreciation
(depreciation)
on investments 3,008,276 9,016,131 (10,662,882) 160,721 510,897 463,304 --
--------------------------------------------------------------------------
Total Net Assets $42,640,737$66,536,80$23,234,716$18,966,90$35,723,699$9,793,968 $38,492,373
==========================================================================
Shares of beneficial 2,349,717 3,731,031 2,366,030 1,737,557 3,472,275 913,816 38,494,598
interest outstanding.
--------------------------------------------------------------------------
Net asset value and $18.15 $17.83 $9.82 $10.92 $10.29 $10.72 $1.00
offering price per share
==========================================================================
</TABLE>
See accompanying notes to financial statements.
Year Ended August 31, 1998
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
-------------- ------------------------------------- ---------------------------------------
Large Large U.S.
Capitalization CapitalizationSmall International Investment Municipal Government
Value Growth Capitalization Equity Quality Bond Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- ------------------------------------- ---------------------------------------
Investment Income
Dividends $413,434 (1) $469,298 $188,094 $376,210 (1) -- -- --
Interest 347,425 55,447 33,343 -- $1,678,160 $441,133 $1,708,403
-------------- ------------------------------------- ---------------------------------------
Total investment income 760,859 524,745 221,437 376,210 1,678,160 441,133 1,708,403
-------------- ------------------------------------- ---------------------------------------
Operating Expenses
Management fees (note 2a) 248,449 403,645 219,800 110,905 152,374 46,053 146,517
Administration fees (note 2c) 43,563 70,934 38,677 16,802 31,607 9,425 35,159
Transfer and dividend disbursing 87,366 114,032 88,075 51,955 61,798 18,304 83,483
agent fees
Custodian fees (note 2a) 59,112 61,111 51,539 52,791 53,389 57,733 52,288
Registration fees 16,835 22,638 14,145 11,237 14,157 8,001 14,105
Amortization of deferred
organization
expenses (note 1c) 12,749 12,749 12,749 12,749 12,749 12,749 12,749
Auditing fees . 14,779 14,779 14,652 13,479 14,779 14,779 14,779
Reports and notices to 15,840 23,394 15,117 5,485 11,357 3,725 12,722
shareholders .
Legal fees . 14,040 29,654 16,744 9,595 15,676 5,299 17,196
Trustees' fees . 12,694 17,564 11,939 1,960 8,165 1,935 6,781
Miscellaneous . 4,874 7,952 4,609 2,311 4,065 1,764 4,884
-------------- ------------------------------------- ---------------------------------------
Total operating expenses . 530,301 778,452 488,046 289,269 380,116 179,767 400,663
Less: Management fees waived
and/or
expenses assumed (33,711) (7,982) (52,919) (43,500) (21,840) (78,055) (53,369)
(note 2a)
Expense offset
arrangement (note (1,172) (37,560) (773) (38,803) (27,552) (1,124) (281)
2a)
Net operating expenses . 495,418 732,910 434,354 206,966 330,724 100,588 347,013
-------------- ------------------------------------- ---------------------------------------
Net investment income 265,441 (208,165) (212,917) 169,244 1,347,436 340,545 1,361,390
(loss) .
-------------- ------------------------------------- ---------------------------------------
Realized and Unrealized
Gain(Loss) on Investments-Net
Net realized gain (loss) on 2,725,132 1,988,666 6,233,807 (261,415) 171,095 38,175 (2,092)
securities .
Net change in unrealized
appreciation
(depreciation) on investments (4,379,851) (3,046,018)(16,209,040) (725,764) 392,011 281,588 --
-------------- ------------------------------------- ---------------------------------------
Net realized gain (loss) and
change in
unrealized appreciation
(depreciation)
on investments (1,654,719) (1,057,352) (9,975,233) (987,179) 563,106 319,763 (2,092)
-------------- ------------------------------------- ---------------------------------------
Net increase (decrease) in net
assets
resulting from operations ($1,389,278) ($1,265,517($10,188,150) ($817,935) $1,910,542 $660,308 $1,359,298
============== ===================================== =======================================
(1) Net of foreign withholding taxes of $4,355 and $28,602 for Large
Capitalization Value and International Equity, respectively.
</TABLE>
See accompanying notes to
financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Large Capitalization Large Capitalization Small International
Value Growth Capitalization Equity
Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August August 31, August August 31, August August 31, August August 31,
31,1998 1997 31,1998 1997 31,1998 1997 31,1998 1997
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Operations
Net investment income (loss) $265,441 $146,306 ($208,165) ($48,190) ($212,917) ($161,829) $169,244 $30,456
Net realized gain (loss) on 2,725,132 818,090 1,988,666 2,749,355 6,233,807 3,054,526 (261,415) 53,835
investments
Net change in unrealized
appreciation
(depreciation) on (4,379,851) 5,463,243 (3,046,018) 9,619,691 (16,209,040) 1,552,671 (725,764) 933,958
investments
Net increase (decrease) in net
assets
resulting from operations (1,389,278) 6,427,639 (1,265,517) 12,320,856 (10,188,150) 4,445,368 (817,935) 1,018,249
Dividends and Distributions to
Shareholders
Net investment income (644,832) (127,527) -- -- -- -- (45,288) (162,685)
Net realized gain (403,394) (390,714) (2,127,182) -- (1,999,133)(1,384,063) -- (164)
Total dividends and
distributions
to shareholders (1,048,226) (518,241) (2,127,182) -- (1,999,133)(1,384,063) (45,288) (162,849)
Share Transactions of
Beneficial Interest
Net proceeds from shares sold 22,550,001 13,038,032 38,698,508 18,266,314 27,403,860 8,766,703 12,655,895 4,769,883
Reinvestment of dividends and 1,033,971 512,658 2,098,815 -- 1,991,614 1,374,155 44,303 159,504
distributions
Cost of shares redeemed (8,181,548) (8,058,730) (18,066,310)(17,350,873)(22,754,879(6,492,135) (3,258,982) (2,252,818)
Net increase in net assets
from share
transactions of beneficial 15,402,424 5,491,960 22,731,013 915,441 6,640,595 3,648,723 9,441,216 2,676,569
interest
Total increase (decrease) 12,964,920 11,401,358 19,338,314 13,236,297 (5,546,688) 6,710,028 8,577,993 3,531,969
in net assets
Net Assets
Beginning of period 29,675,817 18,274,459 47,198,493 33,962,196 28,781,404 22,071,376 10,388,907 6,856,938
End of period (including
undistributed
(overdistributed) net
investment income of
$240,241, $100,766; $1,896,
$1,896; $1,896,
$1,896; $117,534, ($6,422);
$1,896, $1,533;
$1,896, $1,073; $1,896 and $0,
respectively) $42,640,737 $29,675,817 $66,536,807 $47,198,493 $23,234,716$28,781,404 $18,966,900 $10,388,907
Shares of Beneficial Interest
Issued and Redeemed
Issued 1,117,754 797,161 1,870,662 1,172,529 1,776,392 671,535 1,018,919 456,093
Issued from reinvestment of
dividends
and distributions 53,897 32,655 110,927 -- 132,814 107,862 4,108 15,919
Redeemed (420,168) (496,095) (892,288) (1,112,030) (1,455,961) (492,311) (252,535) (219,913)
Net increase 751,483 333,721 1,089,301 60,499 453,245 287,086 770,492 252,099
Investment Quality Bond Municipal U.S. Government Money
Bond Market
Portfolio Portfolio Portfolio
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August August 31, August August 31, August August 31,
31,1998 1997 31,1998 1997 31,1998 1997
Operations
(depreciation) on $1,347,436 $1,025,416 $340,545 $261,692 $1,361,390 $1,128,847
investments
Net increase (decrease) in net 171,095 (24,955) 38,175 24,803 (2,092) (101)
assets
resulting from operations
392,011 385,534 281,588 179,068 -- --
Dividends and Distributions to
Shareholders 1,910,542 1,385,995 660,308 465,563 1,359,298 1,128,746
Net investment income
Net realized gain
Total dividends and
distributions
to shareholders (1,347,402) (1,046,193) (352,177) (260,619) (1,361,390)(1,128,847)
(33,855) -- (10,602) (1,073) -- --
Share Transactions of
Beneficial Interest (1,381,257) (1,046,193) (362,779) (261,692) (1,361,390)(1,128,847)
Net proceeds from shares sold
Reinvestment of dividends and distributions
Cost of shares redeemed
Net increase in net assets 19,032,965 11,370,735 4,305,933 3,823,165 45,684,586 29,208,442
from share
transactions of beneficial 1,403,653 1,022,378 359,150 259,144 1,324,090 1,098,942
interest
(7,749,618) (7,089,550) (2,391,818) (1,770,754) (37,085,981(24,641,813)
Total increase (decrease) in net assets
12,687,000 5,303,563 2,273,265 2,311,555 9,922,695 5,665,571
Net Assets
Beginning of period 13,216,285 5,643,365 2,570,794 2,515,426 9,920,603 5,665,470
End of period (including
undistributed
(overdistributed) net
investment income of
$240,241, $100,766; $1,896, 22,507,414 16,864,049 7,223,174 4,707,748 28,571,770 22,906,300
$1,896; $1,896,
$1,896; $117,534, ($6,422);
$1,896, $1,533;
$1,896, $1,073; $1,896 and $0,
respectively)
Shares of Beneficial Interest
Issued and Redeemed $35,723,699 $22,507,414 $9,793,968 $7,223,174 $38,492,373$28,571,770
Issued
Issued from reinvestment of
dividends
and distributions
Redeemed 1,863,681 1,132,061 407,955 376,537 45,684,586 29,208,442
Net increase
137,462 101,660 34,043 25,376 1,324,090 1,098,942
(759,027) (705,446) (227,322) (173,590) (37,085,981(24,641,813)
See accompanying notes to 1,242,116 528,275 214,676 228,323 9,922,695 5,665,571
financial statements.
</TABLE>
August 31,1998
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 Friend Ivory & Sime plc: International Equity.
Unified Fund Services, 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 recorded 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 recorded on accrual basis. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(e) Dividends and
Distributions
The following table summarizes each Portfolio's dividend and capital gain
declaration policy:
Income
Dividends Capital
Gains
-------------------------
Large annually annually
Capitalization Value
Large annually annually
Capitalization Growth
Small annually annually
Capitalization
International annually annually
Equity
Investment daily * annually
Quality Bond
Municipal Bond daily * annually
U.S. Government daily * annually
Money Market
* paid
monthly
Each Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized gains are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either permanent or
temporary in nature. To the extent these 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 are reported as
distributions of paid-in-surplus or tax return of capital.
41
August 31,1998
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.
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 securities transaction if an illiquid market exists or the
counter parties develop the inability to meet the terms of their contracts. No
options were outstanding as of August 31,1998.
(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. Actual results could differ from those estimates.
(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. Actual results could differ from those estimates.
2. MANAGEMENT FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(a) The management fees are payable monthly by the Portfolio to the Manager and
are computed daily at the following annual rates of each Portfolio's average
daily net assets: .65% for Large Capitalization Value, Large Capitalization
Growth and Small Capitalization; .75% for International Equity; .55% for
Investment Quality Bond and Municipal Bond and .475% for U.S. Government Money
Market.
For the year ended August 31,1998, the Manager voluntarily waived all of
its management fees and assumed $32,002 in other operating expenses for
Municipal Bond . The Manager also voluntary waived $33,711; $7,982; $52,919;
$43,500; $21,840 and $53,369 in management fees for Large Capitalization Value,
Large Capitalization Growth, Small Capitalization, International Equity,
Investment Quality Bond and U.S. Government Money Market, respectively, for the
year ended August 31,1998.
The Portfolios also benefit from an expense offset arrangement with their
custodian bank where uninvested cash balances earn credits that reduce monthly
fees.
(b) The Manager, not the Portfolios, pays a portion of its management
fees to the Advisers at the following annual rates of each Portfolios' average
daily net assets: .30% for Large Capitalization Value, Large Capitalization
Growth and Small Capitalization; .40% for International Equity; .20% for
Investment Quality Bond and Municipal Bond and .125% for U.S. Government Money
Market.
(c) The administration fee is accrued daily and payable monthly to the
Administrator. The administration fee for the year ended August 31,1998 was
accrued at an annual rate of the lesser of .12% of each Portfolio's average
daily net assets or $234,000 (exclusive
of out of pocket administration fees) for the
Trust.
3. PURCHASES AND SALES OF SECURITIES
For the year ended August 31,1998 purchases and sales of investment
securities, other than short-term securities were as follows:
Purchases Sales
-------------------------
Large $25,903,978 $17,025,220
Capitalization Value
Large 46,614,877 26,527,334
Capitalization Growth
Small 35,894,826 31,070,795
Capitalization
International 17,135,696 8,004,797
Equity
Investment
Quality Bond 24,445,171 11,783,090
Municipal Bond 3,677,238 1,472,575
4. UNREALIZED APPRECIATION (DEPRECIATION) FOR FEDERAL INCOME TAX PURPOSES
At August 31,1998, the composition of unrealized appreciation
(depreciation) of investment securities were as follows:
Appreciation(Depreciation) Net
-------------------------------------
Large $5,563,618 ($2,555,342) $3,008,276
Capitalization Value
Large 13,653,357 (4,637,226) 9,016,131
Capitalization Growth
Small 789,150 (11,452,032) (10,662,882)
Capitalization
International 1,813,280 (1,652,559) 160,721
Equity
Investment
Quality Bond 565,428 (54,531) 510,897
Municipal Bond 463,304 0 463,304
For U.S. federal income tax, the cost of securities owned at August 31,1998 was
substantially the same as the cost of securities for financial statement
purposes.
42
August 31,1998
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. CAPITAL LOSS CARRYFORWARDS
At August 31,1998, 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:
Name of Portfolio Total 2003 2004 2005 2006
----------------- ----- ---- ---- ---- ----
International Equity Portfolio $270,290 -- -- $8,875 $261,415
U.S. Government Money Market $219 -- -- $32 $187
Portfolio
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM DIVIDENDS AND
INVESTMENT DISTRIBUTIONS
OPERATIONS RATIOS
-------------------------------------------------- ----------------------------
-------------------------------------------------- ----------------------------
Distributions
Net to
Realized
and Dividends Shareholders Net Net Ratio of Ratio of
to Net Net
Net UnrealizedTotal Shareholders from Net Asset Assets Operating Investment
Asset
Value, Net Gain(Loss) from from Net Realized Value, End of Expenses Income(Loss)Portfolio
Gains
Beginning Investment on InvestmInvestment on End Total Period to Average to Turnover
of Average
of Income(LoInvestmentOperationIncome Investments PerioReturn*(000's)Net Net Assets Rate
Period Assets
International Equity
Portfolio
Year Ended August 31,
1998 $10.74 $0.13 $0.09 $0.22 ($0.04) -- $10.922.08% $18,967 1.40% (1) 1.14% (1) 58%
Year Ended August 31,
1997 9.59 0.23 1.12 1.35 (0.20) -- 10.7414.39% 10,389 1.64% (1) 0.32% (1) 58%
Year Ended August 31,
1996 9.33 0.00 0.34 0.34 (0.03) (0.05) 9.59 3.68% 6,857 1.65% (1) 0.23% (1) 58%
September 2,
1994 (2)
to August 10.00 (3) 0.05 (0.71) (0.66) (0.01) -- 9.33 2,907 0.38% (1,4) 1.03% (1,4)36%
31, 1995 (6.61%)
(1) During the fiscal year ended August 31,1998 and 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 of net
investment income (loss) to average daily net assets would have been 1.96% and
0.59%, respectively, for the year ended August 31,1998, 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 (7.53%),
annualized, respectively, for the period September 2, 1994 (commencement of
operations) to August 31, 1995.
Investment Quality Bond
Portfolio
Year Ended August 31,
1998 $10.09 $0.50 $0.21 $0.71 ($0.50) ($0.01) $10.297.21% $35,724 1.19% (1) 4.86% (1) 44%
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) 5.03% (1) 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) 4.84% (1) 55%
September 2,
1994 (2)
to August 10.00 (3) 0.60 0.08 0.68 (0.60) -- 10.08 7.12% 4,503 0.45% (1,4) 5.77% (1,4)18%
31, 1995
(1) During the fiscal year ended August 31,1998 and 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 of net
investment income (loss) to average daily net assets would have been 1.37% and
4.69%, respectively, for the year ended August 31,1998, 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
Year Ended August 31,
1998 $10.33 $0.43 $0.42 $0.85 ($0.44) ($0.02) $10.728.42% $9,794 1.20% (1) 4.07% (1) 18%
Year Ended August 31,
1997 10.00 0.43 0.33 0.76 (0.43) -- 10.33 7.67% 7,223 1.21% (1) 4.19% (1) 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) 4.03% (1) 12%
September 2,
1994 (2)
to August 10.00 (3) 0.51 (0.07) 0.44 (0.51) -- 9.93 4.65% 1,477 0.37% (1,4) 4.79% (1,4)27%
31, 1995
(1) During the fiscal year ended August 31,1998 and the fiscal year ended August
31,1997, Saratoga Capital Management waived all 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 of net investment income
(loss) to average daily net assets would have been 2.15% and 3.12%,
respectively, for the year ended August 31,1998, 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.
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each
period)
INCOME FROM DIVIDENDS AND
INVESTMENT DISTRIBUTIONS
OPERATIONS RATIOS
-------------------------------------------------- ----------------------------
-------------------------------------------------- ----------------------------
Distributions
Net to
Realized
and Dividends Shareholders Net Net Ratio of Ratio of
to Net Net
Net UnrealizedTotal Shareholders from Net Asset Assets Operating Investment
Asset
Value, Net Gain(Loss) from from Net Realized Value, End of Expenses Income(Loss)Portfolio
Gains
Beginning Investment on InvestmInvestment on End Total Period to Average to Turnover
of Average
of Income(LoInvestmentOperationIncome Investments PerioReturn*(000's)Net Net Assets Rate
Period Assets
Large Capitalization
Value Portfolio
Year Ended August 31,
1998 $18.57 $0.14 $0.07 $0.21 ($0.39) ($0.24) $18.150.96% $42,641 1.30% (1) 0.69% (1) 54%
Year Ended August 31,
1997 14.45 0.09 4.37 4.46 (0.08) (0.26) 18.5731.37% 29,676 1.31% (1) 0.60% (1) 25%
Year Ended August 31,
1996 12.30 0.07 2.33 2.40 (0.11) (0.14) 14.4519.73% 18,274 1.28% (1) 0.97% (1) 26%
September 2,
1994 (2)
to August 10.00 (3) 0.15 2.20 2.35 (0.05) -- 12.3023.60% 5,515 0.40% (1,4) 2.29% (1,4)33%
31, 1995
(1) During the fiscal year ended August 31,1998 and 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 of net
investment income (loss) to average daily net assets would have been 1.39% and
0.60%, respectively, for the year ended August 31,1998, 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
Year Ended August 31,
1998 $17.87 ($0.07) $0.81 $0.74 -- ($0.78) $17.833.91% $66,537 1.18% (1) (0.34%) (1) 45%
Year Ended August 31,
1997 13.16 (0.02) 4.73 4.71 -- -- 17.8735.79% 47,197 1.36% (1) (0.12%) (1) 53%
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) (0.13%) (1) 50%
September 2,
1994 (2)
to August 10.00 (3) 0.02 2.85 2.87 (0.01) -- 12.8628.77% 11,107 0.51% (1,4) 0.32% (1,4)23%
31, 1995
(1) During the fiscal year ended August 31,1998 and 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 of net
investment income (loss) to average daily net assets would have been 1.25% and
(0.41%), respectively, for the year ended August 31,1998, 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
Year Ended August 31,
1998 $15.05 ($0.10) ($4.20) ($4.30) -- ($0.93) $9.82(30.64%$23,235 1.28% (1) (0.63%) (1) 96%
Year Ended August 31,
1997 13.58 (0.07) 2.37 2.30 -- (0.83) 15.0518.07% 28,781 1.30% (1) (0.70%) (1) 162%
Year Ended August 31,
1996 12.62 (0.09) 1.44 1.35 ($0.00) (0.39) 13.5811.03% 22,071 1.25% (1) (0.83%) (1) 95%
September 2,
1994 (2)
to August 10.00 (3) 0.02 2.61 2.63 (0.01) -- 12.6226.38% 15,103 0.42% (1,4) 0.07% (1,4111%
31, 1995
(1) During the fiscal year ended August 31,1998 and 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 of net
investment income (loss) to average daily net assets would have been 1.44% and
0.98%, respectively, for the year ended August 31,1998, 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.
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each
period)
INCOME FROM DIVIDENDS AND
INVESTMENT DISTRIBUTIONS
OPERATIONS RATIOS
-------------------------------------------------- ----------------------------
-------------------------------------------------- ----------------------------
Distributions
Net to
Realized
and Dividends Shareholders Net Net Ratio of Ratio of
to Net Net
Net UnrealizedTotal Shareholders from Net Asset Assets Operating Investment
Asset
Value, Net Gain(Loss) from from Net Realized Value, End of Expenses Income(Loss)Portfolio
Gains
Beginning Investment on InvestmInvestment on End Total Period to Average to Turnover
of Average
of Income(LoInvestmentOperationIncome Investments PerioReturn*(000's)Net Net Assets Rate
Period Assets
U.S. Government Money Market
Portfolio
Year Ended August 31,
1998 $1.000 $0.045 $0.000 0.045 ($0.045) -- $1.0004.59% $38,492 1.12% (1) 4.41% (1) --
Year Ended August 31,
1997 1.000 0.043 0.000 0.043 (0.043) -- 1.000 4.41% 28,572 1.12% (1) 4.31% (1) --
Year Ended August 31,
1996 1.000 0.044 0.000 0.044 (0.044) -- 1.000 4.47% 22,906 1.13% (1) 4.30% (1) --
September 2,
1994 (2)
to August 1.000 (3) 0.052 0.000 0.052 (0.052) -- 1.000 5.36% 5,072 0.40% (1,4) 5.38% (1,4)--
31, 1995
</TABLE>
(1) During the fiscal year ended August 31,1998 and 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 of
net investment income (loss) to average daily net assets would have been
1.30% and 4.24%, respectively, for the year ended August 31,1998, 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.
(2) Commencement of
operations.
(3) Initial
offering price.
(4) Annualized.
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
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 (the "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, 1998,
and the related statements of operations, the statements of changes in net
assets and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statements of
changes in net assets for the year ended August 31, 1997, and the financial
highlights for the period September 2, 1994, (commencement of operations) to
August 31, 1997, were audited by other auditors whose report dated October 28,
1997, expressed an unqualified opinion on the statements of changes in net
assets and financial highlights.
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, 1998, 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, 1998, the results of their operations, the
changes in net assets and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
October 9, 1998
TAX INFORMATION
Federal and certain state and local tax rules require the Trust to advise its
shareholders within 60 days of the Trust's fiscal year end (August 31,1998) as
to the tax status of the following dividends and distributions received by
shareholders during such fiscal year:
<TABLE>
<S> <C> <C> <C> <C>
Percentage of Mid-Term Long-Term
Dividends Capital Capital
Qualifying
for the Corporate Gain Gain Percentage of
Dividends Received Dividend Dividend Exempt-Interest
Deduction 28% 20% Dividends
-------------------- -------------------- ------------------- ------------------
U.S. Government Money Market -- -- -- --
Portfolio
Investment Quality Bond Portfolio -- $30,677 -- --
Municipal Bond Portfolio -- $9,354 $1,248 100.00%
Large Capitalization Value 56.05% $198,246 $205,148 --
Portfolio
Large Capitalization Growth -- $1,018,944 $1,108,238 --
Portfolio
Small Capitalization 5.38% $1,237,374 $50,966 --
Portfolio
International Equity -- -- -- --
Portfolio
</TABLE>
